The Internet, a game of data ownership, vendor lock-in, and ads-driven monetization, operates around monopolies. This landscape, dominated by venture capitalists and entrepreneurs, has been shaped by the complex and costly nature of building on the Internet. New platforms are needed to foster new business models and reduce development costs. AI and Crypto are examples of such platforms.
The Downstream Effects of Complexity
The intricate nature of development on the Internet leads to a chain reaction:
a. development complexity (in building products, scaling them and sales) necessitates substantial resources,
b. attracting venture capitalists who seek significant returns,
c. ultimately incentivizing monopolies to generate high returns on investments,
e. which leads to monetization around vendor lock-in and data resale practice (directly or via ads).
The SaaS Hierarchy of Needs and Profits
SaaS companies, unable to monetize at the protocol level or infra levels, will continue to face the challenge of scaling to make unit economics viable. The cost of paying multiple layers of the stack necessitates substantial multiplier from the $ amount of capital raised to $ at exit (e.g., oversimplifying dramatically, if investors are looking for 10x returns, the more capital you raise, the higher the exit needs to be to make everyone happy).
Even traditional established entrepreneurs like DHH (https://twitter.com/dhh, the creator or Ruby on Rails) advocates for existing the cloud to save costs and highlights friction building and deploying applications around stacks controlled by monopolies.
We need platforms that:
* Reduce operational and scaling costs, making development cheaper and more flexible.
* Elimination of data and algorithm capture.
* Lower capital overheads, with transaction fees being distributed between protocol and application revenue with as few rent seekers in the middle as possible.
Web3: A New Paradigm
Web3 offers a new development pipeline with distinct features that, if implemented correctly, could lead to better business and product building models. It offers:
* A shared distributed database accessible to all.
* An open execution environment interacting with this database.
* Open composability standards, allowing extension and enhancement of existing work at data or compute layers.
Availability of such an environment dramatically slashes development costs and merges data and execution, making building easier and more efficient. Building a smart contract that powers, for example, application logic for running a custom online auction of your new pair of custom shoes is easier than ever and will take less than an hour of development. In addition, you’ll get to host your application on a platform with 99.999% availability, data archive, an immediate global API for all integrators, and distribution to all countries contributing to global economies. Deploying on a blockchain, like Ethereum or Solana, offers all of those properties combined at the protocol layer and takes less than an hour.
Building at the protocol layer is critical. In fact, you could build a similar product using a Web2 platform stack, requiring a complex assembly of middleware, databases, and authentication services, often resulting in significant costs and dependencies on platforms like AWS. You can alternatively try to find a “middleware” front end that packages all of these and pay them a premium on top. But if you could deploy at the protocol layer, you’d eliminate a lot of rent-seekers; your users would pay directly for the execution in the form of gas fees, and you collect the remainder in application profits.
The implications of Web3 are profound.
* A global stack combining storage, compute, and application logic simplifies development.
* A censorship-resistant environment is established.
* Composable business models emerge, breaking free from traditional limitations.
* Traditional anti-competitive laws become less applicable as data and code is available for everyone to build upon.
* New business models arise where everyone can participate in development from early stages.
* Application developers bypass middlemen, directly connecting hardware to users in a capital efficient manner.
AI can similarly be leveraged as a cost reduction engine, but it, in fact, amplifies the problems around bad incentives where data and code (model) ownership gives competitive advantages (which in turn leads to all the usual vendor-lock in practices and monopoly structures to maximize the returns).
The risk in Web3 platforms today, however, is whether or not it can scale without adding costs and complexity. As the ecosystem grows horizontally, with multiple layers in the stack (consensus, data availability, execution, re-staking, etc.) the fragmentation and costs go up. If we can keep the layers to minimal, keep the costs low, and keep innovating around UX, the potential will be transformational on software development practices.
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