The “freemium” model — where basic app features are free but users unlock more features with payments — has been enormously successful in the Web2 world for years.
Even so, most freemium apps only convert between 2-5% of users into paying customers, with the rest of the crowd keeping their credit cards tucked neatly in their wallets. Essentially, Web2 apps find a “product market fit” and gather up a massive user base first, figuring out the money side of the equation after everybody has arrived on the scene.
Web3 apps often take the opposite approach, starting with monetization as the first step. This makes the barrier to entry considerably more significant, but once users get over the monetary hump, the average revenue per user can be far greater than the legacy model.
On the Lightspeed podcast (Spotify/Apple), Jeff Morris Jr. explains that both strategies have their advantages, but the Web3 “financialized use case” approach tends to be misunderstood. He helped Tinder become the top grossing app in the App Store, ballooning the Web2 app’s annual recurring revenue (ARR) from $20 million to $1.2 billion during his tenure with the company.
The former VP of product and revenue at Tinder gained some key insights from his successes before joining the Web3 world as a managing partner at Chapter One. “In Web2,” he says, “the goal was always to build the biggest network possible and then figure out how to monetize them later.”
“The benefit of Web3 is — everything is very monetizable. It’s one of the reasons why I actually think the space is really interesting as an investor,” he says. “If you have a small subset of users that are active traders, there are very easy ways to build a business.”
Morris cites Uniswap trading volume in Q2 of 2022 as an example of his thought process. “Monthly trading volume was over $170 billion with 400,000 monthly traders.”
“I compare that to Coinbase, which had a little over $200 billion of volume with 9 million monthly traders,” he says. The centralized trading application hosted 9 million users while the decentralized version — Uniswap — only hosted 400,000, “with almost equal trading volume,” he says.
“You could argue that those both have product market fit,” he says, “but if you were to go on a public road show and try to take Uniswap public as a company and explain the fact that you had 400,000 users…they’d be like, ‘this isn’t an interesting business.’”
“But it’s clearly an interesting business,” he says.
Reaching a billion users is the wrong goal
Morris says the common crypto trope that centers on reaching “a billion users” is probably the wrong goal. “If we had 30 million people who were really passionate about crypto and found value in the ecosystem, that would be enough to build a multi-trillion dollar asset class that was great for founders and investors and LPs.”
Morris says that some people have criticized his perspective as giving Web3 builders “an easy path” — claiming they have achieved product market fit despite low user numbers — but he prefers to focus on the positives he sees in Web3.
“I spend a lot of my time looking for signals of positivity or hope, because I think it’s really important in a bear market to say things aren’t as bad as everybody thinks.”
But crypto applications still need to be more accessible, Morris says. Citing Friend.tech as an example of what might be considered by Web3 users to be an “accessible” mobile experience, Morris asks what a non-crypto user would think of the app’s onboarding process.
“I would love to look at the completion rate because most people just aren’t going to go through this kind of janky web experience,” he says.
“Crypto right now still feels like it’s in 2007 or 2008 relative to where the rest of consumer experiences are. And so yeah, we have a long way to go.”
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