The rapid rise of Web3 technology has revolutionized the business landscape, challenging traditional notions of competition and strategic decision-making. In a recent episode of the 'web3 with a16z' podcast, Scott Duke Kominers, a research partner at a16z crypto and Harvard Business School professor, delves into the nuances of business strategy in this new era of open-source collaboration. This blog explores the key takeaways from the episode, shedding light on the evolving landscape of competitive advantage and the concept of moats in the Web3 era.

Adapting Porter's Five Forces Model: For decades, Michael Porter's Five Forces model served as a fundamental framework for understanding industry structure and formulating competitive strategies. However, in the context of Web3, traditional assumptions need to be reevaluated. The concept of "vampire attacks" emerges as an intriguing challenge. These attacks refer to competitors that exploit open-source platforms and extract value without contributing back to the community. Recognizing this phenomenon becomes crucial in devising strategies that safeguard against such attacks and sustain long-term profitability.

Reimagining Competition in Web3: Competition in the Web3 era takes on a unique form. With vast amounts of information publicly available on blockchains, the dynamics shift from information asymmetry to information abundance. This shift prompts businesses to rethink their approaches and consider new sources of competitive advantage. Kominers introduces the notion of "community cohesion" as a potential moat in Web3. Building a strong community around a product or service fosters loyalty and creates barriers to entry for competitors. Additionally, the concept of "software embeddedness" highlights the importance of seamlessly integrating products or services within the Web3 ecosystem, further solidifying competitive positioning.

Unraveling Network Effects: Web3 disrupts conventional assumptions about network effects. Kominers challenges common misconceptions, emphasizing the need for a deeper understanding. He delves into how network effects can manifest beyond simple user growth, exploring the intricate relationships among different actors within a network. By grasping these complexities, businesses can harness the true potential of network effects and leverage them as a source of sustainable competitive advantage.

Looking Ahead: Web3 fundamentally changes the game, necessitating a reevaluation of business strategies as a whole. As this technology continues to evolve, companies must adapt and align their approaches accordingly. It becomes crucial to monitor and adapt to the shifting competitive landscape, embracing new paradigms while ensuring a deep understanding of the community, network effects, and the integration of products and services within the Web3 ecosystem.

The advent of Web3 presents a transformative opportunity for businesses to reimagine their strategies and decision-making processes. As discussed in the 'web3 with a16z' podcast, concepts such as community cohesion, software embeddedness, and understanding network effects hold the potential to become the new moats in this decentralized era. By embracing these new paradigms, companies can thrive in the rapidly evolving Web3 landscape and position themselves at the forefront of innovation and competitive advantage.

Related Resources:

• Vampire attacks: A theory (and thread) on 'blood sucking' platform competition by John William Hatfield and Scott Duke Kominers (2023) — on a16zcrypto.com

• Can web3 bring back competition to digital platforms? by Christian Catalini and Scott Duke Kominers (2022) — in Competition Policy International

• Why build in web3 by Jad Esber and Scott Duke Kominers (2022) — in Harvard Business Review