a16z partner: Web3 project needs to build a new GTM concept

Author: Maggie Hsu, Partner at a16z

Every company faces a different "cold start problem": How do you get something from nothing? How to get customers? How do you create network effects—that is, when more people use your product or service, your product or service becomes more valuable to customers—so that more users are motivated to come?

In short, how do you "go to market" and convince potential customers to spend their money, time and attention on your product or service?

Web2 is the Internet era defined by large centralized products/services, such as Amazon, eBay, Facebook, and Twitter, where the vast majority of value is generated by the platform itself rather than users. The response of most Web2 organizations to the above issues is to invest heavily in sales and marketing teams as part of a traditional go-to-market (GTM) strategy focused on lead generation, acquisition and retention client.

But in recent years, a whole new model of organization building has emerged. This new model uses decentralized technology to bring users into the role of owners through digital primitives called tokens (Tokens), rather than being controlled by the enterprise—that is, centralized leaders formulate relevant All decisions about products or services, even when using user data and free, user-generated content.

This new model, dubbed Web3, has revolutionized the GTM (go-to-market) philosophy of these new types of companies.first level title

01. The Catalyst of the New GTM Strategy: Tokens

The concept of the user acquisition funnel is at the core of GTM, and most companies are very familiar with this concept: from awareness and potential user generation (Awareness & Lead Generation) at the top of the funnel, to conversion (Conversion) and user retention (Retention) at the bottom of the funnel ,As shown below. So traditional Web2 GTM addresses the cold start problem through this very linear view of user acquisition, including areas like pricing, marketing, partners, sales channel mapping, and sales force optimization. Measures of success include website hits, revenue per customer for the business, and more.

Web3 changes the whole method of starting a new network, because Token (token) provides an alternative to the traditional way to solve the cold start problem. The core development team can use Token to attract early users, instead of spending money on traditional marketing to attract and acquire potential users, and these users can be rewarded for their early contributions when the network effect is not obvious or has not yet started. These early users are not only evangelists who bring more people to the network (they also want to be rewarded for their contributions), but in essence, this makes early users in Web3 more efficient than traditional business development or Salespeople bring a more powerful influence.

One example is the lending protocol Compound (disclosure, a16z is an investor in this protocol, as well as other organizations discussed in this article), which uses tokens to incentivize early lenders and borrowers, namely COMP tokens. In the form of providing additional rewards for users participating in its "liquidity mining", thereby "guiding liquidity". Any user of the protocol, whether a lender or a borrower, is rewarded with COMP tokens. After the liquidity mining program launched in 2020, the total value locked (TVL) in the Compound protocol jumped from $100 million to $600 million. It is worth noting that although token rewards can attract users, this method alone is not enough to make users "sticky", which will be described in detail later. While traditional companies do incentivize employees through equity, they rarely incentivize customers financially in the long run.

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02. GTM Matrix in Web3

For a Web3 organization, according to its organizational structure (centralization vs. decentralization) and economic incentives (no Token vs. using Token), its GTM (go-to-market) strategy depends on the organization's position in the matrix below:

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03. Token-based decentralization

First, let's take a look at the top right types of Web3 organizations in the above figure, including organizations with unique Web3 operating models (such as DAO), networks (such as the Ethereum network) and protocols (such as the DeFi protocol), which require novel GTM strategy.

This type of organization follows a decentralized model (although they usually start with a core development team or operations staff at first) and uses token economics to attract new members, reward contributors, and align incentives among participants.

The fundamental difference between this type of Web3 organization and those using the more traditional GTM model involves a key question: What is the product? Web2 companies and those that fall into the bottom left category of the above chart largely have to start with a product that appeals to the public (“come for the tool, stay for the network”), while Web3 companies do this by and community (community) this dual perspective to enter the market.

Having a product and a solid technical foundation is still important, but it doesn't have to come first. What these Web3 organizations need is a clear purpose to define their raison d'être: what is the only problem they want to solve? It also means not just raising money based on a white paper and founding team, but having a strong community - not just "community-led" or "community-first", but community-owned - so that Blur the distinction between owners, shareholders and users. Long-term success in Web3 is about having a clear purpose, having an engaged and high-quality community, paired with the right organizational governance. As shown below:

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GTM strategy for decentralized applications

“Decentralized applications” cover use cases such as decentralized finance (DeFi), non-fungible tokens (NFT), social networking, and gaming.

• DeFi DAO

A major category of decentralized applications are DeFi applications, such as decentralized exchanges (such as Uniswap or dYdX) or stablecoins (such as MakerDAO's DAI). While they may have similar GTM strategies to other standard, non-decentralized applications, value is generated differently due to differences in organizational structure and token economics.

The path followed by many DeFi projects is that the protocol is first developed by a centralized development team. After a protocol is released, teams often try to decentralize the protocol to increase its security and assign its operational management to a decentralized group of token holders. This decentralization is usually achieved by simultaneously issuing governance tokens, launching a decentralized governance protocol (typically a decentralized sub-autonomous organization, or DAO), and delegating control of the protocol to the DAO organization.

This process of decentralization can involve many different structures and physical forms. For example, many DAO organizations do not have any associated legal entity and simply operate in the digital world, while others use multi-signature (multisig) wallets to act on the direction of the DAO. In some cases, non-profit foundations are established to oversee future development of the protocol under the direction of the DAO. In almost all cases, the original development team continues to operate as one of many contributors to the ecosystem created by the protocol and develop complementary or ancillary products and services.

Here are two well-known DeFi examples:

• MakerDAO started as a DAO in March 2015 and established a foundation in June 2018, which will be dissolved in July 2021. MakerDAO has a stablecoin, DAI, whose purpose is to allow users to conduct fast, low-cost, borderless, and transparent transactions in stable units of value. This stablecoin can be used to purchase goods and services or participate in other DeFi applications. Additionally, MakerDAO has a governance token, MKR. This DAO organization approves various governance changes as well as certain parameters of the protocol's operation, including the collateralization ratio that the protocol uses to mint DAI.

• The Uniswap protocol was launched by a centralized company, but is now owned and managed by the Uniswap DAO, which is controlled by UNI token holders. Uniswap Labs is the originator of the protocol, which runs an interface to the Uniswap protocol and is one of many developers contributing to the protocol's ecosystem.

So what does the GTM (go-to-market) strategy look like here? Take DAI as an example, the algorithmic stablecoin is issued and governed by MakerDAO. One goal of most algorithmic stablecoin issuers like MakerDAO is to get more usage of their stablecoins in the financial ecosystem. Hence, its GTM (Go to Market) initiatives are: 1) listing on cryptocurrency exchanges for retail and institutional trading; 2) integration into wallets and apps; and 3) acceptance for payment for goods or services. Today, there are more than 400 DAI marketplaces (including exchanges, DeFi applications, etc.), integrated into hundreds of projects at the same time, and accepted as a form of payment through major commerce solutions such as Coinbase Commerce.

How did they do that? MakerDAO initially did this with a more traditional business development team that drove many of the early collaborations and integrations. However, with the increase in decentralization, the MakerDAO community established the Growth Core Unit, dedicated to the continuous development of the DAI stablecoin and the Maker protocol through strategic partnerships and business development, which is a sub-community of Maker token holders ( subDAO). In addition, since MakerDAO is decentralized, the operation of its protocol is trustless and permissionless, and anyone can use the protocol to generate or buy DAI.

GTM Strategies for DeFi DAOs: With the new GTM (Go-to-Market) strategies for web3 come new ways to measure success. A typical success metric for DeFi applications is the aforementioned Total Value Locked (TVL). It represents all assets used to transact, stake, or lend using a protocol or network.

However, TVL is not an ideal measure of long-term organizational health and success. While new DeFi protocols can attract massive capital inflows and TVL by duplicating the open-source code of existing protocols and offering high yields, this is not necessarily user-sticky—traders typically leave when the next project comes along .

Therefore, the more critical metrics to track are things like the number of unique token holders, community engagement frequency and sentiment, developer activity. Additionally, since protocols are composable—that is, can be programmed to interact and build upon each other—another key metric is integration, the number and type of integrations can be traced to how the protocol is used in other applications such as wallets, exchanges, and products How and where to use.

• Social, Cultural and Arts DAO

For social, cultural, and arts DAOs, going to market means building a community with a specific purpose—sometimes even starting with a text chat between friends—and growing that organically by finding others with the same purpose. Community. But isn't this "just a group chat", or just like a traditional Kickstarter campaign?

No, because while organizers of traditional web2 crowdfunding campaigns may also have a clear goal, they must be more aware of the top-down approach to achieving it. Project sponsors typically detail the purpose of raising funds, a clear product roadmap, and a comprehensive timeline. In the web3 model, the purpose is paramount, but the means are often determined later - including how the money will be spent, product roadmaps and timelines.

For example, for ConstitutionDAO, the purpose is to buy a copy of the U.S. Constitution; Virtual Country Club; and for PleasrDAO, it’s about collecting, displaying, and creatively adding/sharing with the community NFTs that often represent culturally significant ideas and movements.

Take ConstitutionDAO, for example, which raised $47 million from a community of strangers who came together for this purpose. The whole process was done in a matter of weeks, started with a clear goal and raised money for that specific purpose only. Other than that, there wasn't much to ConstitutionDAO - no clear roadmap, execution plan, or even a token at the time (created after a failed auction). Those who donated money were so aligned with this goal and motivated by the community that they simply wanted to contribute and spread the word, and Twitter was at one point filled with related memes.

Friends with Benefits is a social DAO organization that can only be joined by holding its Token. It was originally a Token-gated Discord server for web3 creators. In addition to holding at least $FWB tokens (representing membership in the DAO), potential members must apply to FWB via a written application. The community grew, connected through various Discord channels, and eventually realized that one of the products they could build was an event app that required a token to join. FWB allows creatives to gain real interest in the community, and the DAO framework enables this decentralized social group to coordinate at scale, such as allocating budgets and completing projects from publishing content to producing activities.

GTM Metrics for Social DAOs: One of the key metrics to gauge the health of a DAO is the quality of community engagement, as measured by the primary communication and governance platforms it uses. For example, a DAO could track chat channel activity on Discord; membership activation and retention, community call participation, participation in governance (who voted on what, and how often), and actual work done (number of paid contributors) .

Other metrics might be new network relationships established, or a measure of trust established between DAO community members. While it is true that some tools and frameworks already exist, social DAO metrics are still an emerging field, so as the field develops, we will see more tools emerge and develop.

• Game DAO

earn while playingearn while playing(Play-to-Earn), Play-to-Mint, Move-to-Earn, or other types of games are very similar to popular web2 games - but with two key difference:

• Web3 games use in-game assets on an open global blockchain platform, rather than the closed, controlled economies of traditional Pay-to-Own and Free-to-Play games body;

• Web3 gamers are able to become real stakeholders and have a say in the governance of the game itself.

In Web3 games, GTM (go-to-market) strategies are built through player referrals and cooperation with guilds. pictureYield Guild GamesGuilds like (YGG) allow new players to start playing by renting game assets. Guilds choose which games to support based on 3 factors: game quality, strength of society, and the robustness and fairness of the game economy. Gaming, community and economic health must be maintained simultaneously.

While developers of blockchain-based games may have lower ownership percentages and/or royalties, by incentivizing players to become owners, developers are helping grow the overall game economy for all.

But unlike Web2, Web3 games are driven by purpose and community. For example, Loot, a game that started with content before moving to gameplay, was driven by purpose and community rather than product to drive GTM. Loot is a collection of NFTs, each called a Loot bag, which holds a unique set of adventure gear items (like a dragonhide belt, silk gloves, and more). Loot essentially provides the building block primitives upon which games, projects, and other (virtual) worlds can be built. Inspired by the Loot bag, the Loot community has created everything from analysis tools to spin-off art, music collectibles, quests and more.

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GTM strategy for L1 blockchains and other protocols

In Web3, L1 refers to the underlying blockchain. Avalanche, Celo, Ethereum, and Solana are all L1 blockchains. These blockchains are open source, so anyone can build on top of them, copy or modify them, and integrate with them. The growth of these blockchains comes from more applications being built on top of them.

L2 refers to any technology that runs on top of existing L1 to help solve the scalability challenges of L1 networks. One type of L2 solution is Rollups. L2 Rollups "rolls up" transactions off-chain in batches, and then sends the transaction data back to the L1 network through a "bridge". There are two main types of Rollups: Optimistic Rollups and ZK-Rollups - the former will "optimistically" assume that these off-chain transactions are honest and valid, and prove fraudulent transactions by submitting fraud proofs, or use "zero knowledge" Proof to ensure the validity of the transaction. Most of these current L2 solutions are currently being developed for Ethereum and do not yet have their own native tokens.

Furthermore, protocols can be built on top of other L1 or L2, such as Uniswap, which supports Ethereum L1, Optimism (L2) and Polygon (L2).

The growth of L1 blockchains, L2 scalability solutions, and these other protocols can come from forks, where the network is copied and changed. For example, Celo was forked from Ethereum (L1 blockchain). Nahmii and Metis forked L2 solution Optimism. Sushiswap also came from a fork of Uniswap. While this may seem negative at first, the number of forks a network has is actually a measure of success, indicating that others want to replicate its success.

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04. Centralization & No Token: Mixture of Web2 and Web3

Many companies of the type on the lower left of the aforementioned matrix (that is, centralized teams that do not use Token) provide users with entry points and interfaces to access web3 infrastructure and protocols.

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software as a service

Some companies in this space follow the traditional software-as-a-service (SaaS) business model, such as Alchemy, which provides nodes as a service. These companies offer on-demand infrastructure through varying tiers of subscription fees determined by factors such as storage capacity required, whether nodes are dedicated or shared, and monthly request volume.

This SaaS business model typically requires a traditional Web2 GTM (go-to-market) strategy and incentives. Customer acquisition is through a combination of product-oriented and channel-oriented strategies:

Product-oriented user acquisition focuses on getting users to try the product itself. For example, one of Alchemy's products is Supernode, an Ethereum API aimed at any organization that builds on Ethereum but doesn't want to manage their own infrastructure. In this case, users try Supernode through a free tier or freemium model, and these users recommend the product to other potential users.

In contrast, channel-driven UA focuses on differentiating between different customer types (e.g., public versus private sector customers) and aligning sales teams with those customers. In this case, the company may have a sales force that focuses only on public sector customers (such as government and education) and will develop a deep understanding of the needs of such customers.

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Markets & Exchanges

Other companies in this space rely on marketplace and exchange models that consumers are relatively familiar with, such as NFT marketplace OpenSea and cryptocurrency exchange Coinbase. These businesses generate revenue—"fee"—based on transaction fees (usually a percentage of the transaction), which is similar to the business model of typical Web2 marketplaces such as eBay and Amazon. For these types of companies, revenue growth comes from an increase in the number of listings, the average dollar value of each listing, and an increase in the number of users of the platform—all of which lead to increased transaction volume while increasing the diversity , market liquidity and other aspects to benefit users.

A key move of GTM here is to increase channel distribution by cooperating with other platforms and displaying selected tokens. It's similar to Amazon's Affiliate Program, in which bloggers link to items they like, and any purchases made through those links earn the blogger a commission. But a key difference between web2 and web3 is that, in addition to affiliate fees, web3 also allows royalties to be distributed to creators. For example, OpenSea offers a traditional affiliate sales channel through their White Labe program, purchases made through a referral link give the affiliate a percentage of the sale, but it also allows royalties and creators can continue to earn money from any secondary sales Get a certain percentage of profit. (Cryptocurrencies make this web3 feature possible, as smart contracts can pre-encode percentage arrangements, blockchain track provenance, etc.)

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05. GTM strategy

airdrop

airdrop

Airdrops are when projects distribute tokens to users to reward specific behaviors that the project wants to incentivize, including testnets or protocols. These tokens can be distributed to all existing addresses on a particular blockchain network, or targeted (e.g. to specific key influencers); often, these tokens are used to solve the cold start problem - bootstrapping early adoption of projects, Reward or incentivize early adopters, etc.

In 2020, Uniswap airdropped 400 UNI to anyone who used the platform. In September 2021, dYdX airdropped DYDX to users. In November 2021, ENS conducted an airdrop to anyone who owns an ENS domain name. Anyone who owns an ENS domain name before October 31, 2021 is eligible to apply for $ENS tokens (the deadline is May 2022). This token holder is provided with governance rights to the ENS protocol.

In the NFT field, NFT project airdrops are also becoming more and more popular to help more people access and other reasons. A recent notable airdrop is from the Bored Ape Yacht Club (BAYC), an NFT collection of 10,000 unique ape figures. On August 28, 2021, BAYC created the corresponding Mutant Ape Yacht Club (MAYC). Every BAYC NFT holder gets a Mutant Ape NFT, which allows them to mint 10,000 Mutant Apes, plus new participants get 10,000 new Mutant Apes. Since there are different types of serums, serums can only be used once, and since Bored Ape can't use multiple serums of the same tier, serums add a new rarity mode.

The basic reason for creating MAYC was to "reward our Boring Ape holders with a brand new NFT" - a "mutated" version of the Boring Membership into the BAYC ecosystem. This keeps the wider community accessible, rather than diluting the exclusivity of the original original series, or making those original owners feel like their contributions were downgraded. (Another way to address accessibility is NFT fragmentation, where a single NFT has multiple owners.) While MAYC's reserve price has been consistently lower than BAYC's, its owners have essentially the same perks.

These airdrops are retroactive to reward NFT holders or network and protocol users (just like the ENS airdrop), but airdrops can also be used as a proactive GTM strategy to attract and encourage awareness and attention to specific projects . Since information on the blockchain is public, a new project can be airdropped to, for example, all wallets using a particular marketplace, or all wallets holding a particular token.

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developer grant

Developer grants are grants from the protocol treasury to individuals or teams that improve the protocol in some way. This can serve as an effective GTM (go-to-market) mechanism for DAO organizations, as developer activity is an important part of the protocol's success. Examples of current projects and protocols with developer grants include Celo, Chainlink, Compound, Ethereum, and Uniswap, among others.

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meme

Meme images are another GTM strategy of the web3 group. Given the complexity and breadth of the cryptocurrency ecosystem, and the short attention spans of social media users, memes allow information to spread quickly. Memes can also represent a sense of belonging, community, goodwill, etc. in a highly information-dense way.

The NFT project Pudgy Penguins (Pudgy Penguins) series has a total of 8888 penguins and was launched thanks to its meme ability. The collection sold out within 20 minutes upon launch and was featured in major media outlets, helping such projects go mainstream. The social display and community element of the “PFP” (Profile Picture) NFT series – in web3, people set NFTs as their social media profile avatars – has also fueled this virality. Twitter recently introduced a feature that allows users to set their own NFT (via API connected to OpenSea) as a profile avatar and display it as a special hexagonal shape.

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So what does all this mean for Web3 founders?

In a Web2 company, the founder not only sets the top-down vision, but is also responsible for growing the team, planning and executing against the vision. In Web3, founders act more as gardeners, helping to nurture potentially successful products while also setting the stage for this to happen. While the Web3 founders still set the goals of the organization and its initial governance structure, the governance structure itself may soon lead to new roles for them. Founders are likely to optimize protocol usage and community quality rather than headcount growth or revenue and profitability. Furthermore, following decentralization, founders must adapt to an environment where no hierarchical power structures exist, where the founder is one of many actors underpinning the success of a given project. Therefore, before implementing decentralization, founders should ensure that such an environment is set in order for their projects to succeed.

I saw some of this firsthand when I was chief of staff to former Zappos.com CEO Tony Hsieh. Zappos.com is an e-commerce company that is now part of Amazon. Beginning in 2014, the company experimented with a more decentralized (rather than top-down) governance structure, including a self-organizing management system known as "holacracy." Holacracy involves hierarchies of jobs, not people, with mixed results. However, Tony Hsieh offers a useful metaphor, comparing his role to that of the grower of greenhouse plants (in a holistic governance model), rather than the best plants. He has said that he needs to be the "architect of the greenhouse" - creating the right conditions for all the other plants to thrive.

Today Alex Zhang of Friends with Benefits (FWB), a social DAO, echoes this sentiment, describing his work as “not setting a top-down vision” but promoting “community member frameworks, permissioned and rules” and build on them. While Web2's leader is focused on updating the product roadmap and pushing new product launches, Alex Zhang sees himself more as a gardener than a top-down builder. His role includes keeping an eye on FWB's "neighborhood" (aka its Discord chat channel), and doing curation by weeding out unattractive Discord channels, and helping to support and grow Discord channels that have momentum. Therefore, Alex Zhang becomes more of an educator and communicator.

For founders of NFT projects, their role is primarily that of sponsors and interim managers of intellectual property (IP). Yuga Labs, creator of the Bored Ape Yacht Club (BAYC, Bored Ape Yacht Club), writes: "We see ourselves as interim stewards of intellectual property, which is becoming more and more decentralized. Our goal is to be A brand owned by the community, extending its tentacles to world-class games, events, and streetwear.” Owning an NFT—whether it’s an image, video or sound clip, or otherwise—communicates to the owner the value associated with that NFT. all rights. As an NFT is bought and sold, its ownership is transferred, and as the ecosystem around that NFT grows, the benefits flow to the owner of that NFT, not just the founding team of the NFT project.

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Above: Jenkins The Valet from the BAYC Collection

Also, as more and more people embrace Crypto, decentralized technologies, and the Web3 model, we will see more possibilities. The traditional Web2 GTM framework is a useful reference and provides some useful playbooks - but they are only a small sample of the frameworks available to Web3 organizations. The key difference is that the goals, growth and success criteria for Web2 and Web3 are usually different. Web3 builders should have a clear goal around which to build a community and match their growth strategy and community incentives -- and go-to-market -- accordingly. We'll see all kinds of models emerge.

Thanks to Justin Paine, Porter Smith, and Miles Jennings for their contributions to this article.

*This article only represents the views of the original author and does not constitute any investment opinion or recommendation.