This is Whistle’s 16th article, discussing the Web3 Social track and the limitations of monetization.
Author | Beichen
The Web3 industry has emerged from the bear market in the past year. Although it is far from a real bull market, there are more and more voices about the coming of Social Summer. In particular, the recent arrest of Telegram founder Pavel Durov at a French airport on charges of fraud, money laundering, terrorism and other crimes has further attracted attention to social products.
This is not difficult to understand. The crypto-native technology route seems to have come to an end (after all, the necessary infrastructure is in place), but there is still no sign of mass adoption. In theory, the social track is the easiest to attract a large number of users, and it is also possible to settle into an ecosystem. Therefore, it carries the anxiety of the stagnant Web3 industry. Whenever social applications such as friend.tech and Farcaster perform slightly better, they will attract the attention of the entire industry.
Although I am also optimistic about the social track, I have to make a harsh voice - the entire Web3 industry is full of assumptions as a layman about the social track, and the depth of misunderstanding is actually no less than that of collectibles, RWA and DePIN.
We must first understand Social well enough before we can talk about how to combine it with Web3 to form Web3 Social (or DeSo).
1. Social and Community
Whether it is Web3 Social, DeSo, or SocialFi, the concept is to provide services to real users in the end, so we must distinguish whether these services are for social or community. Most of the time, people seem to confuse the two, especially in the Chinese context, where they have almost become synonyms, but in fact, social and community are two things at different levels.
1.1. Social: Start with Communication
Social products in a broad sense start with social interaction, and social interaction starts with communication.
Social interaction is a micro-level communication behavior, which may occur between two people or a group composed of many individuals. The way to achieve social behavior is communication, so social products must start with communication software.
Email is the earliest communication tool, first implemented by MIT in 1965. In 1973, the University of Illinois developed the first online chat system, Talkomatic, based on the PLATO system. The other party could even see in real time what letters you were typing. Since then, various communication software has been continuously iterated. Today, we use online chat applications such as WhatsApp, WeChat, Telegram, and various mailboxes for daily communication. The most core communication functions were already available at that time.
So why do users keep changing communication apps? In fact, behind every popular communication app, there is a reason that drives users to use it. In summary, there are only three reasons: either it is free, it can find the right people, or it is censorship-resistant.
Tencent is a successful case driven by free services. In 1999, when the three major operators had not yet launched SMS services, OICQ (later known as QQ) bypassed the telephone network and could send messages directly for free. However, sending and receiving messages on a computer was more troublesome, which gave the three major operators, who only launched SMS services in 2000, an opportunity to charge 0.1 yuan per SMS, which in turn laid the groundwork for the rise of WeChat in the era of popularization of smartphones.
But why did the opportunity fall to WeChat instead of the more mature QQ? First, in the early days of mobile Internet, mobile QQ was just a transplant of old PC products to mobile terminals, and the product experience was not as good as WeChat, which was originally designed for mobile terminals. More importantly, WeChat was the first to launch voice messaging, voice calls, video calls and other functions, completely replacing the SMS and call services of mobile phones.
If we follow the logic of free, the next free-driven communication software should be free satellite calls and satellite Internet access.
The successful cases driven by finding the right people are various dating apps, such as Momo for strangers to make friends, Blued for sexual minorities, Qingtengzhilian for high-educated people to go blindly... The successful cases driven by anti-censorship are Telegram, Signal, etc.
Clubhouse combines the features of finding the right people and resisting censorship, which is why this voice chat software, which is actually a very common function, was hard to find when it first appeared, because there are many powerful people here and you can talk about very exciting topics.
In short, social interaction is the most basic social behavior, and the most basic function to realize social interaction is communication. Even for the most complex social products, the core function is communication, and then new services are continuously integrated to evolve into community products.
1.2. Community: Social Media and Social Networks
A complex organism formed by social behaviors among many people and groups can be considered a community.
Note that a community is not a simple collection (many people think of a community as "creating a group and chatting every day"...), but all members support each other out of common demands (such as interests, visions, etc.), which means that members have to pay a certain amount of information, resources, etc. When the resources demanded by members within the community are higher than the resources produced, the community will decline. Just like cancer cells, they will only continue to replicate and consume the body's energy until the donor dies.
Therefore, it is much more difficult to build a community product than a social product. This is almost a religious issue. Grasping a pain point in communication (such as free voice chat in the past) can make a product popular for a while, but the subsequent performance of most social products has proved that retaining users is much more difficult than attracting users.
Based on the different ways that community products retain users, we can divide them into two categories: content-centric and relationship-centric products, namely social media and social networking services (SNS). These two terms can easily confuse the concepts of social and community.
The origin of content-based social media can be traced back to Notes, which was also born in the PLATO system in 1973 (the first online chat system Talkomatic was also born here in the same year). Notes already had the prototype of BBS, and various community products such as forums, post bars, blogs, etc. were developed from it. They are all centered on interests, so they will continue to accumulate user-generated content (UGC), and finally evolved into Twitter, Weibo, Instagram, Xiaohongshu, etc. that we are familiar with today in the wave of mobile Internet.
Social networking services centered on relationships are actually the "communication products driven by finding the right people" mentioned above. However, only when the product is truly regarded as a contact list can it be considered a true social network. For example, WeChat is for offline social networking with acquaintances, Momo is for making friends with strangers, and LinkedIn is for making friends in the workplace...
1.3. From single function to comprehensive platform
However, even if we have sorted it out here and strictly distinguished between social and community, the definition of social products may still be confusing. That is because today's social products often no longer have only a single function, but integrate functions of different levels and dimensions.
This is the root cause of all confusion about social products - only focusing on the most superficial functions of the product and playing puzzles, but failing to restore the product's true driving force and evolution.
Let’s take WeChat as an example. First, it quickly transferred users’ real interpersonal networks through free text and voice messaging functions, and precipitated a huge social network of acquaintances. Then, it opened up the stranger social market with functions such as “People Nearby” and “Shake”, and quickly exceeded the 100 million user mark.
Later, it supported voice calls and video calls to strengthen its advantages in communications, and successively launched functions such as "Friends Circle", "Official Accounts" and "Video Accounts", and developed into social media based on social networks. The addition of payment function caught Alipay off guard.
This approach can also be used to analyze X, Facebook, Telegram, and even TikTok, but today, almost all analysis reports on Web3 Social are like a user who has only used WeChat for the past two years analyzing WeChat—it is natural to mix various functions together for analysis, and it is naturally difficult to grasp the key points of the product. Entrepreneurs guided by this idea are nothing more than replicating another WeChat, starting with large and comprehensive functions, but not thinking about how to acquire and retain the real users behind those functions.
Therefore, this article could also be expanded according to different communication methods, content types, social relationship types and media types, make a beautiful table, and then use Internet jargon to seriously analyze the randomly combined results (such as "an encrypted app that supports voice calls and live broadcasts for communication among Web3 practitioners and can carry out single transactions"), so as to make the industry research appear very professional, but in fact it has no practical guidance value.
2. Web3 Social Panorama
After so much preparation on social, we are finally going to talk about Web3! Web3 Social is much more complicated than the various Internet social products mentioned above, because the entire Internet protocol is fundamentally different from the blockchain protocol.
2.1. Model level: Internet and blockchain
The Internet can be divided into 7 layers according to the OSI model, and developers only need to consider the top application layer. However, blockchain has not yet been finalized, so it is relatively complicated. Here is a layered model for reference only, and then the analysis is based on this model.
In the blockchain world, if the blockchain network is layer 1, then the Internet is layer 0, which plays the role of the underlying communication infrastructure. The blockchain network can also be subdivided into different layers, such as the network layer, data layer, consensus layer, and incentive layer. Although there are different layering schemes, the current mainstream scheme is to let the public chain package them together, so we can directly discuss the public chain.
Above the public chain is the protocol layer, which encapsulates various script codes, algorithms, and smart contracts. It is worth noting that they are not terminal products, but some key components that implement minimum functions. Some are smart contracts executed on the chain, and some are middleware executed off the chain.
Since blockchain is a shared data layer, these smart contracts are open and can be used an unlimited number of times, so later developers can theoretically combine and optimize these smart contracts and middleware to build a new application.
The problem is that at present, both smart contracts and middleware are still very lacking at the protocol layer (the few innovations are concentrated in the DeFi field, and there are no revolutionary products in the social track). Therefore, on this basis, it is unlikely to build a product that meets the Mass Adoption requirements at the application layer.
2.2. Two Logics: Bottom-up and Top-down
Specifically in the Web3 Social track, there have always been two competing product paths - crypto natives prefer to build native encrypted social products from the bottom up, while intruders from Web2 prefer to build mature Web2 products from the top down and then gradually add Web3 modules.
2.2.1. Bottom-up approach
There are two bottom-up solutions. One is the identity management infrastructure built around accounts, and the other is the social graph built around content.
In the Web2 world, the most important account is the mailbox, while in the Web3 world, it is DID (Decentralized Identifier), which users create and manage on the blockchain themselves and can interact privately with other applications.
The most typical representative is ENS, a decentralized domain name system built on Ethereum that can create and manage identities/digital identifiers for individuals, organizations, and even devices (however, the earliest on-chain domain name system was Namecoin, which was forked from the Bitcoin network in 2011).
However, the problem faced by these DID projects is that, apart from being used as wallet domain names, there are no real application scenarios that are in urgent need…
The social graph, which is based on content, allows users to upload their social data to the chain, such as personal information, posts, and followers. The most typical example is Lens Protocol, which tokenizes and NFTs users' social data and behaviors, and developers can build new social applications based on them. However, no truly viable social applications have yet been developed.
In addition, simple tools such as Blink are also worth paying attention to, which can convert on-chain behaviors into links that can be embedded in various websites and social media platforms.
2.2.2. Top-down approach
As for the top-down solution, it is very simple, which is to transform mature social products into chains, but it is also divided into two specific types.
One is to first make a mature Web2 social product, and then gradually add Web3 modules. The oldest and most successful solution of this kind is Bihu, which was later shut down. Although many similar projects have emerged, especially SocialFi, inspired by the X to Earn model in 2022, which launched mechanisms such as posting mining, commenting mining, and chatting mining, they are basically dead now. Because SocialFi's model is naturally not valid, the reasons will be explained in detail later.
Among all the social products that have gradually transitioned from Web2 to Web3, the only one that has performed well is Farcaster, which is very restrained and does not adopt the SocialFi model. Instead, it has carefully cultivated the crypto community, and the Web3 functions exist in the form of plug-ins. It should be noted that the crypto community naturally has a wealth effect, so it naturally gave birth to a group of memecoins represented by Degen (if listing is as simple as issuing coins, Snowball will crush all big companies).
The other way is very hidden and can easily be mistaken for crypto-native products. They often have decentralized databases, combined with modules such as DID and DAO tools, allowing anyone to build their own Web3 applications on them.
The confusing thing is that all the modules seem to be Web3 and appear to be large and comprehensive in terms of functionality. However, if you step out and take a closer look, you will find that they are actually mature Web2 social products that have been re-expressed in a Web3 way from beginning to end (for example, the use of encrypted signatures and distributed systems), so there is no essential difference from Web2 products.
For example, Ceramic and UXLink seem to span the multi-layer blockchain technology stack from the application layer to the infrastructure layer, and cover multiple aspects from the underlying technology to the user interface. It is a very complete Web3 social ecosystem. This is like using reinforced concrete to imitate a wooden attic, which is possible but unnecessary. Obviously, new forms of buildings can be designed based on the characteristics of reinforced concrete.
2.2.3. Limitations of the two product paths
In general, whether it is the identity management infrastructure built around accounts, the social graph built around content, or simply re-expressing mature Web2 social products from beginning to end in a Web3 way, the above ideas are more like preparations for doomsday survival players in the digital world, and are unnecessary for the general public. Therefore, they are often "respected but not understood", and it is difficult to produce a mass product along this path.
Perhaps we should put aside our fundamentalist prejudices and re-examine the vitality of Web2.5 products such as Farcaster. This goes back to the ability to do social networking and community mentioned at the beginning of the article. In fact, the effort lies beyond technology.
3. X to Earn and its applicable scenarios
However, when it comes to Web2.5 products, imagination is almost monopolized by "Web3 version of XXX", such as Web3 version of TikTok - Drakula, Web3 version of Instagram - Jam, etc., and the Web3 part is only reflected in the monetization of the business model, that is, Fi, or the more familiar X to Earn.
3.1. The essence of monetization is the points mall
Monetization seems to be the only magic weapon for Web3 to transform all Internet products. Whether it is the "token faction" and "chain reform" that were popular in 2017, or the "X to Earn" that became popular in 2021, they are essentially using concessions to motivate user retention.
In fact, a mature point-based game has already been developed in the Internet field, using the method of "doing tasks - earning points - exchanging goods or rights in the mall" to increase the activity of App users, but it is only a means of auxiliary operation. After all, money does not appear out of thin air. If the wool cannot come from the sheep, it must be taken from the pig. In short, in a normal business model, this kind of subsidy will have a cash flow bottleneck in the long run.
Only a capital group can break through the bottleneck of cash flow, directly develop a product dominated by points gameplay, and then let latecomers take over. Around 2015, many middle-aged women in third- and fourth-tier cities were promoting various apps that were said to be profitable but required membership fees to be paid first.
However, the popularity of ICO provides a more clever way than Ponzi schemes - Ponzi scheme projects still need to recruit people offline to take over, while ICO projects directly issue coins and do not even need anyone to take over. Existing users will even increase their positions as long as they expect an increase in prices, and there is no problem of finding a specific person to protect rights in the secondary market.
Therefore, the monetization of most Web3 products is essentially the same as the Internet points mall, except that the points are not exchanged for goods purchased with real money, but for the market value expectations in the secondary market.
3.2. Challenges of monetization solutions
Of course, we should not completely deny monetization, but it has specific applicable scenarios, at least not applicable to most social and community scenarios.
The first challenge we face is actually the bottleneck in management - with the current level of performance appraisal, it is impossible to accurately identify the effective behavior of users, and it is impossible to give appropriate incentives in a targeted manner. The ultimate result can only be to attract freeloaders.
Even if the rules are precise to the extent of how many minutes a day a user must stay on the site and what tasks must be completed, these rules will be clearly understood by the fraud studios. Real users are less competitive than robot accounts, and this is something that almost all projects under the "X to Earn" model cannot avoid.
Moreover, even if the project party can indeed distinguish effective user behaviors and develop reasonable incentive plans, it is not naturally suitable for social/community products because it also faces psychological challenges - monetization shifts user motivation from the product itself to the incentive, so when the incentive weakens, the user's motivation to use the product disappears.
What's worse is that for a social product, a good social experience itself is a reward for users, but the SocialFi model is constantly prompting users to shift their attention from pure social experience to monetary incentives. The end result must be that users will become bored with the product itself.
3.3.The absurdity of SocialFi
If we develop a dating app based on the SocialFi model, quantify the various things couples do every day, such as chatting, sending flowers, kissing, hugging, etc., and finally give rewards, then for the couples using this app, the final dating experience will be very boring.
If you also think that the design of this dating app is ridiculous, then all SocialFi projects are designed in this way. The absurdity of SocialFi can be explained by the over-justification effect in psychology - monetization allows users to have sufficient internal reasons for their behavior, but it adds excessive reasons, so that users' behavior is controlled by this external additional reason.
If you want to monetize user behavior, it is only applicable to those rigid payment scenarios, such as pornography, gambling, drugs, and fan economy. Users already have a strong willingness to pay and can provide a steady stream of cash flow. At this time, using monetization to assist operations can play a icing on the cake.
Like all the current monetization (X to Earn) projects, they seem to be very cleverly designed, but in fact they cannot bring long-term positive income and can only wither away in constant idling.
in conclusion
Web3 Social carries the expectations of the entire Web3 industry for Mass Adoption, but is currently shrouded in a fog of confusion.
Myth 1: There is a widespread confusion between the concepts of social and community, so people can only focus on the most superficial functions of the product, ignoring the real driving force and evolution of the product. Finally, in terms of product design and positioning, they tend to create products with large and comprehensive functions, and are full of assumptions about the prospects of the product. In fact, users have no reason to insist on it.
Myth 2: Crypto fundamentalists believe that the revolution in social products brought about by encryption technology has not actually brought any changes in the communication level (such as from text to voice to video), but more micro-innovations based on existing functions (such as DID and social graphs) rather than paradigm shifts. Moreover, this kind of micro-innovation in functions is more suitable for doomsday survival players in the digital world rather than the general public.
Myth 3: Interlopers from Web2 think that with their excellent Web2 products, as long as they make monetization changes in the mechanism, they will attract a large number of users and become loyal fans. In fact, they can only attract freeloaders. Because monetizing user behavior will shift users' attention from social experience to monetary incentives, and monetary incentives are still limited (after all, there is no continuous cash flow), so in the long run, the product will continue to run in vain and wither. Monetization solutions can only be used as auxiliary operating means to stimulate users' strong willingness to pay, rather than making users generate willingness to pay out of thin air.
Therefore, Web3 cannot start from scratch to create a social product suitable for the general public, whether in terms of technology or business model. But this does not mean that Web3 social networking has no future. After eliminating various myths, it seems that there are only two paths that can be established.
Or, like Farcaster and Telegram, first carefully cultivate a crypto community product, and then support some Web3 functions in the form of plug-ins. The crypto community will naturally give rise to various wealth effects.
Or, like ENS and Lens Protocol, continue to explore some innovative middleware at the protocol layer. Although it seems to be of little use at this stage, it can serve as a technical reserve. In the future, it may be integrated into large-scale Web2 social applications in the form of plug-ins, thus bringing about new interaction models, and may also give birth to new application scenarios (such as deriving a new credit assessment mechanism based on ENS).
This article originally wanted to discuss what Web3 Social can do, but after sorting it out, it seems that what not to do is more important... However, in the medium and short term, it is obviously more certain to work in the crypto community.
