Cracking the Code: Web3's Untapped Potential in E-Commerce (Part I)

Web3 billed itself as the future of loyalty and memberships, ignoring a billion-dollar opportunity in plain sight.

This is the first in a series of posts where I try to distill some of the lessons I’ve taken from working on Shopthru, and how Web3 might play an impactful role in commerce.

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Web3's ventures into commerce, particularly e-commerce, hinge on the idea that blockchain technology can bolster customer loyalty. This sparked the bull market assertion that "NFTs are the future of loyalty and membership."

This idea doesn’t survive critical examination.

1. There is a non-zero amount of intellectual dishonesty in the idea that businesses need NFTs or tokens to identify their best customers.

2. NFTs might be powerful technology, but they often have a steep learning curve for brands and shoppers.

3. NFTs also don't intrinsically foster loyalty — in fact, their tradability may well undermine it.

While there have been some interesting projects in this area, it’s not unfair to say that there hasn’t been a strong case for a business that improved because it adopted a web3 loyalty solution. In spite of popular narratives to the contrary, the more time I spend poking at this problem, the more obvious it is to me that what's hampering web3's forays into commerce isn't UX or consumer education.

The issues we're facing are rooted in a lack of ambition and a lack of empathy for the people we claim to serve.

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From https://twitter.com/herrmanndigital

The biggest problem in consumer today is the cost of customer acquisition. It's especially pronounced in e-commerce and gaming. After iOS 14, some businesses found their CAC ballooning as much as 10x. In the last 2 months alone, some agencies have reported a 3x drop in the effectiveness of their ads.

This is not sustainable.

While a focus on retention is useful to try to maximize revenue from existing customers, without a reliable way for businesses to bring in new ones, they will die. This is the empathy piece.

So why is acquisition broken? The short answer is data.

A mix of legislation and platform changes mean that companies like Meta don’t have the same access to the data they have traditionally used to refine their ad targeting. Up till now, the data used in personalization has been held in silos controlled by companies like Meta and Google.

Regardless of your interpretation of the ethics of this, the effect is clear. And so is the opportunity.

Acquisition is the lifeblood of the internet, and attribution is its holy grail. In 2020, e-commerce businesses in the US spent $12.5 billion in to acquire new customers.

This is the scale of the opportunity, and blockchains can play a powerful role in creating a new acquisition paradigm. Instead of personalization data sitting in silos, it can be held at the edges, in addresses controlled by the owners. What’s more important, by giving businesses the tooling to leverage this data, they can offer deals directly to the customers most likely to convert, while keeping acquisition costs down.

This is a billion-dollar opportunity that addresses an actual pressing need. And that’s the ambition piece.

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In the next article, I’ll go into more detail regarding the principles that underpin a blockchain-enabled growth engine. As usual, feedback is welcome.

Many thanks to Cat, Oluseyi, Andy, the other Andy, Katherine, Jon and David for helping with this.