We’ve become increasingly interested in a category of innovation that we’re internally calling the Web3 Growth Stack—i.e., the tools that product managers and marketers use to acquire, engage and retain customers using Web3 technologies.
In Web2, the growth stack consists of a plethora of tools, platforms, and analytics systems designed to help product and marketing leaders augment growth. These tools enable structured processes around user acquisition, measuring retention and engagement, and monitoring conversion and monetization — the bread and butter of consumer internet businesses. Many of these tools have become indispensable in modern software development, and as such are extremely durable businesses. However, these tools—mostly built in the prior decade—are, for a number of reasons, unwilling or unfit to serve Web3 products and applications.
For example, some of the world’s largest ad networks (AdSense, AdRoll) have demonstrated no interest in the crypto ecosystem, going so far as to prohibit crypto advertisers entirely. Additionally, some of the best engagement and retention tooling (Segment, Iterable, and Mixpanel) ignore the rich data that exists on-chain (which is akin to in-app engagement for Web2 products). Making matters worse, no one has seized the obvious opportunity to marry in-app activity with programmatic payments, which is one of the biggest opportunities of them all. Consequently, this means that Web3 builders have been mostly flying blind and are almost always playing from behind in the great war for user attention on the internet.
However, that’s all starting to change, and 2023 will give rise to the Web3 Growth Stack.
The remainder of this post will explore what crypto-native growth infrastructure could look like. This essay should provide a broad outline for founders looking to build crypto-native growth tools, and for growth teams at Web3 companies to reason about how they can structure their internal processes.
Supercharging Growth With Web3 Primitives
The primary catalyst creating this window of opportunity is the deep integration of two core crypto primitives into growth tooling for the first time. Let’s consider each.
On-Chain Attribution & Identity
Third-party data, cookies and fingerprinting are the foundational building blocks of cohort segmentation in Web2 advertising, and they perform two core functions: attribution and identity. Attribution refers to granular event analytics around which, how, and when users interact with links, pages, and applications (touchpoint trackers, referral headers, cache data). Identity refers to the sum of user activity used to construct a profile for targeting (session cookies, location tags, on-chain data, etc.).
Web2 attribution and identity infrastructure can be used to construct rich profiles that can be rolled up into cohorts that can be targeted and served with ads and other campaigns. These technologies can also be used for Web3 products, but Web3 products also have their own tools for identifying users and their behaviors. Specifically, public keys, Web3 namespaces (e.g. .eth and .sol), on-chain credentials, NFTs, and other on-chain activity represent a new data set that can be used to construct user profiles and segment cohorts.
On-chain asset ownership and emergent behavioral data provide more signal than passive, browsing data because on-chain data is financial in nature. Minting an NFT, participating in a governance vote, or staking a protocol token are actions that signal meaningful interest in a given subject. Advertisers have been dreaming of identifying window shoppers versus real shoppers for decades. On-chain data makes this possible.
Identity and attribution are key ingredients for growth, and linking crypto-native state (wallet addresses and behavior) with Web2 state (app and browser interactions) will unlock a clearer understanding of user psychology. The Web3 attribution and identity layer is just now starting to emerge. For example, we recently invested in Spindl, which is building one of the first Web3-native attribution platforms, and they are actively building solutions that bring together Web2 and Web3 identity and engagement.
Native Bi-Directional Value Flow
The second primitive is native, bi-directional value flow. In Unlocking Payments Over Crypto Rails, Kyle explains how crypto rails allow businesses to trivially send arbitrary units of value to consumers who visit their app/website; the ability to move arbitrary quantities of any asset among any set of individuals is a step-function improvement in driving activity and distributing rewards and incentives to users.
As mentioned above, one of the biggest opportunities in the Web3 Growth Stack is to tightly couple the relationship between in-app events with programmatic, on-chain payments. Web2 products don’t have the ability to send value to users in real-time—but Web3 products do. This is a potent primitive, and one of the primary reasons large companies like Nike, Starbucks, and Tiffany’s are incorporating Web3 principles into their loyalty programs. We’ve also invested in teams like Passes, Blackbird, and Mercury that are making payments and value flows a first-class citizen in the user experience.
Once these primitives are built into the heart of new tools and products, the design space for growth tooling will expand radically.
Exploring The Web3 Growth Stack Design Space
Most product and marketing organizations think of growth as a funnel. In practice, they structure campaigns, product releases, and user-specific experiences to reduce as much leakage in this funnel as possible. The end goal is to target specific cohorts of users, build for their behaviors to increase usage, and ultimately create a repeatable growth strategy that compounds with time.
Let’s explore how Web3 ideas could impact each part of the growth funnel, starting at the top with user acquisition and working our way down to engagement and finally retention.
User Acquisition
User acquisition describes how products find, acquire, and activate new users. Demand generation—mostly accomplished through advertising—is usually the first step. Roughly speaking, in order to serve an ad, there must be:
1.The ad itself (creative)
2.An ad cohort (targeting)
3.A publisher (the display venue)
4.A way to match the ad with the publisher (an exchange or sale)
In order to place an ad on a publisher’s website in real time, there is a two-sided marketplace between publishers and advertisers, with an exchange in the center mediating the transaction (placement from advertisers as the bid, inventory from publisher as the ask).
Advertisers aim to target users that satisfy a set of traits or criteria that correlate to a higher probability of conversion, and users are likely to have a better experience on publishers when the ads they see are relevant to them. It is possible to develop a much fuller profile of the target user using on-chain data bundled with off-chain first- or third-party data, which leads to higher quality segmentation and cohort construction. For instance, it is valuable for an advertiser—e.g., Nike preparing a mint for a collectible digital sneaker —to know if the people they are targeting with their precious advertising dollars have been active on StepN, hold >150 SOL in their wallet, or participate in any virtual worlds in which they can flex the items in store.
There are already crypto-native ad exchanges (Slise), networks (Hypelab), and Demand-Side Platforms (Myosin). We expect more to follow as inferences around user behavior become higher fidelity with on-chain data, which will lead to better segmentation, cohort construction, and ultimately higher quality experiences for the end-user. Ad infrastructure has inherent network effects earned through mediating exchange between advertisers and publishers, and has the potential to capture a tremendous amount of value.
This, however, only represents the tip of the iceberg. As on-chain identity and attribution data is married with in-app event data, we expect to see improvements in the ad units themselves. For example, when a user is served a banner ad she can either view it (an impression) or click it and visit a website (click). Web3-enabled ad units might enable target users to claim an immediate reward or make a purchase directly on the ad itself without ever having to leave the page they are on. This will likely have a downstream impact on core advertising metrics like cost-per-click and cost-per-impression to cost-per-transaction. For example, imagine:
Display ads for NFT collections that allow users to mint directly from the publisher’s page—rather redirect to another page—and reward users (or the publishers that enable those transactions) with tokens. This alone would reduce the user journey by at least one click. This concept is akin to Facebook’s innovative lead-generation ads, which shorten the funnel and keep users in the publisher’s experience rather than sending them away.
Once websites become wallet-aware (Shopify is already working on “token-gated commerce”), they should have the ability to react and dynamically re-build based on users’ preferences and their value to advertisers. As part of this new “Web3-responsive” site, it will be possible for affiliate links to change dynamically based on the persona and value of the consumer. It’s easy to imagine that advertisers would be willing to pay more for repeat visitors if they could prove it improves repeat visits, retention or LTV.
Search ads that automatically airdrop tokens or send messages to users regardless of whether the viewer engages with the ad itself. This allows advertisers to target users directly based on intent.
Aside from innovations in advertising, we believe the design space for direct outbound marketing is ripe for evolution in crypto. Most notably, the design space for a recurring line of communication to the end user is a powerful user acquisition tool. Address-to-address messaging is in its early stages of gaining adoption, and protocols such as Dialect, XMTP, and Nansen Connect are building standards for messages and notifications. These tools are key ingredients for Web3-native lifecycle marketing, as pioneered in the last decade by companies such as Twilio, Iterable, and Intercom.
Today, advertisers blast and drip communications to users in hope of capturing attention at the right time. Tomorrow, advertisers can place a price on the cost of a message and pass along an embedded financial incentive for users to read it. We can imagine dynamic inboxes in the future where value can be attached to messages, and mail/messaging apps can automatically push value-laden messages to the top of the inbox. Inboxes themselves can monetize out of these rules, and give users flexibility to select filters or configurations that work while allowing advertisers to target high-value users.
Communications are critical for engagement and retention in keeping a line open with customers that are already onboarded.
Engagement
Once users are on-boarded to a product, it’s critical to understand how they interact with it. Who decided to participate, and what drove them? Where in the product are they spending most of their time, and where should they be spending more? Who returned to the product once over a span of a month, and who returned twenty times? At which point in the flow do most users drop off?
Answers to these questions provide insight into future directions for the product, and how to keep customers happy in the first place.
Web2 tools such as Segment and Fullstory provide product teams granular data about which users are doing what within their apps. Every check-in, button click, scroll, tap, and purchase is a logged event with a timestamp within a journey that gives product teams some understanding of how users are interacting with the product.
Mode, Looker, and Heap dashboards paint a picture of overall retention by showing how cohorts behave across user acquisition campaigns and product improvements. Fine tuning the product based on engagement data of highly active users versus high churn cohorts helps inform key decisions.
Crypto-native teams such as Raleon, Merlin, and Garden are all experimenting within the design space at the intersection of Web2 engagement tooling and on-chain attribution and identity. If product and growth teams acquire the ability to build causal links between granular actions within their applications and the on-chain personas of their users, they become able to make much more informed decisions about inflection points in the product lifecycle.
Aside from bundling on-chain transactions and behavior, a key distinction between Web3 products and their predecessors is that they are often a venue for exchanging digital goods with explicit financial value. If there are financial incentives to be fought for, there will be a race to claim them first, and bots will win. This problem has plagued Web3 teams because they haven’t had the right tools to combat it. Web2 brands entering Web3 will also soon learn they too need growth analytics that help identify and stomp on sybil attacks.
Sybil attacks can have a strong adverse impact on the sustainability of a product. Granular event analytics, and the evolving landscape of proof-of-humanity credentials should address these problems and help product teams understand which of their users are real and which are bots.
User-facing products built over the next few years will leverage a set of relevant on-chain protocols, but most users don’t interact with protocols themselves — they face the apps built on top of them. Protocol teams are extremely interested in how end-users use the core underlying primitives. Product-level engagement data is far more rich and contains many more attributes than the on-chain data that protocol teams have access to. We believe that this product engagement data can potentially even be considered a form of payment by product teams to protocol teams in the future.
However, what’s more exciting is what can be done with this data once product teams have a clear understanding who their customers are.
Retention
More mature growth teams care deeply about customer loyalty and retention; it’s usually less expensive to retain a customer than it is to acquire a new one. Web3 identity and attribution data gives product teams new ways to do that, arguably with stronger incentive models than presently exist in Web2 products.
The core promise of crypto primitives is to enable coordination of activity at scale via incentives. There is a tremendous opportunity to supercharge the Web3 retention layer with these primitives. For example, free-to-play games can offer NFTs or fungible tokens for simply coming back to the game every day. A crypto-native version of Snapchat could issue snap-streak collectibles or verifiable snap-scores to provide quantifiable social status for continued engagement. A core unlock of the retention layer in crypto is that if products could previously distribute rewards in the form of status and utility, they can now distribute rewards in the form of status, utility, and financial value.
Several projects are independently building the infrastructure to do this. Galxe is building on-chain credentials and other proof-of-attendance NFTs; chains like Aptos and Optimism are employing targeted airdrops for early adopters and builders; and NFT projects are leveraging token-gated events (e.g., derivative collection mints, community calls, parties etc.) to keep community members engaged and retained. These growth teams are presenting users with status or utility objects delivered through the product, which permeates through the community of users and reifies its value. Teams such as Rabbithole, Layer3, and Sonder are also pioneering this.
Rewards are necessary, but not sufficient to keep users returning. The ideals of Web3 are sovereignty, ownership, and permissionlessness — specifically in opposition to the types of platform lock-in that previous generation consumer products thrived on. Data portability and composability are fantastic because they have the potential to give users ownership in the platforms they are building, but they still need to develop customer affinity in the same way that consumer products did over the last decade.
Developing customer affinity through repeat usage in crypto will heavily rely on the customer experience and proactive retention campaigns. Platforms and marketplaces have historically differentiated themselves via discovery, curation, trust, and reputation. Leaders in crypto such as Binance, Magic Eden, and Phantom provide users a higher degree of convenience than their competitors, and this in turn allows them to secure user attention at scale. Web3 products that treat the end-user as a priority, either by abstracting away all complexity in their interface or having a dedicated support team, are likely to benefit from the attention of the next wave of on-chain users.
New Incentive Models
At the beginning of this post, we argued that the two most important patterns in Web3 growth were crypto-native attribution and identity and native, bi-directional value transfer. Looking ahead, the regulatory tailwinds suggest that invasive data tracking tools (e.g., cookies, event trackers, fingerprints, third-party data marketplaces) are likely to be phased out in the future as strong rules like GDPR, CCPA and others take effect. As that happens, new privacy-preserving platforms, data sovereignty tools, next-gen digital growth platforms will supplant the old. In addition to all of the ideas above, we are excited about pointed solutions in the following areas:
1.DataDAOs — For users that opt in to sharing their data in a privacy preserving manner, can we construct incentive systems that allow them to receive some share of the direct value that is created for advertisers and publishers?
2.Privacy-first Ad Exchanges — Brave’s Themis uses zero-knowledge proofs to construct a decentralized, on-device ad exchange. The guarantees around attribution and fulfillment are trust-minimized and user privacy is treated as a first class citizen. Can other companies develop high quality privacy preserving ad-exchange experiences?
3.New types of crypto-native ad exchanges and ad units — there will be new kinds of ad-units that leverage crypto-primitives, both at the UI-layer (e.g. mint an NFT by clicking on an ad), and at the ad-exchange/database layer (e.g. host ad-exchange on Solana, and host ad content on Ceramic or Tableland).
4.Sybil resistance and Proof-of-Humanity — How can users prove that an address is owned by a human (rather than a bot), while simultaneously recognizing that users will have many addresses?
We believe that crypto is in a great era of experimentation for applications and consumer facing products, and that growth tools are critical to their success.
