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How Web3 Redefines IP for Legacy Brands
How web2 businesses entering web3 will need to rethink value creation
Every iteration of the internet to date has further empowered entrepreneurs, legacy brands, and Big Tech alike to profit from developing new wholly-owned intellectual property (IP) and accumulating new packages of user data to sell.
Today, we find ourselves in the most exciting, revolutionary, and at times disorienting iteration yet. Why? This newest version of the internet challenges the old guard’s centralized monetization techniques and ushers in a new era of value generation—one that originates at the far edges of the web, with the users themselves.
We’re calling this era of the internet “web3.”
The first era of the web made it possible to read code—whereby early internet-based businesses and creators engineered a way for audiences to consume web-enabled content, products, and services. In the second era, it became possible to write to the web—here, user-generated content creation drove exponential growth of internet usage. Social media platforms like MySpace and Facebook exploded and, as billions of people flocked to the platforms, the businesses behind them began to monetize. User data and curiosities, however personal, became the lifeblood of the online advertising industry and the most valuable resource to online businesses. This also allowed for brands to thrive on the web, being able to find customers who fit their target consumer profiles almost instantly. Many of these brands and businesses now depend entirely on the data collected by goliaths like Twitter and Facebook. It also gave a big reason for these user data farms to protect the intellectual property they were collecting and the designs that made it all possible. The model works perfectly on the web2 version of the internet—but can break down when users begin to adopt web3.
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Web3 networks and tools flip the web2 economy of the internet on its head, by providing an option for users to not share their monetizable data. Made possible by the decentralized nature of blockchains and cryptocurrencies, web3 transforms the origination and ownership of the value created on the internet, transferring it away from a business’ closely-held IP at the center and back to the users or community at the edges. In web3, individuals and communities are directly rewarded for their contributions and value added to a product’s success. In some cases for their contribution of data, and in others their contribution of time, votes, and even money.
Where web2 values customers, web3 values communities. And where web2 is powered by consumers, web3 is powered by participants and owners.
In response to the success and capitalization that many web3-native platforms and their communities (users) have experienced, we are starting to witness a shift—one where web2’s largest brands are now themselves experimenting with cryptocurrencies (mostly NFTs) as new ways of marketing, loyalty systems, subscriptions, merchandising, and consumer activation generally on the internet. One seemingly important area that many brands haven’t been clear on, or in most cases come close to, is sharing real ownership, “forever-value” with their customers, a fundamental feature of web3.
To illustrate the gap that web2 brands will be stretching themselves too close, we can take another look closer at the darlings of web3 and particularly NFTs, Yuga Labs. Their projects, CryptoPunks and Bored Ape Yacht Club, allow you to either own, control (to varying degrees) or license the intellectual property and copyrights of the NFTs you’ve purchased. This means that the owner of an Ape NFT can, arguably, do a lot with the asset, according to those given rights—including participating in a film trilogy, or developing a television show, a novel, or a song. If you find it hard to evaluate the web3’s brand when distributing ownership to the community, just take a look at the difference in floor price between a Crypto Punk, and the dozens of near-identical punk-themed NFT communities that don’t provide this ownership distribution. Note that according to research conducted by Galaxy Digital, Bored Ape Yacht Club (BAYC) license agreements do not transfer intellectual property to the holders of the NFT. The research highlights the contradiction in the license terms.
Where the access to this value starts to expand and become radically interesting, is in the open ability to build on blockchains by anyone. With this ability, community members who cannot individually afford an Ape or Punk NFT, coordinate and enter into a code-based contract for fractionalized joint custody of the asset. This composable nature of web3 allows for value to grow in ways that brands never imagined and in ways that greatly outpace the constructs of the web2 economy.
To help visualize the increasing composability of web3, it is often analogized to LEGO, where each new layer or application amounts to new building blocks on top of the existing structure. Even the most innovative projects in web3 rely heavily on pre-built, previously audited open-source software (OSS)—code that no one individual or team chooses to value the ownership of, but rather the execution with.
With this in mind, how web3-builders determine the best ways to create valuable IP and distribute ownership of that IP to their community starts to become the new arena of competition—not inside endlessly long user agreement contracts. Some brands in the physical world actually understand this notion better than those who were born in the digital age. Perhaps from their experience creating markets for physically rare property?
Looking at CryptoPunks again—NFT owners participated in the auction of a derivative Punks collection that allowed owners to purchase physical pendant versions of their NFTs. This was made possible through an exclusive partnership with luxury jewelry brand, Tiffany and Co. Interestingly and innovatively, owners of this ‘NFTiff’ granted Tiffany and its affiliates an irrevocable, non-exclusive royalty-free license to their NFT Punks and the underlying intellectual property in order to create and sell the corresponding pendants. While Punk holders retained their ownership of the Punk’s IP, this language allowed Tiffany and Co. limited rights to manufacture the jewelry exclusively for that owner—a novel example of the composability of digital value and property rights can manifest in the physical world.
So, what does all of this mean for the web2 brands and businesses that aren’t willing to look towards this next evolution of value generation on the internet? They are going to miss the bigger opportunity that comes with letting go, even a little, of full ownership. When value is designed to both originate and be realized within a community vs. with the central business only, those community members become far more invested in the success and growth of the brand. This flywheel has already helped to launch massive new global brands and will undoubtedly help to galvanize legacy blue-chip brands in the era of web3.
In fact, many web2 brands may soon determine that it is better to own less of something with limitless value than to own all of something with limited value.
Limitless value, you say? Hmm…