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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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12 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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13 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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14 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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15 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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16 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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17 to win in web3: • design for composability to maximize surface area for builders • build community, culture and engagement — the ultimate non-fungible factor
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Thread inspired by @n farcaster://casts/0x6bcbaa1f1f38391e9f0b6f7348a4b25c1f43a2b7523e1aa7c624118701e844e2/0x6bcbaa1f1f38391e9f0b6f7348a4b25c1f43a2b7523e1aa7c624118701e844e2
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