How to win competition when users have zero switching costs and code is forkable.

On building moats in web3

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entropy fightoor gillesdc.com ~ /gillesdc

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Competition is the art of acquiring, managing and leveraging scarce resources to create advantage.

Competition follows scarcity. And when new technology shifts what is scarce, the competition game changes.

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These defensibility principles carry over in web2:
• Google search algorithm is a trade secret
• Craigslist blasting cease-desists when Airbnb piggybacked their user base.

But the new oil (scarce resource) is data.

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web2's default business model is advertising: attract+engage users with free stuff, then sell the eyeballs for $$.

better+more data → more addictive algorithmic content loops → more ads to sell

(alternatively, you pay longer/more for ad-free subscriptions)

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the winners extract maximally reap sowed attention as data (tweet, comment, follow, preferences) so to fuel the flywheel

better feeds, but also higher switching costs - you build a social graph you can't take anywhere else

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so you stay and keep committing data, locking yourself deeper in, training the algorithm

thereby attracting new users and getting others to stay: network effects

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web2 firms acquire user data through behavioral design (so you get hooked and keep committing) and acquisitions (Google→Waze, FB→IG)

they manage through big data processing

and leverage through AI and machine learning for value creation

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web3 flips web2 scarcity on its head

1. portable social graphs — no more lock-in: users own their tweets and followers in wallets and can take it to whatever dapp they want

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2. open ecosystems — where Twitter controls who builds what on its code, web3 code is accessible to all:
• anyone can permissionslessly build on it (composability)
• and even completely replicate it (forkability)

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composability gears towards unbundling

web2 infrastructure is vertically integrated, e.g. eBay bundles onboarding, analytics, buyer support, search, exchange etc.

these unbundle in web3: decentralised agents (e.g. search) competing with each other around a shared protocol

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instead of a proprietary centralised platform bundling all solutions, you get a decentralised ecosystem of interoperable plug-play solutions coordinated around a protocol

e.g. farapps.farcase.xyz lists dapps built on Farcaster

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forkability is the other side of the coin

forkability gears towards high competition: the more successful a web3 project, the greater the incentive for forking it

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the million dollar question:

how to build competitive advantage if users have no switching costs and anyone can fork your code?

what is scarce is the era of open ecosystems?

developer engagement

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development engagement is the core driver of value web3 infrastructure layer

it is scarce because if a dev works on one ecosystem, they can't be working on another, i.e. they opt out of working for a competitor

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competitive advantage in web3 is built through enabling composability and incentivizing integrations across the ecosystem

more value built through complements to the protocol → greater the value of using protocol → more difficult for a fork to replicate value prop

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thriving developer ecosystems build moats:
• token goes up → project attractiveness goes up → more devs join (flywheel)
• defensibility: more difficult to unseat associated protocol

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to win in web3:
• design for composability to maximize surface area for builders
• build community, culture and engagement — the ultimate non-fungible factor

Thread inspired by @n 

farcaster://casts/0x6bcbaa1f1f38391e9f0b6f7348a4b25c1f43a2b7523e1aa7c624118701e844e2/0x6bcbaa1f1f38391e9f0b6f7348a4b25c1f43a2b7523e1aa7c624118701e844e2

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Industrial firms compete on scarce resources
• oilfields, mines
• intellectual property (Coke's formula)

You win by getting resources, then building structural and legal moats around them.