Web3 Digital Transformation
Delivering Trusted Web3 Business Strategies Straight to Your Inbox
The concept of “digital transformation” is the name given to the idea that companies should begin to bring technology to bear on everything from business operations to long-term strategy. A digital transformation doesn’t involve buying better computers and finally embracing the cloud, it’s a way of thinking about your business, a way of working on your business.
Part of a digital transformation involves automating as many tasks as possible, but it also has to do with leveraging software to improve the customer’s experience. Importantly, digital transformation is a cultural mindset, one that helps a company to continually evolve at the edge of technology, product-market fit, and industry disruption.
As blockchain technology begins to become more commonplace, token economics, or tokenomics as crypto-natives call it, will become more prominent in this discussion of a digital transformation. Tokenomics is the term used to describe the creation of a tokenized economy at the nexus of employees, customers, suppliers, and other stakeholders. Companies that are able to successfully tokenize their ecosystem can then partner with other businesses to expand the ecosystem, creating a larger economy that benefits all participants.
In other words, tokenization will become a key part of the way businesses both adopt and adapt to web3 technology. As 0xMarcus writes below, “web3 primitives could raise new possibilities by generating a strong pull on capital, partners, talent, and resources. Token economies are a natural next step in the transformation process for companies.”
Web3 As Digital Transformation
Author: 0xMarcus
Over the last decade, the concept of “Digital Transformation” has impacted every industry on the planet. My personal mental model was shaped by the work of George Westerman, Didier Bonnet, and Andrew McAfee in the book “Leading Digital: Turning Technology into Business Transformation”. On a very high level, Digital Transformation revolves around turning your company into a digital powerhouse where technology informs a substantial part of your business model. In the last edition of this newsletter, we framed the issue using Marc Andreessen’s famous “software eats world” thesis.
After reading that book, I always ask clients about their vision for disrupting themselves and which role technology plays in their products and services. I have learned there are three main levers that businesses use to enact digital transformation:
Transform your organization and processes: Develop a digital DNA at the core of your company by automating as much as economically possible and digestible by your organization. Establish a digital workplace and lead with a participatory culture to engage your people.
Transform the perception of your company by improving customer experience: Think “customer first” and establish a customer-centric attitude for the whole team, from the executive management to facility management. Customers want to feel welcome and like they matter.
Transform your business model: Constantly think about how to disrupt your business model. Find out how someone could take over your business model like AirBnB did with the hotel business or Uber with transportation. Ask yourself where digital services or products would bring value to your customers. From connecting your physical products to the internet of things to subscription models in your services to your choice of platform, everything should be open to experimentation.
If you look around, you will find many of the major players in your industry have already adopted aspects of digital transformation.
And I am not only talking about the obvious industries with some proximity to technology. In fact, some of the best examples are from industries that are not typically associated with “tech.” Did you know that Nike knows which music is played where, at what time, and how long runs last? Imagine what value you could provide with such insight about your customers.
Starbucks is another example of a company that became a digital powerhouse. The company managed to leverage its digital capabilities to accelerate growth in its Starbucks Rewards membership program — meaning they used technology as a tool to engage and keep customers in the loop. Going further, the company started to apply creative and thoughtful ways to use data so that even non-rewards customers will benefit from being better served. Starbucks isn’t a coffee company; it’s a tech company that serves coffee.
Web3-Enabled Tokenomics Is the Next Stage of Digital Transformation
Web3 is basically a vision of a newer, better internet. While web2 relied on trusted intermediaries, web3 is built upon blockchain technology and brings with it new values of decentralization, transparency, permanence, open-source code, and ownership. Bankless Consulting is beginning to write extensively on this issue.
Web3 tools and technology will also drive digital transformation. The next level of digitizing your business would enable you to create and control incentive mechanisms for the participants of your ecosystem - a concept known as token economics, or tokenomics.
The secret ingredient in a web3 digital transformation is not the tech or that one can buy an overpriced jpeg as an NFT; it is the possibility of transforming your ecosystem by leveraging token economics.
The ecosystem of a company usually consists of its customers, partners, staff, and shareholders. With web3 concepts you would be able to design and control the incentive mechanism of these stakeholders by building a tokenized economy around them. Tokenization creates a strong gravitational force with the values you provide, which pulls customers, employees, partners, and investors into your business model.
Web3 and the Customer Experience
Gartner defines customer experience as the customer’s perceptions and related feelings caused by the one-off and cumulative effect of interactions with a supplier’s employees, systems, channels, or products.
A well-designed customer experience pulls clients into your ecosystem and makes them stay there. A sustainable company needs customers who recommend the services of the business and engage with products and services. The level of satisfaction also indicates the intensity of engagement.
Imagine a loyalty program where your customers are incentivized for usage and feedback about the quality of your products and services. That feedback can expand beyond the typical feedback button in the my.company.com portal. Here, I am talking about the system's inherent feedback mechanisms.
With web3, the incentive comes in the form of tokens, which users can spend at various places in your ecosystem. Furthermore, you could distinguish engaged customers from your customer base with an NFT they hold, and create special offers or services just to please these select groups. Or you could create gated communities for select customers based upon their blockchain holdings.
More mature ecosystems allow you to build an economy where the customers could use those tokens for other products and services from partners in your ecosystem. It is even possible to imagine trading these tokens on secondary markets in exchange for value.
Boosting Business Ecosystems With Digital Economies
Venkat Venkatraman illustrates the importance of a strong ecosystem and the positioning at the various stages of a digital transformation journey in his book “The Digital Matrix: New Rules for Business Transformation Through Technology”. Venkatraman explains that an understanding of ecosystems and whether to participate or position yourself to orchestrate within them is very important, because it allows you to know where to apply your energy and how to make the most of your resources across relevant ecosystems.
Venkatraman introduces “coopetition” as a strategy - the idea of combining various elements from competition and cooperation to create a fruitful relationship:
“Pure competition is about dividing up the existing value pie; companies use their set of capabilities to win a greater share of the value. Cooperation is about enlarging and expanding the value pie by pooling the capabilities of several companies for the short term and also for the longer term. In contrast, coopetition is about both expanding the pie and ensuring that you get a fair share of the value.”
Another useful explanation can be found by Greg Sarafin at EY. Greg states that “Participants in business ecosystems create more value collectively than they could create individually.” So nurturing the ecosystems will create prosperity across the ecosystem and the foundation for providing sustainable customer value.
It is becoming more and more important to have a solid understanding of business ecosystems if you want to stay ahead of the rate of change. A well designed ecosystem allows members to generate more value together than they might individually.
Businesses that fail to adopt robust ecosystems run the danger of becoming obsolete.
By applying web3 technology to the above example, we can see a world where clients might use ecosystem tokens to pay for other goods and services from various partners. This would drive customer experience for the whole ecosystem and its participating members.
The relationship with your partners could also benefit from this modern digital economy. Discounts, referrals, fees, and incentives could be measurably bound, cementing the partnership even deeper. You would also be able to create gated communities with special partners who have provided value and thus “earned” an NFT to prove it.
Engaging Your Employees With Tokens
Employee engagement is a huge factor in a company’s success. Depending on your industry, you might already be facing a talent shortage. You want people in your company who own their roles and overdeliver. This topic is covered by “New Work” concepts and finds its manifestation usually in “modern workplace” programs.
Stock options are an established instrument to engage your people financially over the long term. With a token economy, you could incentivize your staff on a finer-grained level than with stocks.
Take incentive design to the next level by borrowing from gamification and game theory by leveraging “experience point” systems. A study from 2017 in the journal “Computers in Human Behavior” examined the motivational impacts of gamification and concluded that various game design components can result in correlated motivational effects. The impact of various combinations of game design features were investigated using a framework from self-determination theory. Badges, leaderboards, and performance graphs had an impact on competence and autonomy in terms of task significance. A meaningful plot, teammates, and avatars all had a favorable impact on social relatedness.
And if you are a believer in modern leadership approaches like agile organizations or are even leaning towards holocracy, you could arm your staff with governance tokens to use in decision-making processes. This approach borrows from decentralized autonomous organizations (DAOs) where governance tokens are the established mechanism for decision making via voting processes.
Projecting this into the ecosystem scenario above, one can easily understand why earned tokens are accepted in retail situations where they can be treated as loyalty points or even be used for payments.
Transform Investors Into Supportive Participants
Investors in your company are convinced the value of your company will grow in the future, thus making it a profitable investment. The jurisdiction of the company and the quantity of stock investors own determines the level of control for the investors. In some cases and early stages, investors can use their networks and experience to help guide the company, but in general investors are not not considered to be active participants in the company.
Involving investors in your web3 economy might change that. With the ecosystem token example above, all investors holding the token would participate directly in the growth of the entire ecosystem.
In scenarios with governance tokens that influence decision making, investors could even inject personal or network knowledge to guide decisions. This could aid certain aspects of maturity in product development or organizational processes.
Additionally, this opportunity of influence might attract more or even better investors who support the journey of your company with capital, network traction, and knowledge.
Using mechanisms of decentralized finance (DeFi), investors could even use or create pools on decentralized exchanges, like Uniswap, to exchange tokens for other digital currencies or use decentralized lending platforms to borrow against their positions and have liquidity immediately while keeping the investment alive simultaneously.
It’s Just the Beginning of Digital Transformation
The previous section introduced how the different stakeholders, involved in the areas of digital transformation, could provide value to the ecosystem and receive tokens in proportion to their value added. The below image illustrates the intertwinement of stakeholders in a token economy. Here, every stakeholder would be able to clearly answer the question “what’s in it for me?” and would receive immediate incentives for participation. This amplifies the gravity of the system and attracts more participants, resulting in a circle of sustainable growth.
Whereas most digital agendas focus solely on the company itself, the attention to transform the ecosystem with web3 primitives could create new opportunities by generating a strong pull on capital, partners, talent, and resources. Token economies are a natural next step in the transformation process for companies.
Digital transformation will be an ongoing responsibility for executives. According to statista, the spending on digital transformation will almost double by 2026, and blockchain-related technologies are among the top ten topics to shape trends for the next decade. Decision makers should mark web3 and token economies on the digital agenda to be well prepared for the next evolution of the internet.
0xMarcus is a Web3 Strategy & Tokenomics consultant at Bankless Consulting, focusing on transforming business models and strategies to web3. He has broad expertise with over 30 years experience in major industries like banking & finance, retail, manufacturing, and utilities. With roots in enterprise software architecture and a degree in information systems he gained profound knowledge of decentralized software systems. Follow him on Twitter, Lens, and LinkedIn.
Web3 Business Developments
Curated News on Recent Blockchain Adoption and Innovation
California Pilots Blockchain Car Title Management System on Tezos Fork
Author: Shalini Nagarajan
The California Department of Motor Vehicles (DMV) is testing the use of blockchain technology to improve the slow processes around assignment and transfer of car ownership. They plan to develop consumer-facing applications such as digital wallets and car title NFTs later this year.
The state is partnering with Tezos and crypto software provider Oxhead Alpha to explore crypto adoption. Oxhead Alpha has built a set of smart contracts on a version of Tezos to test e-titles, which could reduce the processing time for documentation, lower fees, and eliminate paperwork for vehicle transfers. Digital titles would also open up future use cases with embedded metadata stored in the e-title. This would facilitate easier tracking of vehicles by law enforcement and could include vehicle-specific data like sales history, maintenance history, and accident reports.
This pilot is part of a broader trend of government and business entities exploring the use of blockchain in various sectors such as capital markets, healthcare, and digital identities. The DMV project is currently running with validator nodes but has not yet expanded to cover broader services such as title transfers between states.
Amazon NFT Initiative Coming Soon
Author: Michael Bodley
Amazon is launching a digital assets enterprise this spring, which is expected to include an NFT initiative. They have already been shopping the digital collectibles effort to various entities, including Layer 1 blockchains, blockchain-based gaming startups, developers, and digital asset exchanges. There is a focus on blockchain-based gaming and related NFT applications. While details about the platform are still unfolding, one example in development is getting Amazon customers to play crypto games and claim free NFTs. While the details of the NFT initiative are not clear, it is expected to run out of Amazon proper, rather than its web-hosting platform, Amazon Web Services (AWS).
A CEO’s guide to the metaverse
Author: Homayoun Hatami, Eric Hazan, Hamza Khan, and Kim Rants
The metaverse has enormous potential for generating value, estimated to be between $4 trillion to $5 trillion by 2030. While the metaverse is still in its infancy, there are risks to not embracing the technology and missing out on the wave of change it can bring. The biggest risk most businesses face is not the debacles in the crypto markets and NFTs, but rather missing the potential impact the metaverse can have on their industry. According to a survey by McKinsey, 95% of business leaders expect the metaverse to have a positive impact on their industry within 5 to 10 years, and 61% expect it to change the way their industry operates.
The metaverse has the potential to disrupt industries such as banking, manufacturing, media, professional services, retail, and telecommunications. While the metaverse is not yet ready for adoption at scale, every CEO should be taking steps to ensure their company is prepared to enter the metaverse. This includes:
Determining why the metaverse fits into the company's growth and innovation agenda.
Identifying and prioritizing practical use cases that align with the company's strategy.
Appointing leaders to champion the metaverse efforts and develop the necessary partnerships and operating model.
CEOs are the natural leaders to direct company resources and create a coherent, value-driven response to exploring the metaverse and its potential. Some of the biggest opportunities in the metaverse include its appeal across genders, geographies, and generations; consumers have already shown they are ready to spend on metaverse assets; they are open to adopting new technologies; companies are investing heavily in the required infrastructure; and brands experimenting in the metaverse are finding that customers are delighted. The metaverse is also a technology that combines elements of AI, immersive reality, advanced connectivity, and Web3. It's hard not to see how this leading edge innovation will not disrupt many industries in the near future.
Progressive Decentralization: A Playbook for Building Crypto Applications
Author: Jesse Walden
Web3 and crypto founders face a unique challenge when building a product: how do you build a successful product that is also decentralized?
a16z is a leading VC firm that has been helping entrepreneurs build the future of the internet using web3 technology. They understand the importance of having a company that is owned and operated by a community of users, but also the challenges truly decentralized companies face in building successful products. They have outlined a three-step process for “progressive decentralization”, which allows founding teams to gradually turn over control to the community.
The three phases of successful decentralization are finding product/market fit, increasing community participation, and working towards sufficient decentralization.
Finding product/market fit: During this phase, founders prioritize traditional startup elements (team, execution, learning) and communicate decision-making authority, avoiding the distraction of tokens.
Increasing community participation: With signs of product/market fit, founders can begin to invest in open development, further engage the community, and plan for fair token distribution.
Working towards sufficient decentralization: Once a successful product has a strong community, the founding team transfers majority ownership and control to the community, ensuring the token is not a security and the network is sustainable. The “exit to the community” is achieved through widespread token distribution by airdropping tokens to users and contributors.
L'Oréal’s NYX Makeup Brand to Launch DAO, Ethereum NFTs to ‘Redefine Beauty’
Author: Kate Irwin
NYX Professional Makeup, a brand owned by L'Oréal, is launching an online beauty “incubator” in the form of a DAO called GORJS. The goal of GORJS is to set a precedent for “what beauty will be in the metaverse” and lead the cultural conversation as it relates to the values of diversity, inclusivity, and accessibility.
By using a DAO, NYX is able to create a decentralized platform where members can collectively govern and make decisions about the organization's resources and projects. The use of non-transferable GORJS governance tokens allows members to vote on proposals and projects, increasing their engagement in the organization and fostering a sense of community ownership. NYX aims to give 3D creators a path to success within the web3 ecosystem, and redefine beauty in the digital age of avatars and pseudonymity.
“We believe that a new generation of web3 creators will help redefine beauty.”
NYX Global Brand President Yann Joffredo
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0xMarcus, siddhearta, HiroKennelly
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