Kayla PhillipsThe Endgame for Rollup Frameworks
There has been a lot of talk about the modular chain and rollup narrative lately, but I’d argue that people have had an overly optimistic outlook about it. While I'm bullish on the modular space as a whole, I see it playing out differently and more conservatively than others building and analyzing it. Rollup frameworks have been attracting a lot of attention recently and it feels right to start by analyzing them, as they will serve as the foundational layer upon which this new rollup-cen...
Kayla PhillipsThe Changing Power Dynamics Defining Our Culture
Most people think it’s pretty random that I transitioned careers from entertainment to VC. [Prior to VC, I worked at a talent agency and then on digital strategy for a TV network.] But if you dig below the surface, there are actually a lot of parallels between the industries of entertainment and tech, and specifically between the roles of talent agents and VCs -- who have been influential behind-the-scenes in the making of the biggest films, TV shows, albums, and companies of our lifetimes. I...
Kayla PhillipsThe Endgame for Rollup Frameworks
There has been a lot of talk about the modular chain and rollup narrative lately, but I’d argue that people have had an overly optimistic outlook about it. While I'm bullish on the modular space as a whole, I see it playing out differently and more conservatively than others building and analyzing it. Rollup frameworks have been attracting a lot of attention recently and it feels right to start by analyzing them, as they will serve as the foundational layer upon which this new rollup-cen...
Kayla PhillipsThe Changing Power Dynamics Defining Our Culture
Most people think it’s pretty random that I transitioned careers from entertainment to VC. [Prior to VC, I worked at a talent agency and then on digital strategy for a TV network.] But if you dig below the surface, there are actually a lot of parallels between the industries of entertainment and tech, and specifically between the roles of talent agents and VCs -- who have been influential behind-the-scenes in the making of the biggest films, TV shows, albums, and companies of our lifetimes. I...
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In my recent piece Software is Eating the Web3 World, I introduced my investment thesis on web3 SaaS:
This will be the era of SaaS eating the web3 world.
➡️ Web2 SaaS's golden era has come to an end: the biggest opportunities have been tackled already
➡️ The same catalysts that Andreessen attributed to web2 SaaS's decade of growth exist in web3 today: accessibility, dev tools, scalability
➡️ Web3 SaaS offers a massive new white space opportunity: $1T web3 market cap, lack of sufficient web3 tools, extensive learnings and playbooks from web2 SaaS
I posed this question with some answers:
What popular web2 SaaS products need to be rebuilt to deliver on the distinct technical and cultural needs of web3?
📈 Data Analytics
🤝 CRMs
✉️ Communication & Messaging
In this piece, I explore these 3 emerging web3 SaaS categories - data analytics, CRMs, and communication and messaging - in greater detail.
These 3 categories are inherently interrelated – they comprise the sales and marketing tech stack.
Ask any post-launch web3 project today and they will say their biggest challenge is member engagement. Keeping members continually engaged is vital for retention, growth, and overall project health. Without enough of a reason to stay, members churn, unit economics weaken, and projects are unable to scale past a certain size or even ensure their long-term viability. This is because in web3, where everything is open source, community-driven network effects drive competitive moats.
Today, a lot of web3 user activity is short-sighted. Users bounce from one short-term gain to the next, looking to make a quick buck. Without the tools to help projects analyze member data, manage and reach members, and identify leaks in their sales and marketing funnels, web3 projects across the board will struggle to retain members and establish lasting network effects. This will impede overall web3 industry growth.
Why can’t web2 tools solve these issues? Because the decentralized nature of web3 presents new opportunities and challenges – beginning with its technical architecture and trickling down to its incentive mechanisms, organizational structures, and user behaviors. These differences impact everything from how SaaS products are built to how they are used. Because of this, many web2 SaaS products cannot be retrofitted to deliver on web3’s distinct needs. A new era of the web requires a new suite of tools to help it sustain long-term growth.
Below, I dive deeper into each of these 3 web3 SaaS categories. I cover why existing web2 solutions will not suffice, the product features that might satisfy web3’s distinct technical and cultural needs, and some interesting companies building these web3 solutions.
The need for web3 tools: The shift from private data in web2 to massive amounts of public data in web3
To date, most web3 data analytics solutions have been finance-focused (e.g. Dune Analytics, Nansen), driven by demand from retail traders and financial institutions. But new data analytics opportunities are emerging as more web2 brands establish their web3 presence and as web3 native projects focus on retaining and growing their members. Marketers and growth experts are being tasked with creating engaging web3 communities, which is driving significant demand for a new crop of user-focused data analytics solutions.
In web2, data exists in silos and is privately held by companies, which has enabled data-rich web2 companies like Google, Meta, and Netflix to develop extraordinary competitive moats. In contrast, in web3, all on-chain data is publicly available. This levels the competitive playing field and provides greater opportunity for all web3 companies. However, it also presents new challenges. The sheer volume of on-chain data requires time, cost, and expertise to clean, index, and analyze. Additional layers of complexity stem from the need to unify user data across web2 and web3 for a more comprehensive picture of the user and their activity, while also maintaining the user’s privacy and compensating them for providing their personal data. Essentially, a new data analytics tech stack is needed to properly analyze user data across web2 and web3.
The company Port3 is taking a unique approach to unifying web2/3 data by launching the first social data oracle (see diagram below). Its oracle successfully aggregates user data from numerous on and off-chain sources, anonymizes it, and compensates users for it. Users hold a Port3 SoulBound NFT to protect their privacy, receive incentives, and maintain control over their data.
Once the infrastructure is in place to unify web2/3 data, analytics tools can provide far more granular user insights for gauging web3 community health, such as: customer profiling and segmenting, cohort analysis, high vs low value users, customers at risk of churn, competitor usage, etc. Persona (website coming soon) is one company building out these capabilities and paving the way for web3 customer intelligence. Others include: ZeroDrop, Merlin, and 2.5 Intelligence.
Once a web3 project starts collecting and analyzing user data, it can then act on these user insights to strengthen its community using web3 SaaS tools like CRMs and communication protocols.
The need for web3 tools: (1) Web3 work culture gives individuals the freedom to work across multiple projects, instead of being limited to a single employer
Web3’s fluid work culture adds complexity to managing customer relationships that traditional web2 CRMs are not structured to support:
In web3, an individual is more likely to work for and participate in multiple projects, and may take on different roles/titles in each.
Web3’s focus on the ownership economy creates blurred lines between business and customer, since users are also fractional owners of a project.
To be effective, web3 CRMs need to incorporate web2/3 user data (as mentioned above), and organize this data around a user’s wallet, since the wallet is the atomic unit for a user’s web3 identity. We have already seen the emergence of on-chain social graphs like Lens Protocol and CyberConnect structured around wallet-based digital identity, so it seems logical for web3 CRMs to organize user data in the same way. A web3 CRM might even integrate with one of these social graphs to incorporate these wallet-based DIDs into its product.
The need for web3 tools: (2) Web3 projects grow through community-led growth, rather than the web2 customer acquisition funnel
Another key distinction of web3 is that community is central to its culture. Web2 companies generally grow through sales and marketing teams that guide users through the traditional customer acquisition funnel (awareness, interest, evaluation, purchase). They tend to place greater emphasis on purchase than on retention.
In contrast, web3 projects grow through community-led growth – a process that looks quite different. Individuals typically receive tokens representing fractional ownership in a project from the outset. Since this conversion happens early on, greater emphasis is placed on retention.
Projects and their individual contributors benefit from the strength and growth of their community, so each individual is financially incentivized to help in these efforts. Therefore, sales and marketing functions are replaced by community managers and the individual tokenholders themselves. Circling back to my point about individuals working across multiple web3 projects – individuals are incentivized to cross-promote their communities to the other communities in which they are involved. This leads to a greater overall interconnectedness between projects and communities in web3.
With this distinction, CRMs should be organized around web3 community metrics focused on retention and growth, such as:
Tracking engagement and contributions of existing tokenholders to issue rewards
Tracking individual project:member and member:member connections to strengthen intra-community relationships
Collecting data points to understand tokenholders’ interests for various community-driven initiatives
Tracking the additional projects that existing members are involved in for potential project:project partnership opportunities
Web3 CRM companies:
Web3 CRMs are still a fairly nascent category, despite a clear need for them to exist. I’ve only seen a few very early players building in this space, though I have yet to see one that covers all the criteria I’ve outlined above. But it’s still early days, so this could definitely change. This also leaves plenty of room for new entrants to join in on the opportunity.
The need for web3 tools: Web3 communication is currently fragmented across a number of web2 messaging platforms, resulting in a suboptimal user experience
Today, web3 communication is disorganized, filled with unwanted spam, and scattered across various web2 messaging platforms like Discord, Telegram, and Twitter. The absence of native web3 communication infrastructure results in a poor and overwhelming user experience. Users find it challenging to filter through all the noise in order to stay up to date on important announcements for the projects in which they’re involved.
Like web3 CRMs, web3 messaging should also be tied to a user’s unique wallet address. Streamlining communication through a blockchain-based communication protocol and platform benefits both users and projects. For users, a communication protocol aggregates all of their messages, greatly simplifying and improving the user experience. Users receive messages through an inbox and push notifications. Users can also opt in/out of the types of messages they receive, empowering them to regain control over their ad exposure and time.
For projects, tying messages to a user’s wallet address and digital identity allows for better user targeting, engagement, and customer support. Projects can tailor messaging to specific user segments to improve relevancy of content and reduce noise for the user. Basically, ‘Twilio for web3’.
Looking a step further, users should have the opportunity to be paid for opting in to read messages from new projects. ‘Read-to-earn’ (the opposite of paywalled content) is an effective way for projects to advertise in web3, while fairly compensating users for their ad exposure.
Web3 communication & messaging protocols:
Companies building chain-agnostic solutions that can transmit messages across web3 (dapps and wallet-to-wallet) and web2 (via email, SMS, etc) seem most advantaged to succeed because they remove points of friction for the user and meet the user wherever they are. EPNS, Notifi, and XMTP are chain-agnostic, whereas Dialect is limited to Solana. XMTP’s solution is unique because it does not have a platform as part of its offering - it is a secure, decentralized, and open messaging protocol upon which developers can build their own messaging dapps.
This space is just starting to heat up and I think we’ll learn a lot more about the future of web3 communication with the upcoming launch of Solana’s smartphone Saga. Several communication protocols, including Dialect and Notifi, plan to launch their web3 inboxes as dapps on Solana Mobile Stack (SMS) to provide seamless web3 messaging for Solana smartphone users. While it’s uncertain how much demand there will actually be for Saga at launch (personally I think the launch is premature, since we’re still years away from web3 mass adoption), Saga’s launch will teach us a lot about web3 user behavior and how web3 communication might evolve from here.
The categories I’ve outlined above barely scratch the surface in terms of all the opportunity that exists in web3 SaaS and tooling. I’m excited about this massive, evolving space and will continue to explore and unpack other high-potential web3 categories in future posts.
Thanks for reading! I’m an early stage web3 VC & would love to chat if you’re a founder building in any of these areas. @kay_phillips_
In my recent piece Software is Eating the Web3 World, I introduced my investment thesis on web3 SaaS:
This will be the era of SaaS eating the web3 world.
➡️ Web2 SaaS's golden era has come to an end: the biggest opportunities have been tackled already
➡️ The same catalysts that Andreessen attributed to web2 SaaS's decade of growth exist in web3 today: accessibility, dev tools, scalability
➡️ Web3 SaaS offers a massive new white space opportunity: $1T web3 market cap, lack of sufficient web3 tools, extensive learnings and playbooks from web2 SaaS
I posed this question with some answers:
What popular web2 SaaS products need to be rebuilt to deliver on the distinct technical and cultural needs of web3?
📈 Data Analytics
🤝 CRMs
✉️ Communication & Messaging
In this piece, I explore these 3 emerging web3 SaaS categories - data analytics, CRMs, and communication and messaging - in greater detail.
These 3 categories are inherently interrelated – they comprise the sales and marketing tech stack.
Ask any post-launch web3 project today and they will say their biggest challenge is member engagement. Keeping members continually engaged is vital for retention, growth, and overall project health. Without enough of a reason to stay, members churn, unit economics weaken, and projects are unable to scale past a certain size or even ensure their long-term viability. This is because in web3, where everything is open source, community-driven network effects drive competitive moats.
Today, a lot of web3 user activity is short-sighted. Users bounce from one short-term gain to the next, looking to make a quick buck. Without the tools to help projects analyze member data, manage and reach members, and identify leaks in their sales and marketing funnels, web3 projects across the board will struggle to retain members and establish lasting network effects. This will impede overall web3 industry growth.
Why can’t web2 tools solve these issues? Because the decentralized nature of web3 presents new opportunities and challenges – beginning with its technical architecture and trickling down to its incentive mechanisms, organizational structures, and user behaviors. These differences impact everything from how SaaS products are built to how they are used. Because of this, many web2 SaaS products cannot be retrofitted to deliver on web3’s distinct needs. A new era of the web requires a new suite of tools to help it sustain long-term growth.
Below, I dive deeper into each of these 3 web3 SaaS categories. I cover why existing web2 solutions will not suffice, the product features that might satisfy web3’s distinct technical and cultural needs, and some interesting companies building these web3 solutions.
The need for web3 tools: The shift from private data in web2 to massive amounts of public data in web3
To date, most web3 data analytics solutions have been finance-focused (e.g. Dune Analytics, Nansen), driven by demand from retail traders and financial institutions. But new data analytics opportunities are emerging as more web2 brands establish their web3 presence and as web3 native projects focus on retaining and growing their members. Marketers and growth experts are being tasked with creating engaging web3 communities, which is driving significant demand for a new crop of user-focused data analytics solutions.
In web2, data exists in silos and is privately held by companies, which has enabled data-rich web2 companies like Google, Meta, and Netflix to develop extraordinary competitive moats. In contrast, in web3, all on-chain data is publicly available. This levels the competitive playing field and provides greater opportunity for all web3 companies. However, it also presents new challenges. The sheer volume of on-chain data requires time, cost, and expertise to clean, index, and analyze. Additional layers of complexity stem from the need to unify user data across web2 and web3 for a more comprehensive picture of the user and their activity, while also maintaining the user’s privacy and compensating them for providing their personal data. Essentially, a new data analytics tech stack is needed to properly analyze user data across web2 and web3.
The company Port3 is taking a unique approach to unifying web2/3 data by launching the first social data oracle (see diagram below). Its oracle successfully aggregates user data from numerous on and off-chain sources, anonymizes it, and compensates users for it. Users hold a Port3 SoulBound NFT to protect their privacy, receive incentives, and maintain control over their data.
Once the infrastructure is in place to unify web2/3 data, analytics tools can provide far more granular user insights for gauging web3 community health, such as: customer profiling and segmenting, cohort analysis, high vs low value users, customers at risk of churn, competitor usage, etc. Persona (website coming soon) is one company building out these capabilities and paving the way for web3 customer intelligence. Others include: ZeroDrop, Merlin, and 2.5 Intelligence.
Once a web3 project starts collecting and analyzing user data, it can then act on these user insights to strengthen its community using web3 SaaS tools like CRMs and communication protocols.
The need for web3 tools: (1) Web3 work culture gives individuals the freedom to work across multiple projects, instead of being limited to a single employer
Web3’s fluid work culture adds complexity to managing customer relationships that traditional web2 CRMs are not structured to support:
In web3, an individual is more likely to work for and participate in multiple projects, and may take on different roles/titles in each.
Web3’s focus on the ownership economy creates blurred lines between business and customer, since users are also fractional owners of a project.
To be effective, web3 CRMs need to incorporate web2/3 user data (as mentioned above), and organize this data around a user’s wallet, since the wallet is the atomic unit for a user’s web3 identity. We have already seen the emergence of on-chain social graphs like Lens Protocol and CyberConnect structured around wallet-based digital identity, so it seems logical for web3 CRMs to organize user data in the same way. A web3 CRM might even integrate with one of these social graphs to incorporate these wallet-based DIDs into its product.
The need for web3 tools: (2) Web3 projects grow through community-led growth, rather than the web2 customer acquisition funnel
Another key distinction of web3 is that community is central to its culture. Web2 companies generally grow through sales and marketing teams that guide users through the traditional customer acquisition funnel (awareness, interest, evaluation, purchase). They tend to place greater emphasis on purchase than on retention.
In contrast, web3 projects grow through community-led growth – a process that looks quite different. Individuals typically receive tokens representing fractional ownership in a project from the outset. Since this conversion happens early on, greater emphasis is placed on retention.
Projects and their individual contributors benefit from the strength and growth of their community, so each individual is financially incentivized to help in these efforts. Therefore, sales and marketing functions are replaced by community managers and the individual tokenholders themselves. Circling back to my point about individuals working across multiple web3 projects – individuals are incentivized to cross-promote their communities to the other communities in which they are involved. This leads to a greater overall interconnectedness between projects and communities in web3.
With this distinction, CRMs should be organized around web3 community metrics focused on retention and growth, such as:
Tracking engagement and contributions of existing tokenholders to issue rewards
Tracking individual project:member and member:member connections to strengthen intra-community relationships
Collecting data points to understand tokenholders’ interests for various community-driven initiatives
Tracking the additional projects that existing members are involved in for potential project:project partnership opportunities
Web3 CRM companies:
Web3 CRMs are still a fairly nascent category, despite a clear need for them to exist. I’ve only seen a few very early players building in this space, though I have yet to see one that covers all the criteria I’ve outlined above. But it’s still early days, so this could definitely change. This also leaves plenty of room for new entrants to join in on the opportunity.
The need for web3 tools: Web3 communication is currently fragmented across a number of web2 messaging platforms, resulting in a suboptimal user experience
Today, web3 communication is disorganized, filled with unwanted spam, and scattered across various web2 messaging platforms like Discord, Telegram, and Twitter. The absence of native web3 communication infrastructure results in a poor and overwhelming user experience. Users find it challenging to filter through all the noise in order to stay up to date on important announcements for the projects in which they’re involved.
Like web3 CRMs, web3 messaging should also be tied to a user’s unique wallet address. Streamlining communication through a blockchain-based communication protocol and platform benefits both users and projects. For users, a communication protocol aggregates all of their messages, greatly simplifying and improving the user experience. Users receive messages through an inbox and push notifications. Users can also opt in/out of the types of messages they receive, empowering them to regain control over their ad exposure and time.
For projects, tying messages to a user’s wallet address and digital identity allows for better user targeting, engagement, and customer support. Projects can tailor messaging to specific user segments to improve relevancy of content and reduce noise for the user. Basically, ‘Twilio for web3’.
Looking a step further, users should have the opportunity to be paid for opting in to read messages from new projects. ‘Read-to-earn’ (the opposite of paywalled content) is an effective way for projects to advertise in web3, while fairly compensating users for their ad exposure.
Web3 communication & messaging protocols:
Companies building chain-agnostic solutions that can transmit messages across web3 (dapps and wallet-to-wallet) and web2 (via email, SMS, etc) seem most advantaged to succeed because they remove points of friction for the user and meet the user wherever they are. EPNS, Notifi, and XMTP are chain-agnostic, whereas Dialect is limited to Solana. XMTP’s solution is unique because it does not have a platform as part of its offering - it is a secure, decentralized, and open messaging protocol upon which developers can build their own messaging dapps.
This space is just starting to heat up and I think we’ll learn a lot more about the future of web3 communication with the upcoming launch of Solana’s smartphone Saga. Several communication protocols, including Dialect and Notifi, plan to launch their web3 inboxes as dapps on Solana Mobile Stack (SMS) to provide seamless web3 messaging for Solana smartphone users. While it’s uncertain how much demand there will actually be for Saga at launch (personally I think the launch is premature, since we’re still years away from web3 mass adoption), Saga’s launch will teach us a lot about web3 user behavior and how web3 communication might evolve from here.
The categories I’ve outlined above barely scratch the surface in terms of all the opportunity that exists in web3 SaaS and tooling. I’m excited about this massive, evolving space and will continue to explore and unpack other high-potential web3 categories in future posts.
Thanks for reading! I’m an early stage web3 VC & would love to chat if you’re a founder building in any of these areas. @kay_phillips_
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