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How to win competition when users have zero switching costs and code is forkable. On building moats in web3 🧵
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1 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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2 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.
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3 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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4 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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5 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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6 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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7 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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8 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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9 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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10 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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11 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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