Web3's Path to Success: A Focused Approach on Product-Market Fit
Summary:
Decentralization and user ownership characterize the next phase of the internet, Web3. However, achieving a product-market fit (PMF) in this context is often tricky, requiring careful balancing of user demand and product value. Web3 ventures should focus on user frequency and retention, rather than vanity metrics or relying solely on token incentives. Creating useful products, fostering committed communities, and designing viral features are crucial steps towards fulfilling the Web3 promise.
The future of the internet, known as Web3, is anticipated to be decentralized and offer user ownership and equitable value distribution. Its success hinges on fulfilling market demands and addressing user difficulties. Yet, many Web3 projects have failed to find the sweet spot between product and market, often due to a misguided belief that "if we build it, they will come". This approach is particularly damaging in times of market downturns. While the basics of finding the right product-market fit (PMF) remain the same, the way it is approached has changed in the Web3 context.
Solving the PMF problem has also been a challenge in the world of Web2, with numerous startups failing to reach this stage. Similarly, most Web3 protocols have yet to demonstrate their capability to bridge the product-market fit gap. This is largely attributed to attracting speculators instead of actual users, with many potentially not withstanding the harsh cryptowinter.
The concept of PMF is based on two pillars - use of the product at high frequency (usage) and for an extended period (retention). If both of these conditions are met, PMF can be achieved.
PMF's principles are consistent across different products and eras, but Web3's decentralized and community-owned nature brings unique factors into play. Although blockchain technology is widely recognized as revolutionary, very few Web3 projects have achieved scalability through PMF.
Web2 platforms' success was driven by network effects, attracting builders and investors. Web3, however, may or may not bolster network effects due to questions around defensibility. Unlike Web2 platforms, a Web3 variant must operate on a wider scale, inclusively considering market, infrastructure, financing, and governance layers. User value in Web3 is largely derived from its community engagement, contrasting with Web2's user-centric community.
Web2 platforms become more defensible thanks to four main forms of accrued value: data, content, reputation, and influence. Combined with high switching costs, Web2 platforms can take advantage of these accumulated resources. In contrast, Web3's decreased switching costs and portable attributes make network effects less defensible.
In the Web3 market strategy, tokens play a vital role, helping to build network momentum. However, an overemphasis on tokens can lead to a false sense of PMF. True PMF depends on the actual worth and utility of the product. Overuse of tokens to encourage usage without a substantial product could be expensive and risk damaging treasury assets.
Achieving product-market fit doesn't happen overnight; it's a journey and that can last between 12 to 18 months involving continuous iterations, experiments, and demand tests. In Web3, tokens can help catalyze and bootstrap the go-to-market motion or scale the PMF once established, but they are not a substitute for PMF.
In terms of metrics for PMF, the focus should be on two areas: frequency of product usage and user retention. Increased usage frequency and user retention lead to a valuable customer lifetime. Injecting tokens alone will not ensure achievement of PMF.
In conclusion, a useful product will encourage usage, user retention, and ultimately increase token price. Focusing on building engaged communities and orienting any pivots towards driving higher usage frequency and user retention can also greatly contribute to achieving PMF.
Nitin Kumar is a co-founder at zblocks and is recognized as a growth CEO, author, former consulting partner and VC investor. He shared his insights on Cointelegraph Innovation Circle, a reputable organization of senior executives and experts in the blockchain technology industry dedicated to building the future through networking, collaboration and thought leadership. Any views expressed do not necessarily echo those of Cointelegraph.
Published At
10/20/2023 1:00:00 PM
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