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How Can Web2-Based IoT Businesses Join The Web3 Revolution?


The use of Internet of Things (IoT) devices in business and our daily lives is growing at a staggering rate. Despite chip shortages and supply chain issues, the number of global IoT connections is expected to grow to 27 billion by 2025. Like other dominant Web2 platforms, today’s IoT businesses are mainly built on centralized infrastructures fully managed by organizations, with user and data lock-ins as the primary goals. Organizations have extensively used data collected by IoT devices to maximize business impact and value creation.


The emergence of Web3, i.e., the third iteration of the internet, represents a major paradigm shift that could fundamentally change how IoT businesses work. A typical Web3-based application offers two major promises, namely ownership and decentralization. By running applications on decentralized, community-powered networks, Web3 aims to give ownership of data back to users. Such a paradigm shift unlocks new opportunities for Web2-based IoT businesses to redefine their value propositions and customer engagement strategies.


While Web3 is growing more mainstream and has attracted much attention from IoT industry players, it remains a challenge for IoT business leaders to create an effective Web3 digital transformation plan due to the current IoT business models and system architectures. When Web2-based IoT businesses decide to join the Web3 revolution, they should start with the following four steps.


1. Understanding Key Characteristics Of Web3-Based IoT Applications


Conventional Web2-based IoT applications are generally built and owned by organizations to achieve specific business goals. Organizations fully control IoT platforms and data collected from smart devices. As a result, customers, while paying for IoT devices and services, do not truly own their devices and the collected data. Unlike their Web2-based counterparts, Web3-based IoT applications are mainly characterized by customer-owned IoT devices, community-driven and decentralized IoT infrastructure and token-incentivized machine activities.



In a Web3-based IoT application, each smart device will bind with its owner’s blockchain wallet, and only device owners can decide how to share the data collected by their smart devices. Moreover, the entire IoT infrastructure will be operated by community members in a decentralized manner, and each stakeholder will be compensated for providing certain utilities such as connectivity, storage, computation, etc. In addition, Web3-based IoT applications are often based on well-designed token economy models and use digital assets to incentivize community participation.


2. Adapting To Web3-Based IoT Business Models

Most Web2-based IoT businesses attract customers by building smart devices and services with salient features and functionalities as well as conducting comprehensive marketing campaigns. Emerging Web3 technologies such as DeFi (Decentralized Finance), NFTs (Non-Fungible Tokens) and DAOs (Decentralized Autonomous Organizations) provide additional powerful resources for developing new IoT business models and customer engagement strategies that are expected to further boost network effects, drive social impact and increase sales.


Depending on the nature of the Web2-based IoT business, organizations wishing to adapt might consider issuing NFTs that represent their IoT products on the blockchain and grant specific rights (e.g., early access to future products) to NFT holders. Organizations might also incentivize customers to share their IoT data and earn passive income via DeFi platforms. Last but not least, organizations could allow customers to form a DAO for jointly owning a machine and deciding how it should be used through a consensus-based governance process. The choices of different Web3 technologies or combinations should align well with organizations’ business goals.


3. Trying Out Web3-Oriented Digital Transformations

A typical Web2-based IoT application often relies either on a centralized, cloud-based infrastructure or a hybrid architecture of cloud and edge computing. In contrast, Web3-based applications are built on a decentralized blockchain network and instrumented by crypto tokens. Therefore, a digital transformation is necessary to meet the requirements of various Web3-based IoT business models. Web2 IoT businesses could consider applying a multi-phase Web3-oriented digital transformation strategy to minimize business model changes and system architecture risks. Here's one model for such a transformation.


• Define a customer engagement approach. In the first phase, a Web2-based IoT business needs to determine the most suitable Web3 technology (e.g., DeFi, NFT, DAO, etc.) and corresponding governance process and/or token economy model for engaging with their customers and implementing the defined business logic as a decentralized app (dApp) on a blockchain.


• Conduct an initial hybrid integration. In the second phase, the organization should connect its Web2-based IoT system with the dApp via a decentralized blockchain oracle network and feed the required information to the dApp. Such integration leads to a hybrid system, a way to start converting an existing Web2-based IoT business into a Web3 one without introducing significant architecture changes and digital transformation overhead.


• Evaluate the new business model. In the third phase, the organization should add Web3-related functionalities to the user interface as an experimental feature and operate the hybrid Web2/Web3 IoT system for a certain amount of time. The customer feedback collected during this period is crucial for evaluating the effectiveness of the new business model and Web3-oriented digital transformation.


• Make a go/no-go decision. In the fourth phase, the organization should continue the Web3-oriented digital transformation journey by gradually decentralizing its Web2-based IoT system infrastructure and giving back control of IoT devices and data to customers, provided that the Web3-based approach is able to achieve its business goals efficiently. Otherwise, the organization can stick to its Web2-based IoT business model and closely monitor Web3 technology development and marketing trends.


4. Minding The Challenges

Web3 has great potential to reshape IoT businesses by enabling people to own their smart devices and data and allowing organizations to create internet communities around their products and brands via incentive-based approaches. Although transforming existing Web2-based IoT businesses toward Web3 comes with its own challenges, organizations that take the plunge will ultimately reap the benefits of Web3.

Let’s build a decentralized IoT future together!


https://www.forbes.com/sites/forbesbusinesscouncil/2022/08/04/how-can-web2-based-iot-businesses-join-the-web3-revolution/?sh=4d710b716e8d

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