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Web2 Giants Engage in Anti-Competitive Practices Against Web3 Says Paper


Web2 giants like Amazon, Apple, Google, Facebook and Microsoft could use anti-competitive practices to prevent or delay Web3 disruption a new paper says.

“Web3 depends on Web2, which creates conditions for the co-evolution of these two ecosystems and raises opportunities for anti-competitive strategies,” says Thibault Schrepel, an Associate Professor of Law at the Vrije Universiteit Amsterdam.

In pointing out that the value of Web2 and Web3 is “too distinct to overlap entirely,” they will both survive, Schrepel says, if one is not driven out by current tech giants.

Web2 v Web3, Jan 2023
Web2 v Web3, Jan 2023

Unlike in Web2, where users have a specific logging and password providing access to data that only the platform controls, in Web3 users hold data and digital assets in personal wallets that they control.

“They can connect and disconnect their wallet to all compatible applications with a click. For example, one user can disconnect his wallet from and connect to DTube without losing any publication. Switching becomes easy, which may push apps and services to raise the rewards they offer to users to stay attractive.”

This can make it difficult for Web2 giants to compete directly by simply incorporating the benefits of Web3 as “Web3 offers greater compatibility between apps and services, and thus reduces consumers’ lock-in.”

Web3 also has a token effect, in addition to network effects. “The combination of network and token effects helps Web3 projects to compete with Web2 giants more aggressively than Web2 companies can,” the author says.

However crucially Web3 depends on Web2 services, from hosting and data storage to advertising.

Web2's anti-competitive playbook against Web3, Jan 2023
Web2’s anti-competitive playbook against Web3, Jan 2023

“Web2 can limit the use of Web3 assets. Web2 companies such as Apple are limiting the use of Web3 to unlock content by prohibiting ‘[a]pps [from using] their own mechanisms to unlock content or functionality, such as license keys, augmented reality markers, QR codes, cryptocurrencies and cryptocurrency wallets, etc.’”

“Safari, for example, does not support the MetaMask add-on,” the paper says before adding:

“YouTube has deleted popular channels educating users on Web3’s benefits several times. The company has also reinstated the channels and apologized several times, but it shows that bans are more than theoretical and may not always be justified.

Facebook also banned advertisements for blockchain-related products before allowing them—days after announcing NFTs’ compatibility with its virtual world.

Evidently, these anecdotal examples call for thorough analyses. Security concerns or consumer protection may justify bans. But these bans are part of a growing trend one can only hope antitrust agencies will soon investigate.”

Those are just some of the examples. The Microsoft owned Minecraft has banned NFTs. As has Steam. The latter might even be engaging in smear campaigns, though there is no direct evidence.

“Web2 and Web3 offer different paths to increasing consumer welfare,” the paper says. “The two are likely to survive, provided one does not eliminate the other thanks to anti-competitive strategies.

Because Web3 projects lack the power to command and control, anti-competitive practices will come from Web2 companies against Web3, not the other way around. Antitrust agencies, regulators, and policymakers must ensure Web3 protection against Web2 giants.”

Web3, Ending the September Effect?

There is arguably a war on social media as it was initially conceived. Reddit, for example, after killing all prominent forums by promising a new empowering way to connect, has fallen to censorship and biased moderation under Conde Nast.

Google no longer lists blogs in its search ranking to the same extent as it used to, with the first page of search results instead often being curated.

For some, Twitter is the latest to fall. The company is pushing algorithmic ordering of Tweets, which hides content from those you follow, rather than chronological ordering.

A similar decision by Facebook led to an exodus, but far more damaging is the agenda driven overtaking of social media.

LiveJournal for example was a prominent outlet for Russian dissidents and critics, a free space amid state censorship.

That ended with the purchasing of LiveJournal in 2007 by a Russian company that some speculate has links to the Russian state.

That is now just as censored as all Russian media, showing the importance of these outlets for civic activity.

You can not buy a Web3 outlet in the same way as it is just a smart contract with the front interface mirrorable by anyone.

Most importantly, moving from something like LiveJournal to LiveJournal2 maintains all your posts and connections, instead of starting again from scratch in a blank canvas.

Migration therefore, either from Reddit or Twitter, has been ineffective so far because bootstrapping from scratch is difficult.

Web3 addresses that problem as you never have to start from scratch again, potentially preventing takeovers or hostile decisions by corporations.

As Web3 is sufficiently new, it may find adoption just based on its novelty because people like variety and to try new things.

So far however no Web3 entity has made much of a dent outside marketplaces. There is Status, a crypto wallet and messenger which has one million downloads, but that remains very small compared to Twitter or Facebook.

It is new however, and reaching one million downloads has taken it about two years, as much as it took Twitter.

Then there are YouTube like services, but the US government concluded LBRY was a security, potentially slowing down its adoption.

In addition, there haven’t been many Twitter or Facebook like Web3 platforms that don’t in many ways just copy them, no social media innovation as such, making it difficult for users to adopt them.

But Web3 as a term is barely a year old, and is mostly at the conceptual stage although its value proposition has now become clear in providing data ownership.

It may therefore take off in the next cycle as it has the potential for significant growth with some innovative Web3 companies starting to launch at the end of the last bull.

That wrong timing may be rectified if there’s a new bull cycle, making the disruption of social networks a real proposition and their return once again to public control.


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