Challengers to Big Tech’s power online won’t have it easy

Writing in a column around the turn of the year 2022 about competing visions for the future of the internet, I argued that two of its much-vaunted competitors, the Metaverse and the Web3, seemed far-fetched. It’s hard to imagine everyone wearing virtual reality goggles to engage with the internet, crypto is too complicated and both are costly ways to access the global network. The last year has been somewhere between a wake-up call and a devastating setback for proponents of 3-D metaverse and crypto services, with lower earnings, higher interest rates and scandals providing the reality checks due.

And thanks to Elon Musk and the still-unfolding drama at Twitter, the third vision—“Web 3.0,” an open, decentralized network that limits the power of corporations and governments—gained greater interest and impetus. Mastodon, a thoughtfully engineered open-source alternative to Twitter, jumped from 300,000 to 2.5 million monthly active users between October and November, before falling to 1.8 million last week. More interestingly, companies are installing their own mastodon servers, much like they did email and web servers 30 years ago. There is serious interest among developers and some European governments in a federated, interoperable “Fediverse” based on open protocols that takes control away from Big Tech.

It remains to be seen if this movement can compete with Silicon Valley’s impressive technology and business models. But world governments are pushing big tech hard on many fronts: antitrust, privacy, data protection, consumer rights, labor regulations, safety and public order. As regulation catches up, costs will rise, profits could fall and there are many political risks.

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But Web 3.0 in particular faces a steep uphill task if it is to establish itself as a mainstream alternative to big tech. It has to overcome two hurdles: strong network effects and uncertain business models.

The first is obvious: any platform aiming to replace existing ones must contend with the massive inertia of an installed base. Even with some influential communities migrating to Mastodon, Twitter still has 450 million active users. You can’t just switch unless your friends and followers do. Nonetheless, in the short history of the Internet, there are a number of examples of new players smashing seemingly established incumbents such as Geocities, MySpace, Orkut, Yahoo! and Skype. The challenger must reach a turning point before this happens. On the sidelines, Musk’s actions are pushing users toward alternatives, but there’s still a long way to go before the trickle becomes a flood. Given that Web 3.0 fediverse alternatives try to be the kinder, gentler alternative to emotionally-triggering big tech platforms, their “pull” factor is weaker.

The second hurdle concerns the economy of information. It is unclear how a decentralized Web 3.0 Internet can be sustainable on a global scale. Conceptually, the information space has properties of what economists call public goods that are noncompetitive and nonexcludable. The classic problem with public goods is that not enough people are willing to pay for them because they are always free riders. Because of this, subscriptions alone are not enough to get media businesses, except in niche areas. Fediverse cannot escape this problem unless it develops new organizational structures and financial models.

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In addition, information transactions have significant positive externalities: everyone benefits from everyone else being well informed. These social benefits are lost if, for example, a paywall is set up to increase subscription revenue. Services like Patreon offer a way out by filling the revenue bucket with donations, making the information freely available to all. It works for some, but is unlikely to become a mainstream model due to the free rider problem. Why donate when you can benefit from the generosity of others?

Because of this, advertising is the dominant means of funding information on the Internet. The downside is that an ad-supported business model incentivizes more engagement and monitoring. The former distributes provocative and socially harmful content, and the latter tends to invade privacy. However, I am cautiously optimistic that advertising-financed, but not inciting and privacy-respecting business models will emerge.

Digital India’s approach of building open digital public infrastructures such as UPI, ONDC, Account Aggregators and OCEN offers another avenue that involves government support to accelerate deployment at scale without being tied to Big Tech. It’s not perfect, but it’s a viable option for many countries looking to reduce their reliance on foreign firms. It is in India’s interest to make these technologies open and available to other countries.

At the same time, it is crucial that the governance framework of digital public infrastructures does not further disempower citizens vis-à-vis governments. As I wrote, “Web 3.0 requires a shift in the balance between the state, the platform, and the individual, while keeping an eye on the balance of power between states.” Shifting control from unaccountable corporations to accountable governments is a good move for the technology should strengthen the accountability of the governments.

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Nitin Pai is co-founder and director of The Takshashila Institution, an independent center for research and education in public policy

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