Navigating the Web3 Commerce Landscape
-- Lauren Tierney, Venture Investor, Decasonic
Envision a shopping world where every item you own comes with a digital equivalent, a world where your online identity is as significant, if not more, than your offline presence. This is not a futuristic fantasy. It is the emerging reality of Web3-enabled commerce, driven by Gen Z and Gen Alpha, the generations of people who are growing up digital native and increasingly VR-, crypto- and AI- native. As these demographics increasingly value digital goods and authenticity, we stand on the brink of a seismic shift in consumer behavior and market dynamics.
This blog explores the trends that are shaping this new era of shopping, highlighting why Web3's integration into commerce is not just inevitable but essential for meeting the evolving demands of consumers and brands alike.
What are the trends that lead us to believe Web3-enabled Commerce is the future state of shopping?
1.GenZ places a higher value on digital goods than physical ones.
Generations Z and Alpha, the most digitally native generations to date, have shown a remarkable predilection for digital goods, often valuing them more than their physical counterparts. A significant portion, about 45%, of teenagers report being online "almost constantly," with an additional 44% stating they access the internet several times a day. A 2018 Pew Research Center survey revealed that 95% of 13- to 17-year-olds have access to a smartphone, and a similar percentage (97%) engage with at least one of seven major online platforms. This digital-first mentality is reshaping market dynamics, where digital proof of ownership often holds as much, if not more, value than the possession of a tangible item.
For these consumers, their digital identities are not just avatars in virtual spaces; they are extensions of their personas across diverse online and VR platforms, enriching their social connections, content interactions, and purchasing behaviors.
Presently, over 52 million Americans own cryptocurrency, with Millennials and Gen Z making up 60% of this demographic. A telling indicator of Gen Z and Gen Alpha's digital focus is their preference for Christmas gifts, with gaming subscriptions and Robux (the digital currency in Roblox) topping their lists. This trend highlights their inclination towards digital-only goods and an increasing reliance on digital currencies.
These generations are at the forefront of a cultural transition where the value of a product transcends its physical existence, entering the digital realm where it gains additional prestige and shareability. For instance, Gen Z consumers are four times more likely to buy a physical product if it is accompanied by a digital twin. Moreover, 60% of this demographic believes their online persona is more significant than their physical appearance. Brands with foresight are leveraging this trend by offering digital twins and digital-only products, enhancing customer engagement and bolstering their presence both online and in real life (IRL)..
2. GenZ is driving the growth of second-hand sales, spawning “recommerce.”
The global second-hand and resale market - also known as recommerce- is booming and is expected to reach $350B by 2027. Online second-hand platform ThreadUp says that GenZ customers account for nearly two-thirds of their spending each year.
The motivations for Gen Z's recommerce shopping habits are multifaceted: sustainability concerns, economic factors, and a desire for brand-name goods at more accessible price points when buying second-hand from “The Real Real,” “Poshmark” or another resale site.
However, as the second-hand market, especially in the luxury sector, continues to expand, there's an emerging necessity for a reliable system to track a product's journey through its lifecycle. Enter the blockchain.
For brands, this information is invaluable; it yields insights into resale frequency, pricing trends, and consumer loyalty, allowing them to understand the secondary market's influence on their brand's lifecycle. It also provides data on the geographic flow of their products, painting a detailed picture of their goods' journey post-initial sale.
For sellers, a more transparent system could mean retaining a greater share of their profits, as it may reduce reliance on intermediary platforms that take a cut of the sales. And for buyers, the primary concern is assurance—the confidence that the item they're investing in is genuine.
The integration of Web3 technologies promises to address these concerns, offering a ledger of authenticity and ownership that benefits all parties involved in the recommerce ecosystem.
Authenticity and ownership brings us to the next reason why Web3-enabled Commerce is a need in the market today - Dupes.
3. Dupe culture drives frauds and fakes on the fashion market.
The luxury fashion industry's valuation at over $280 billion is currently threatened by a rising culture of 'dupes'—highly sought-after replicas that mimic expensive items at significantly lower prices. The quest for these bargains, fueled by economic pressures such as high-interest rates and inflation, is leading to an increase in fraudulent market activities.
Fashion brands are suffering from this surge in counterfeits, with losses exceeding $50 billion in sales annually. This issue also inflicts long-term damage to brand reputation, prompting actions like Nike's withdrawal from Amazon to protect its brand value. In response, brands are increasingly looking to Web3 technologies, such as on-chain digital passports \and embedded NFC chips, to authenticate their goods on-chain and secure their brand integrity against the tide of counterfeits.
4. AI developments lead the consumer to expect hyper-personalized commerce experiences.
Undoubtedly, the year 2023 is poised to be recognized as a milestone in the AI revolution, with the advent of ChatGPT catalyzing widespread growth, investment, and the integration of advanced AI tools across various industries. Presently, our shopping experiences are somewhat personalized, utilizing data from past purchases and observed buyer behavior. However, the ongoing evolution in AI technology is set to usher in an era of hyper-personalization in all aspects of commerce. This advancement will enable brands to predict consumer preferences with remarkable precision, surpassing even the consumers' own understanding of their wants and needs. From the perfect fit to the ideal fabric, AI will transform how we experience shopping, making it more intuitive, efficient, and satisfying.
In the future, the traditional experience of tediously scrolling through endless online inventories or physically browsing through every item in a store will undergo a significant transformation. The integration of AI with Web3 commerce heralds a new era in retail, offering innovative ways to monitor and understand customer interactions. By precisely tracking user experiences and discerning their preferences, this technology paves the way for highly tailored product recommendations. This advancement not only streamlines the shopping experience for consumers but also fosters deeper brand loyalty and retention, marking a paradigm shift in the way we engage with commerce.
What is the early stage venture investor perspective on Web3 Commerce?
From an early stage investor's viewpoint, these trends underscore the emerging potential of Web3 commerce. The blend of growing digital goods affinity, the explosive interest in recommerce, and the urgent need for anti-counterfeit measures present a compelling case for investment in this space.
As such, we see a large and evolving opportunity to invest in companies that address these market dynamics—creating a secure, transparent, and enriched shopping experience that meets the demands of modern consumers. The integration of blockchain and AI in commerce not only serves as a shield against market malpractices but also offers a forward-thinking approach to customer engagement and brand loyalty.
How does Decasonic envision the future of web3 commerce?
This new era is not a distant future. It is unfolding before us, reshaping the roles and interactions of buyers, sellers, designers, and manufacturers in impactful ways.
We believe in Web3's ability to reshape commerce experiences. Our mission is to shape this terrain, partnering with and empowering the founders who weave together Web3 technology – blockchain, AI, AR/VR – to craft the future of commerce. The market map presented in this piece is more than a snapshot of current conditions—it is how we envision the future of commerce to be shaped by today's emerging technology.
To break down the key sections of each box on the ecosystem map please see below:
Gen Z: One key note on the market map shown above is the highlight of Decasonic’s “GenZ” thesis in the box at the top of the map. We believe GenZ is most interested in the use cases that put Web3 behind the scenes and focus on community, fandom, in-person experiences, social commerce, and co-creation. This is where digital assets and digital ownership thrive with web3 in the background which aligns with those younger Generations of GenZ and Gen Alpha younger generations.
Community Management: Tools and platforms for managing and engaging communities, especially important in Web3 for maintaining decentralized governance and fostering community-led projects.
Web3 backend / Web2 frontend: Services that provide backend solutions using blockchain technology while maintaining user-friendly Web2 interfaces to bridge the gap between complex Web3 protocols and end-users.
Fandom: Platforms that connect fans with creators and brands, often using tokens or NFTs to provide unique fan experiences, rewards, and governance.
Co-creation: Platforms that enable consumers to create new products with their brands using tokens and blockchain voting systems. Today, brands create products for their consumers in hopes they like them, but in the future, we see brands focused on co-creating with their consumers to drive sales, loyalty, and retention.
Social Commerce: Web3 presents the opportunity to shop through social media applications and with your peers using aligned incentives generated by possible brand and referral tokens.
Music and Entertainment: Web3 applications in the music and entertainment industry, focus on decentralized distribution and artist empowerment, often through NFTs and social tokens with the ultimate goal of deepening an artist's relationship with fans.
In-Person Experiences: Offering real-world events and experiences that can be enhanced or accessed through Web3 technologies, like NFT ticketing, token gated merch, and exclusive access tokens.
Sports: Platforms that leverage blockchain for sports-related activities, including fan engagement, collectibles, and athlete crowdfunding.
3D Commerce: Incorporating 3D modeling and virtual reality into commerce, allowing for immersive shopping experiences, often enabled by NFTs and the ownership of virtual assets.
Marketplaces: Online platforms that facilitate the buying and selling of goods and services, often this case with a focus on digital assets, NFTs, and DeFi tokens.
Luxury Fashion: High-end fashion brands embracing Web3 to offer exclusive products, traceability, and authentication, often through NFTs and digital twins.
Phygital (Physical First Twins): Combining physical items with digital elements, allowing for enhanced product experiences, verification, and digital counterparts for physical goods.
Digi-physical (Digital First Twins): Products that originate in the digital realm and may have physical representations, often used for virtual goods that can be redeemed in the real world.
NFT Collections & Digital Art: Digital art and collectibles are represented as NFTs, enabling proof of ownership, provenance, and programmable royalties for creators.
Mixed Reality Commerce: The intersection of virtual and augmented reality with commerce, providing an interactive shopping experience that blends the real and digital worlds.
Gamification / Quests: Incorporating game-like elements into commerce to engage users, drive loyalty, and encourage participation through challenges and rewards.
Ad Tech & Marketing: Technologies and platforms for advertising and marketing that leverage blockchain for increased transparency, efficiency, and targeted campaigns.
Influencer Marketing: Strategies that involve individuals promoting products or services, enabling direct interactions and value exchange between influencers and followers.
Hyper-Personalized Commerce: Blockchain and AI technologies drive shopping experiences that are hyper-personalized to one's fit, social engagement, previous purchases, and other interactions across the internet. Hyper-personalization of commerce through blockchain technology and AI is early and still a use case we hope to see more durable growth around.
To those shaping the future of commerce with Web3: Decasonic is on the lookout for innovative partners. If your vision aligns with these market needs and you're building solutions that tap into the heart of these trends, we want to support and amplify your efforts. Reach out to join us in this venture, as we invest in the groundwork for a new era of commerce that values authenticity, sustainability, and digital integration.
Sources:
The content of this material is strictly for informational and educational purposes and is not meant to constitute investment advice or a recommendation or solicitation to buy or sell any asset or to make any financial decision. Nothing in these blog posts should be considered legal or tax advice. You should consult with your own professional advisor before making any financial decision. Decasonic offers no warranties on any content in the material posted in these blog posts, including that it is accurate, complete, or correct. The opinions expressed in these posts are those of the authors and do not necessarily reflect the views of Decasonic. Decasonic is not liable for any errors or omissions in the content of this newsletter or for any actions taken based on the information provided herein.
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