TMW #081 | Web3 and the belief economy, Martech Day, and the end of passwords.

May 9, 2022

Welcome to The Martech Weekly, where every week I review some of the most interesting ideas, research, and latest news. I look to where the industry is going and what you should be paying attention to.

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Here’s the week in Martech:

  • Web3 and the belief economy. Why is the NFT market tanking?
  • Martech continues to grow. A few thoughts on Martech Day.
  • Apple, Google, and Microsoft target passwords. A significant change for authentication and identity.
  • Everything else: ID5 passes the quality test, executive dashboards, the UX of journalism, the race to cheap ads, the state of loyalty marketing, using NLP with Google search, and the AI friend who wants to sell you things.

✍ Commentary

Web3 and the belief economy. It’s no secret that the web3 market is cooling. This week the WSJ did an analysis to confirm this with a focus on the NFT slowdown over the past months. The report suggests that NFT sales have plummeted from over 250,000 transactions a day in September to less than 20,000 last week. This is a good signal to declare an end to Web3 hype that has taken over our social channels these past six months. But, as always, it’s more complicated than it may seem.

Sure, the initial hype, like almost every other emerging technology idea, goes through a few months of extreme interest and then settles. This is nothing new. But what is new is the belief ecosystem surrounding ideas centered on web3 and by extension, the metaverse and how much almost everyone believes that this technology will be the next innovation for the consumer internet.

I sat through not one, but two live metaverse presentations this week. One from a Meta client partner and another from an ad agency executive. Both stressed the importance of getting ready for the transition to the metaverse as if it was a given that there will be a transition. Sitting there, I realized that this is the belief economy working itself out with these so-called emergent technologies. There’s a curious absence of reasoned critique that wrestles with the idea that the future of the internet will come in the form of web3 or the metaverse.  

This is the most spectacular thing about the dual concepts of the metaverse and web3. CMOs, agency leaders, researchers, technology executives, and everyone in between have an almost unquestioning attitude towards the promises and solutions these various technologies create. We’ve been living through six months of believing that these technologies are important, useful, and viable. All three of these are big “ifs.”

The idea of the metaverse revolves around it being an interoperable, virtual environment where companies, people, and games intersect all at once. The Meta party line is that no one will own the metaverse, but everyone will get to participate in it. In abstract terms, it’s a digital utopia, another world to build a life, a way to enhance how we live today.  

Web3 is no different in how the cultural movement has created its own promises. The foundation of web3 technology rests on trustless, decentralized finance and the ability for everyone to own their content, social network, and currencies. Somehow central banks are evil, fiat currency will one day go to zero and the economic decisions that have led to the internet, a technology that has significantly connected hundred of millions of people with opportunity, is a bad thing.

This is why, as proponents argue, we need blockchains. Replace our trust in people with trust in code and usher in a utopia where creators are empowered, finance is decoupled from societal controls and everyone becomes their own bank.

Do any of these things sound familiar? If you’ve ever stepped foot in a mosque, church, or temple, you would hear pronouncements about the future, the problem with society today, and a call to participate in the solution. Web3 and the metaverse are belief economies. And the belief is that these technologies are the major forces that will shape the future of the internet.  

However, the pillars of these technologies are unmoored from the history of the internet. Web3 and metaverse concepts are represented by promises of a future state. They are not the reaction to the innovative technologies that are in the market today. When Steve Jobs took to the stage with the iPod, the iPhone, and the iPad, the entire digital economy had to rework itself with the new tools, experiences, and data environments these innovations brought to the economy. The innovation came first, it wasn’t a promise.

The metaverse innovation trigger is VR headsets, and Web3’s is the blockchain. Both technologies have been around for more than a decade and have yet to instigate mass consumer change. The ultimate test of any industry-shaping technology is how many regular people use it. It’s fine if tech nerds love it, or if B2B companies use it, but these are all cases at the edge, not the trigger for something new.

Even recently, the concept of the metaverse, championed by three web3 startups is seeing a large slowdown in users. For example, Decentraland, the cornerstone of blockchain virtual worlds, has seen DAUs drop to less than 1,000 people a day recently. This was one of the most hyped platforms of late last year. People are jumping ship because the economy is telling them to, the tech allows bad actors to roam free, and the experience is not ready for the mass consumer.  

One of the major things that are triggering the downturn is the external economic forces surrounding our moment. VC funding is becoming more scrutinizing than speculative and recently there’s been a significant number of layoffs across the tech industry. My expectation is that 99% of any effort put towards metaverse or web3 ideas will result in failure. There are only a few companies that can tolerate this kind of experimentation.

This creates a domain for the one-percenters. Companies like the Bored Apes creator, YugaLabs, or Roblox and Epic Games are the leaders. Like every other internet technology, there’s always the handful that gets to serve everyone else. Currently, the financialization of JPEGs is a mechanism to accelerate customer acquisition and funding for crypto-centered projects and nothing more.

Because the incentives of web3 projects are to maximize your investment, this creates an unsustainable pattern where popular and important projects are off-limits to anyone without a cool half a million sitting around. Unlike how social networks are economically aligned to use growth (more people = more ads), the economics of web3 disincentives user growth by rewarding the HODLers.

The experience of both web3 and metaverse technologies is also underdeveloped. You only have one chance with a customer. If you frustrate or overwhelm them with risks it’s very hard to get them back.

Web3 requires you to have no failsafe for your assets, there’s no reset password option and there’s no recovery if someone hacks your crypto wallet. All the responsibility is pushed onto the customer, while also asking them to pay transaction fees (gas) that often run in the thousands of dollars. From a consumer perspective, you’re literally paying to manage your own finances, a proposition that many will outright reject at face value.

Crime continues to run rampant, particularly on Web3 platforms. Every day it appears that another scam was successful, accounts have been hacked and projects disappear in the literal ether after hyped NFT launches. Blockchains have historically facilitated crime and it was this innovation that led to the now-infamous Silk Road project, the eBay of criminal activity.

To say that the wave of crime sweeping over even the most successful projects is because of innovation discounts that we have more than 20 years of internet security technology and knowledge to draw from. Saying Web3 is like the internet of the ’90s is highly deceptive. We don’t live in the ’90s anymore and we have progressed far enough to make the kinds of crime in Web3 unacceptable.

The metaverse has different, yet equally jarring experiences. The concepts of today require you to strap a VR headset onto your head, asking you to ignore your human survival instincts of being aware of your surroundings as you interact with avatars without legs. Virtual immersion is not the way companies like Meta grew, it was through high jacking our attention mechanisms (social media) through highly portable technologies (smartphones).

Staring into your phone is a significantly different experience than donning a VR headset. You might want to ask yourself the question, with all the advances we have in 3D graphics in gaming, why do all the flagship metaverse concepts look like they were pulled right out of 2001?

I still think there is hope and a place for these technologies. What is happening now with the downturn is just a culling of the 99%. What remains will have a shot at the mass consumer use case as web3 and metaverse concepts continue to collide. Yet the real opportunity here is not in technology. It’s in the story you’re telling.

Marvel knows how to sell and sustain stories. The first Marvel comic book was sold in 1939. It took the company 80 years to get to Avengers endgame, a film combining 36 superhero characters that grossed more than $2.7 billion at the box office. Even today there are still endless spinoffs, toys, games, and merchandise. Valued at more than $50 billion, Marvel is one of the most successful entertainment franchises in the world.

How did Marvel get there? By becoming exceptionally good at hiring people who can tell intricate, compelling, emotionally inviting, and simple stories. Narratives that pull people in, keep them talking and create sustained cultural memory.

When I was in primary school, I remember waking up to watch Ash Ketchum and Pikachu’s daily adventures on a show called Pokémon. I traded Pokémon cards during my lunch break, and I remember the anticipation I felt when I walked into the cinema to watch the very first Pokémon movie as a ten-year-old. This is the kind of storytelling and participation dynamics any kind of web3 or metaverse project should be aspiring to. The first Web3 project to create a hit anime show will have an outsized advantage.

You could say that Axie Infinity is today’s version of Pokémon, but the company is not in the business, really at all, of telling stories. The goals from the beginning, and why so many people in the Philippines are playing the game daily, are all financial. It doesn’t have the kind of staying power as a Pokémon fan or an ardent adherent to Marvel. The next big franchise in Web3 won’t start as a crypto token. Instead, it will be primarily driven by media and entertainment, led by brilliant screenwriters and animators who are able to connect stories to technology in ways that enhance participation.

Right now, the belief systems attached to web3 and the metaverse are about the promises of technology, which fundamentally misses the point. Technology enables stories to unfold and our ability to participate in them. It will be the one-percenters that will figure out that giving people something to believe will be about the stories we tell, how we see ourselves in them and how we socialize around them.

The complexity of these technologies and the vague promise of a better future is not a great story. Offering people the slim chance of riches through buying NFTs or any other type of token does not have the staying power or the ability to gain new adherents, precisely because the line must go up into infinity. We are sorely needing a George Lucas or a J. K. Rowling of the digital age, but instead, we got Mark Zuckerberg. Links: WSJ. DELOITTE. CMS WIRE. INDEPENDENT. MARVEL. APPTOPIA.

📈Chart Of The Week  

Martech continues to grow. This is perhaps the most important chart from last week’s Martech Day event with Cheifmartec and Martech Tribe. Since 2020 the number of Martech solutions has grown by 24%, to just shy of 10,000 companies. There have been 972 exits, and 2,904 new companies started and there’s no slowdown in sight. My hypothesis is that as the industry grows, it creates its own problems to solve, which in turn creates a trigger for startups to build something valuable. The API technology category is one important example of this: More apps mean more integrations which means more API services. Link

📰 Latest Developments

Apple, Google and Microsoft target passwords. A rare alliance to solve the passwordless problem across the internet was announced this week. The problem with having passwords for everything stems from the fracturing of the internet into a million companies. The attempt could have a significant influence over how every company manages authentication and identity. Link

An inside look at Facebook’s 2021 news blocking incident. Last year Facebook blocked Australian news sites from its services for a little less than a week but also allegedly took down hospitals, charities, and emergency services. The reason this is a scandal is that Facebook is perceived as critical infrastructure of the internet, but a platform is not a protocol. Facebook is a free service, but it’s not email or an internet connection, and equating it with these services exacerbates the problem. This still does not discount that the company operated with nefarious intent to undercut negotiations and strong-arm the government and also gave out high fives afterward. Link

ID5 passes the quality test. This company offers advertisers cookie and cookie-less solutions and is the first of its kind to pass the Neutronian Certification, an industry quality assurance standard. This gives ID5 some industry advantage over UID2.0 but not a lot. There’s minimal government intervention in the classification and assessment of tracking technologies and the entire industry would benefit from better protection. Link

📚 Reading

Executive dashboards. Why are they so bad? An investigation.  Link

APIs and No Code. So much of the No Code industry is actually propped up by consumer API services like Zapier. Most applications are useless without the ability to integrate into data sources and other services. Link

The UX of journalism. A deep dive into the problem of paywalls for paid journalistic content, a few suggestions to improve and some new thinking about the place of experience in media consumption. Link

🔢 Data & Insights

The race to cheap ads. Amazon is breaking into the ad market substantially, making more than $30 billion last year. One way the company does that is by making its inventory very cheap. Costing 68% less than Google, and 44% than Facebook.  Link

Social media and teen mental health. An important data point in this is the rise of self-harm incidents since 2010 in the US. All social media is a badly thought-through social engineering experiment with next to no guardrails or controls. What do you expect would happen? Link

The state of loyalty marketing. The For Love or Money annual report tracking the state of loyalty programs. Interestingly, consumers are less likely be loyal to a brand based on the quality of products or services compared to a few years ago. Link

💡 Ideas

Google multi-search and NLP. A mobile search experience that takes complex queries and refinements from users, interprets them and makes changes. This is the next frontier in search. Link

Challenging reverse ETL. There’s increased talk about the next hypey B2B data technology for marketing. Some think it’s reverse ETL, the unbundling of the CDP. The CEO of mParticle challenges a number of assumptions holding up the idea. Link

Big B and small b in blogging. A novel way to think about content strategy. Link

✨ Weird and Wonderful

The AI friend who will try to sell you things. Link

Programmatic advertising and psychological warfare. Link

Theory of music. I spent most of this weekend going through this with my kids. A wonderful way to learn the basics of music theory on the internet. Link

Stay Curious,

Make sense of marketing technology.

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Juan Mendoza

Juan Mendoza is an expert in researching global media, marketing, data, and technology trends. He is the CEO of The Martech Weekly, a media and research brand with subscribers in over 65 countries.

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