Just as you were starting to wrap your head around the concept of Web3 and the decentralized internet, a new term has emerged: Web2.5. Is it just a clever rebranding of Web3 now that crypto is in ‘crisis comms’ mode or is there more to it than that?
This series will dive into what Web2.5 is, why it matters, and how it’s viewed by various players in the game, from venture capitalists to Web3 marketers to established brands. As with any rapidly evolving field, new developments and concepts are constantly emerging, usually based on learnings from the failures and successes of pioneers in the field.
All of us in branding know how important it is to balance being critical with being curious and open-minded. Although Web2.5 has yet to become a well-defined or widely accepted term in the field of web development or technology, it is popping up to describe an intermediary stage of web development between Web2 and Web3. Think of companies who are launching NFTs, adopting decentralized and peer-to-peer networks, and building immersive and interactive web experiences in the metaverse. Those are all examples of Web2.5.
For the purposes of this series, we define Web2.5 as a set of emerging web technologies and trends expected to bridge the gap between the current state of the web (Web2) and its next evolution (Web3). And we’re nothing if not curious to explore how the concept of Web2.5 represents the ongoing evolution of the web–its continued development of more advanced and powerful tools and technologies changing the way we interact with the digital world (and with brands).
Defining the half-step between Web2 and Web3
Working in Web3 is an electrifying and visionary journey. You’re surrounded by a tribe of like-minded individuals driven by a deep passion to transform society for the better, all by creating more equitable systems through decentralization and blockchain technology. The atmosphere at Devcon events is a testament to this: an eclectic mix of individuals including hippies, coders, noobs, and veterans coming together to exchange ideas and inspiration. The presence of Vitalik Buterin alone is enough to make anyone, including myself, star-struck. There are 60-year-olds attending blockchain onboarding sessions, mothers bringing their young children to coding competitions, and developers burying themselves in the hacker-space with no sunlight for the duration of the event. All these birds of different feathers flock together. It’s the ultimate Ethereum global family reunion. No place for crypto greed here, it’s all about the new world being built.
While exhilarating, this communal immersion can lead to tunnel vision. It’s easy to assume that everyone is up to speed on the technology and its ramifications. It’s not until you step out of this bubble and interact with folks who aren’t Web3 insiders that you realize just how different this world is, and how much awareness and education is still needed to make a genuine transition from Web2 to Web3. It can be a sobering experience to see that others don’t have the same level of familiarity with Web3, underscoring the vital importance of effective communication in broadening the community to welcome more folks into the fold. The transition to Web3 is seen by many as a transition to ‘the new, decentralized internet’ and it’s just as hard to explain this new frontier to people as it was for early adopters of the internet back in the days.
To explain Web3 in simple (and slightly superficial) terms, this evolution example is often used: We went from Web1, which was read-only, to Web2 and its introduction of social networks and communities that could now also create. Now, we’ve gone from Web2 (read-and-create-only) to Web3 where it’s all about read-and-create-and-own your data and content. And as that Web3 space grows, brands increasingly want to be part of it, so they start looking for opportunities to build products and services around these new capabilities.
The caveat? They’d prefer to do it without going all the way into Web3.
Enter Web2.5 where brands can start taking advantage of emerging technologies such as artificial intelligence and blockchain without needing to completely overhaul their existing infrastructure or processes. In other words, it allows them to test these new technologies on smaller-scale projects while still maintaining compatibility with traditional web applications.
Take, for example, a brand whose ultimate goal is to create more engaging experiences, so it chooses to focus on improving security and privacy, and providing new kinds of ownership for end users. That brand can now use decentralized applications for payment processing and immutable, distributed ledgers for secure storage and tracking of information. Web2.5 is effectively providing an experimental ground where brands can leverage new capabilities to create meaningful and sustainable competitive advantages over time as they transition towards Web3.
Stepping into Web2.5 as an established brand
The brands dipping their toes in the Web2.5 water are of a diverse range. From media and sports to luxury retail and consumer goods, established brands have the opportunity to dive into this space with relative ease because, unlike their financial market counterparts, they aren’t bogged down by complex technological constraints that demand major operational overhauls. By mostly leveraging the potential of NFTs and the metaverse, these brands are opening up a new reality to their audience. And, as more and more consumers jump on board, we will see a larger percentage of well-known brands capitalizing on Web2.5 specifically.
The advantages of Web2.5 startups
Web2.5 is not just for established companies. Startups and their brand new brands seem to have embraced the concept as well. There are investors like Dominic Rohde of Coinvesting in Dubai who are actively prioritizing Web2.5 companies over those of Web3 for their portfolios.
“We prefer to invest in businesses that have multiple revenue models. We’re not big fans of the classic Web3 growth model by which a company raises money based on assumptions of how to protect the IP of the technology and possible sales they can achieve. If they assume a 10x earning multiple for investors, it means they’re forecasting a million in revenue continuing on for the next 10 years.
But Web3 founders don’t even know what’s going to happen in 6 months, let alone 5 or 10 years. The technology is developing too fast for that, the token models are very dependent on how Bitcoin moves (which, as we’ve seen over the last years, is highly volatile), and regulators are coming up with new rules every day. As a result, big Web3 investors had to make massive write-offs in their investments recently.
Web2.5 brands often present a better business case because they can forecast better, are less dependent on the crypto market, and are less dependent on blockchain’s evolution because it’s not at the core of their business. The core is based on proven Web2 revenue models with a Web3 component.”
For investors, the team behind such startups is also very important and, according to Dominic, Web2.5 teams tend to be a safer bet than those of Web3. “The fact that Web3 is always on thin ice has an effect on hiring. Startups need to hire fast and are always trying to find the sporadic tech genius since blockchain developers, especially the good ones, are scarce.
On top of that, because of the correlation with Bitcoin and the crypto market in general, it’s hard to manage the finances very well. I remember, when we were 2 months into the bear market, a project’s treasury dropping 40% within 1-2 weeks. That’s crazy. It means your whole company budget can go down in a month–with the investors also on the losing end.”
Despite all these differences between Web3 and Web2.5, Web2.5 is still a very nuanced conversation according to Dominic. “We need a better word for it, it’s confusing. Maybe we can call it a transition period or an integrated Web2 and Web3 model.” He adds that the Web2.5 startups in his company’s portfolio are essentially Web2 companies with a Web3 element: “They have the reliability and predictability of Web2 business models and their revenue streams plus the new technologies that Web3 brings. We have a sportive lifestyle startup that works like a Web2 Uber (you book a workout coach to come to your home or office) but the app integrates crypto payments. We also have a real estate startup using smart contracts, offering investors a share of quarterly revenues produced by the building of multiple facilities. Thirdly, we have Web3 TV, which is kind of like a traditional media business covering Web3 mini-documentaries, news, and events (including NFTs).”
Web3 tactics for Web2 brands
It’s interesting to see some similarities between Web2.5 startups and the Web3 tactics adopted by established Web2 brands. Take Netflix, for instance. In April of last year, the streaming giant launched its inaugural NFT campaign to promote a new documentary series centered around a historical art heist. By tapping into NFT communities on Clubhouse and collaborating with key micro-influencers who were already minting art on the blockchain, Netflix was able to generate buzz and grab viewers’ attention, ultimately driving more traffic to its platform.
From a branding perspective, the Web3 component in the campaign was simply to get noticed; with so many streaming options available, it’s crucial to drive engagement and boost viewership. By leveraging the power of NFTs, Netflix was able to achieve this goal (albeit temporarily) and create a viral campaign that garnered widespread attention and acclaim.
It’s not just Netflix that’s exploring the potential of NFTs in the movie industry. Hollywood is also getting in on the action, with recent examples including the auction of previously undisclosed “secrets” from Quentin Tarantino’s cult classic Pulp Fiction, like the made-up brand Red Apple Cigarettes. By connecting each NFT to pages from the director’s original handwritten script, the auction revealed new insights into the process of creating the iconic film, thereby generating excitement and interest among collectors and fans alike.
In Japan, real estate company Ruden Holdings was one of the first to experiment with the use of cryptocurrency for property purchases, 4 years ago. Through a settlement platform built in collaboration with Blockchain Global Limited, Ruden Holdings enabled buyers to convert Bitcoin into Japanese yen and receive notarized purchase agreements, with the ease and convenience of a virtual transaction. Early innovations like these paved the way for recent changes in the industry, like the Crypto Tower. These examples demonstrate the potential for new technologies to transform traditional brands.
What sets a Web2.5 startup apart from an established brand entering Web2.5?
The answer lies in the core values and principles of the Web3 community. For one, startups with a Web3 mindset are more open to the idea of decentralization. They are driven by a desire to pave the way towards a Web3 that is both impactful and equitable, all while staying true to the principles of decentralization.
This concept of decentralization, which is powered by blockchain technology, tends to be a source of fear for established companies that are deeply rooted in centralized models. They may find themselves losing their central point of power to a community that could operate as a Decentralized Autonomous Organization (DAO). DAOs have the potential to revolutionize community and corporate governance, while NFT technology offers a range of decentralized ownership possibilities, including revenue sharing.
This doesn’t scare off the Web3-minded CTO, COO, or CEO of a Web2.5 startup. At least one of them will prioritize decentralization and ensure that it remains at the forefront of their agenda, driven by their personal values and the peer pressure of the Web3 community. Web2.5 startups might have less funds than established brands but they’re more agile and not bound to what already exists. They can think and act more freely–outside the classic payment, ownership, and centralized box–while simultaneously building on the proven technologies and platform economies of Web2.
It’s intriguing to consider how fast the Web3 element in Web2.5 will play out and grow as more brands embrace the values of community and adopt a decentralized ownership model. As the Web3 revolution continues to gain momentum, traditional brands must eventually respond and adapt to these new models of ownership and governance.
Why bother with the intermediate step of Web2.5?
So here we are, in-between, relying on centralized companies and platforms while also valuing ownership and decentralization. In our journey towards Web3, it’s only natural to ask: why Web2.5? What’s stopping brands from taking the leap into Web3 all at once? Well, the path to Web3 is still nascent, with major hurdles to overcome.
Apart from the principles of decentralization, which we’ve already discussed, there’s also the matter of technology. Blockchain, the backbone of Web3, is still in its infancy and lacks the flashy user interfaces and speed that we’ve come to expect from the current Web. This stands in the way of fully decentralized applications (DApps), though the technology is evolving at powerful speeds with so-called Layer 2 solutions that bring much more computational power. This technology, however, is still primarily embraced by pioneering engineers and specialized developers. For Web3 to truly take off, it must become universally accessible to developers of all kinds.
Another challenge for mass adoption is the lack of regulation, particularly around digital assets like NFTs. While they offer a solution to issues of ownership, their legal status is still up in the air. On the flip-side, there’s also the strict regulation. If a company wants to experiment with blockchain, NFTs, smart contracts, DAOs, and the metaverse for their brand, they must consider local, federal, and international laws. This includes issues such as intellectual property, jurisdiction, contracts, taxes, and profits. As many Web3 ventures know, all individuals within their startup can be held legally accountable for engaging in wrongful conduct with blockchain technologies. It’s not the free space that it used to be.
And let’s not forget data collection. Content creation is currently propped up by advertisers and tech giants collecting our data. It’ll take a major shift in mindset for us as a society to take ownership of our data and pay for our own development. Until we can trust ourselves with our data, we’ll remain vulnerable to fraud and loss.
Finally, there’s the community sitting at the core of Web3. Blockchain technology is community-driven by nature and has the potential to uproot age-old relationships, to serve as a tool for cultivating the kind of meaningful human connections brands yearn for.
The key here is to distinguish between audience and community. Established brands that have invited customers to the metaverse often find that the expected “community feel” is not there. If this metaverse is the first space where the audience interacts, it needs a stimulated discussion or set of interactive events where people are invited to connect, work, play, or learn together. Otherwise, not a lot will happen.
Web3 startups have the community element built in. They demonstrate leadership on a specific topic and literally reward their community for their contribution and belief in the project. With strong Web3 projects, there’s often a strong community that supports the project through thick and thin.
In short, the transition to Web3 is a complex and challenging one. Brands that want to make the leap must overcome obstacles such as low participation and regulation, and align the goals of Web3 with economic interests. But a Web2.5 approach makes it easier for brands to overcome these hurdles and the rewards can be transformational, as we will explore in the next articles of this Web2.5 series.
Cover image source: Christoph Burgstedt