Two of the most important models for Web3 growth are crypto-native attribution and identity, and native two-way value transfer. Going forward, new privacy protection platforms, data sovereignty tools, and next-generation digital growth platforms will replace old platforms.
Original title: " The Web3 Growth Stack "
By Shayon Sengupta, john Robert Reed, Multicoin Capital
Compilation: Cookies
We're increasingly interested in an innovative topic that we internally call the "Web3 Growth Stack" -- the tools that product managers and marketers use Web3 technologies to build to acquire, attract, and retain customers.
In Web2, the growth stack consists of a large number of tools, platforms and analytics systems designed to aid product and growth marketing. These tools support the processes around user acquisition, measuring retention and engagement, and monitoring conversion and monetization, which are the foundation of consumer internet businesses. Many of these tools have become integral to modern software development, so this direction can generate extremely long-lasting businesses.
However, most of these tools were built in the past decade and are no longer suitable for serving Web3 products and applications for a number of reasons. For example, the world's largest ad networks (AdSense, AdRoll) have no interest in the crypto ecosystem, and even completely ban crypto advertisers. In addition, some user engagement and retention tools (Segment, Iterable, and Mixpanel) ignore the rich data that exists on-chain (similar to the in-app data exchange of Web2 products). To make matters worse, no one is linking in-app user activity with the payment system, which is one of the biggest opportunities. So this means that most Web3 builders are blind, and they are almost always mute in the war for Internet users' attention.
However, this is all starting to change, and 2023 will see the Web3 growth stack.
This article will explore the framework of crypto-native growth infrastructure, aiming to provide a general overview for founders who want to build crypto-native growth tools, and provide a reasoning logic for Web3's growth team on how to build internal processes.
Accelerate Growth Using Web3 Primitives
The main feature of building the Web3 Growth Stack infrastructure is the deep integration of two core cryptographic primitives into growth tools, let's explore them one by one below.
On-chain attributes and identities
Third-party data, cookies, and fingerprinting are the fundamental building blocks of group segmentation in Web2 advertising, and they perform two core functions: identifying attribution and identity. Attribution refers to granular events around user interactions with links, pages, and applications (touchpoint tracking, HTTP request headers, cached data). Identity refers to aggregated information about user activity used to build target profiles (session cookies, location tags, on-chain data, etc.).
Web2 attribution and identity infrastructure can be used to build rich profiles that can target and place users in the same queue as other campaigns such as advertising. These technologies can also be used in Web3 products, but Web3 products also have their own tools to identify users and their behavior. Specifically, on-chain activity such as public keys, Web3 domains (e.g. ETH and SOL), on-chain credentials, NFTs, etc. represent a new dataset that can be used to build user profiles and segment cohorts.
Ownership and activity data of on-chain assets can provide more signals than passive browsing data because on-chain data is financial data in nature. Minting NFTs, participating in governance votes, or staking tokens are all indications of meaningful user behavior on a given topic. For decades, advertisers have dreamed of distinguishing window shoppers from real shoppers. On-chain data makes this possible.
Identity and attribution are key factors for growth, and linking crypto-native state (wallet addresses and behavior) with Web2 state (application and browser interactions) provides a clearer understanding of user psychology. For example, Multicoin recently invested in Spindl, a protocol that is building a Web3-native attribution platform, and they are actively rolling out solutions that combine Web2 and Web3.
Web3 Native Bidirectional Value Stream
The second is the bidirectional value flow native to Web3. In "Overview of 9 Potential Use Cases for Crypto Payments", Kyle explains how crypto payments allow businesses to easily send arbitrary units of value to consumers visiting their apps/websites; Ability is a step function that drives activity and improves user distribution of rewards and incentives.
As mentioned above, a huge advantage of the Web3 Growth Stack is the tight coupling of in-app events with on-chain payments. Web2 products cannot send value to users in real time, but Web3 products can. This is a powerful Web3 primitive, and one of the main reasons why big companies like Nike, Starbucks, and Tiffany are incorporating Web3 principles into their loyalty programs. We also invest in Passes, Blackbird, and Mercury on this track, making payment and value flow the first type of object in user experience.
Once these Web3 primitives are built into new tools and products, the design space for growth tools can be radically expanded.
Exploring the Web3 Growth Stack Design Space
Most product and marketing organizations use a funnel model for user growth. In practice, they organize events, launch products, and deliver user-specific experiences to minimize churn in the funnel. The ultimate goal is to create a repeatable growth strategy for a specific user segment that compounds over time.
Let's explore how Web3 will impact every part of the growth funnel, starting with user acquisition at the top, all the way to end-user retention.
user acquisition
User acquisition refers to how a product discovers, acquires, and activates new users. Usually the first step is mainly to achieve demand generation through advertising. Roughly speaking, in order to advertise, the project party must have:
- Advertising material (creative)
- Ad Cohort (Targeting)
- Delivery carrier (display)
- Advertising platform (sales)
In order to place advertisements on publishers' websites in real time, there is a two-way market between publishers and advertisers, and a trading platform is needed to mediate transactions (advertisers' placements as bids, publishers' inventory as inquiries).
Advertisers are targeting specific users with higher conversion rates, and users are likely to have a better experience with publishers when the ads they see are relevant to them. The Web3 growth stack can use on-chain data bundled with off-chain or third-party data to develop more comprehensive targeted user profiles, enabling higher quality segmentation and cohorts. For example, for advertisers to know if the people they are targeting with their funding are active on StepN, hold more than 150 SOL in their wallets, or participate in any virtual world where badges can be displayed.
At present, there are encrypted native advertising exchange platform Slise, demand-side platform Hypelab, and advertising network Myosin. As the fidelity of on-chain data around users increases, we expect more follow-up and a higher quality experience for end users. The inherent network effects that advertising infrastructure can gain by intermediating the communication between advertisers and publishers have the potential to capture enormous value.
However, this is just the tip of the iceberg. As on-chain identity and attribution data can be combined with in-app event data, we expect to see improvements in the advertising model itself. For example, when a banner advertisement is presented to a user, the user may view or click it and visit the website. And Web3's ad units might enable targeted users to earn instant rewards or make purchases directly on the ad without leaving the page they're on. This can have downstream effects on core advertising metrics such as cost-per-click and cost-per-impression and cost-per-transaction. Let's imagine:
- Ads that showcase NFT collectibles, allow users to mint directly from the publisher's page, rather than being redirected to another page, and reward users (or publishers who enable these transactions) with tokens. This alone reduces the process by at least one click for the user. The concept is similar to Facebook's innovative lead generation ads, which will shorten the experience process and keep users in the ad, rather than sending them away.
- Once websites become Web3 wallet-aware (Shopify is already working on "token-gated commerce"), they will be able to react and rebuild dynamically based on user preferences and their value to advertisers. As part of this innovative "Web3-responsive" website, affiliate links will have the potential to change dynamically based on consumer roles and values. Advertisers are willing to pay more for repeat visitors if they can prove that the model improves repeat visits, retention, or LTV.
- Search for ads that automatically AirDrop tokens or send messages to users, whether or not the viewer interacts with the ad itself. This allows advertisers to target users directly based on intent.
In addition to innovations in advertising, we believe that the design space for direct outbound marketing is maturing and developing in cryptocurrency. It’s worth noting that design spaces, as a constant line of communication with end users, are a powerful user acquisition tool. Encrypted messaging protocols are in their early stages, with protocols like Dialect, XMTP, and Nansen Connect establishing standards for messaging and notifications. These tools are a key element of Web3 native, just like Twilio, Iterable, and Intercom have been for the past decade.
Today's advertising model is that advertisers flood users with information, hoping to attract attention at the right time. In the future, advertisers could price the cost of a message and pass on a built-in economic incentive for users to read it. We can imagine a future with dynamic inboxes where value can be added to messages and mail/messaging apps can automatically push value-laden messages to the top of the inbox. Inbox itself could profit from these rules and give users the flexibility to choose effective filters or configurations, while allowing advertisers to target high-value users.
Maintaining communication is critical to the activation and retention of new users.
user stickiness
Once users start using a product, it's important to understand how they interact with it. Who decides to participate and what drives them to interact? Where in the product do they spend most of their time, and where should they spend more time? Which users return to the product once in a month? At what point in the flow do most users leave?
The answers to these questions will provide insight into the future direction of the product and how to keep users happy at the first foothold.
Web2 tools such as Segment and Fullstory provide product teams with detailed data about users in their applications. Every check-in, button click, scroll, click, and purchase is a recorded event that is time-stamped in these flows, allowing product teams to understand how users interact with the product.
Mode, Looker, and Heap depict overall retention by showing how groups are performing in user acquisition campaigns and product improvements. Fine-tuning a product based on engagement data from highly active users versus high-churners can help inform critical decisions.
Crypto-native teams such as Raleon, Merlin, and Garden experiment within the design space of Web2 tools at the intersection of on-chain attribution and identity. If product and growth teams can establish causal relationships between granular actions in their applications and users’ on-chain roles, they will be able to make more informed decisions about inflection points in product lifecycles.
In addition to bundling on-chain transactions and behaviors, a key feature of Web3 products is that they often serve as venues for exchanging digital goods with clear financial value. If you implement economic incentives, there will be an on-chain race, and the robot will always win in the end. This problem has been plaguing the Web3 team because they don't have the right tools to solve it. Web2 brands entering Web3 will also quickly learn that they, too, need growth analytics to identify and contain Sybil attacks.
Sybil attacks can have a strong adverse effect on product sustainability. Fine-grained event analysis and on-chain proof of addresses should resolve these issues and help product teams understand which of their users are real and which are bots.
In the next few years, user-facing products will leverage the on-chain protocol, but most users will not need to interact with the protocol, but will directly use the applications built on top of the protocol. Product-level engagement data is much richer and includes more attributes than the on-chain data accessible to protocol teams. We believe that this kind of product engagement data might even be seen as a form of payment from product teams to protocol teams in the future.
Even more exciting, once product teams have a clear idea of who their customers are, they can do something with that data.
user retention
More mature growth teams care deeply about customer loyalty and retention. It is usually less expensive to retain a customer than to acquire a new one. Web3 identity and attribution data gives product teams new ways to do this, with a stronger incentive model than Web2 products.
Cryptographic primitives at their core include incentives to coordinate large-scale activity, and this is a huge opportunity to enhance Web3 retention. For example, free-to-play games could offer NFTs or other tokens that keep users coming back to the game every day. The crypto-native version of Snapchat can post collectible collections or verifiable Snap Scores, providing quantifiable social status to continuously engaged users. The core difference is that products that previously distributed rewards in the form of state and utility can now distribute rewards in the form of state, utility, and financial value.
Several projects are independently building the infrastructure to do this. Galxe is building on-chain certificates and other badge proof NFTs. Aptos and Optimism are using targeted AirDrop for early adopters and builders. NFT projects are leveraging token gating features (e.g., derivative series minting rights, community conference calls, etc.) to keep community members engaged and retained. These growth teams present users with state or utility objects delivered through the product, which then permeate the user community and materialize their value. Teams such as Rabbithole, Layer3 and Sonder are also pioneering this.
Incentives are necessary but not sufficient for long-term user retention. The ideal of Web3 is sovereignty, ownership, and permissionless, especially against the type of centralized platform that the previous generation of consumer products relied on, so Web3 data portability and composability are excellent. This creates the potential for Web3 products to allow users to own the platform they are building, but still need to develop customer affinity like consumer products have done for the past decade.
Cultivating customer affinity through repeated use of cryptocurrency will rely heavily on customer experience and proactive retention campaigns. Historically, Web3 platforms have differentiated themselves through discovery, governance, trust, and reputation. Leaders in the crypto space such as Binance, Magic Eden, and Phantom offer users a higher degree of convenience than their competitors, which in turn allows them to gain user attention at scale. Web3 products that make the end user a priority, whether by abstracting the complexities of cryptographic primitives or having a dedicated user support team, will likely benefit from the next wave of on-chain user attention.
new incentive model
At the beginning of this post, we argued that the two most important models for Web3 growth are crypto-native attribution and identity, and native two-way value transfer. Going forward, intrusive data tracking tools (e.g. cookies, event trackers, fingerprints, third-party data marketplaces) may be phased out as strong regulatory rules such as GDPR, CCPA come into force. At that time, new privacy protection platforms, data sovereignty tools, and next-generation digital growth platforms will replace the old platforms.
In addition to all the above ideas, we are excited about targeted solutions in the following areas:
- DataDAO - For users who choose to share their data in a privacy-preserving manner, DataDAO is building an incentive system to give them value as advertisers and publishers.
- Privacy-First Ad Exchange - Brave's Themis uses Zero-knowledge Proof to build a decentralized ad exchange. Around on-chain attribution and trust minimization, they treat user privacy as a first-class object. Can other companies develop high-quality privacy-preserving ad exchange experiences?
- New crypto-native ad units—whether at the UI layer (such as creating NFTs by clicking on ads), or at the ad platform or database layer (such as hosting ad exchanges on Solana, hosting ad content on Ceramic or Tableland), will A new type of encrypted primitive ad unit appears.
- Sybil Resistance and Proof of Humanity - How can a user prove that an on-chain address belongs to a human (and not a bot), while analyzing that a single user owns multiple addresses? We believe that cryptocurrencies are in a great age of application and product experimentation, and growth tools are critical to their success.
