TCP/IP, HTTP, or SMTP are all names that refer to the basic Internet protocols or, in some probably diffused cases, are considered fancy acronyms for exotic football clubs or new e-messaging slangs. If you’re reading this post, it’s thanks to the HTTP protocol which enabled a direct communication from your web browser to the Medium Web server, relying on a connection and rules established by the TCP/IP protocol.
In 2014, more than 20 years after the world wide web was released to the public in 1991, Pew Research Center conducted a survey assessing Americans’ general knowledge about the Internet. Results showed how the youngest cluster (18–29) responded correctly on average to about 60% of the questions, while the age group 30–65 responded correctly to as little as 45% of the questions.
Yet, even with 4 billion people still lacking Internet access worldwide (World Economic Forum, 2016), Facebook has 2.2 billion monthly active users (MAU) and almost everyone knows how to search for a recipe on Google.
Why am I saying this? Internet usage (and therefore the economics behind web applications) share no links to Internet-functioning awareness. This same concept could not be more true today when discussing new innovations.
Nowadays, we’re blessed enough to be witnessing a new foundational technology wave: the 4th industrial revolution enhanced by the blockchain era. The biggest mistake I’m seeing from supposedly disruptive blockchain companies is forgetting about their target: the average user!
Whether it’s Facebook allowing users to easily connect with new people and stay in touch with friends, or YouTube being an easy window to an infinite variety of video searches and watches, the key for success is one: simplicity in solving a pain point or providing a considerable satisfaction in relation to the time invested in a given platform.
Most blockchain companies today tend to add the term “crypto” to anything relating to them (picture founders claiming they were born out of a “crypto childbirth” and inviting you to “crypto drinks and crypto dinners” in order to sell you their tokens) and spend an unjustifiable amount of time explaining how cool their blockchain is and how hot their tokens are. Despite being a true believer in blockchain’s potential, I also firmly believe that the market rules didn’t and won’t change: users will switch to a new platform if they find enough incentives in the forms of higher speed of service deployment, less costs for the same quality, or higher quality for the same costs. Notice that this list does not include incentives found on “usage of new buzzword-of-the-moment that I understand nothing about”.
Coming back to the economics linked to applications usage, it is likely we’re going to see a reverse trend to where value is captured in blockchain technology today. PlaceHolder VC Partner, Joel Monegro wrote in 2016 an insightful article on the ‘Fat Protocols’ highlighting how in the Internet world, “thin” protocols such as TCP/IP did not capture any value — monetization was at the “fat” application level, captured in the form of stocks (equities) by companies such as the previously cited Facebook and Google, the e-giants Amazon, Alibaba, and more recently Uber and Airbnb with the rise of the sharing economy. On the other hand, in the crypto space (at least to date), not much value has been captured at the applications (DAPPs or decentralized apps) level, while most value has been created at the protocol level and captured in the form of tokens.
In other words, the value creation for blockchain companies so far has occurred in protocols and tokens, less in equities and dapps (see image below).
Value captured within the Web and blockchain stacks
Because of the risk of commoditization that lays at the protocol level (network effects alone might not be a strong enough deterrent for insurgents) and their scarce ability monopolize vectors, we might be expecting a turnaround in the value creation funnel, at the advantage of the exploding decentralized apps that will prove to acquire mass usage. Linearly in time it may be forecasted that security tokens, as opposed to utility tokens, will be the main means capturing the value created by successful dapps.
When the different verticals are adopted, then the value of transactions in the application protocol economy will outperform that of the protocol usage fees. For this exact reason focusing on the product (UI, UX, key functionality responding to real life problems), and showcasing a bright ‘customer first’ mentality and strategy will be crucial to boost blockchain technology adoption as a whole — and companies’ successes as a consequence.
End users could care less about dapps underlying technology. Nicely designed or funny token icons (i.e Dogecoin, Ripple, etc.) don’t have ever-lasting effects on token sales/trading, cute games become boring after a while (CryptoKitties transactions volume dropped 98.4% as of June 2018).
Users want one thing and one thing only: value for money! And that means solving their problems, not bothering them with irrelevant explanations of underlying mechanisms that make it possible.