Double-digit growth, record profit, a finger, toe and thumb in everything from online shopping to Alexa-driven electronics to the backbone of internet commerce as we know it.
You already know whom we’re talking about.
Amazon’s (AMZN) – Get Amazon.com, Inc. Report massive, pervasive, all-encompassing dominance was on full display this week after the Seattle company reported its fiscal-second-quarter earnings, which showed net income for the three months ended in December nearly doubled from the year-earlier period and crushed Wall Street forecasts.
While part of that came from its stake in electric-truck maker Rivian (RIVN) – Get Rivian Automotive, Inc. Class A Report, whose stock soared in value in the final three months of 2021, a good chunk also came from eye-popping profit from Amazon Web Services, or AWS — Amazon’s cloud-based infrastructure that millions of companies need and rely on to buy and sell stuff online.
Revenue for Amazon’s AWS rang in at $17.78 billion between October and December. To put that in context, Meta (FB) – Get Meta Platforms Inc. Class A Report nee Facebook’s total fourth-quarter revenue — for everything — was $33.67 billion.
“AWS added more revenue year-over-year than any quarter in its history, and it’s now a $71 billion annualized run rate business, up from $51 billion run rate one year ago,” Amazon Chief Financial Officer Brian Olsavsky highlighted on the company’s post-earnings conference call.
It’s that $17.78 billion that has those actively pushing for so-called Web3 clenching their fists and doubling down on what they see is the next great battle: dethroning Amazon’s dominance of the internet.
Amazon Web Services Runs a Third of the Internet
Web1 was about getting people on the internet itself, helped along by internet browsers like AOL and Yahoo that made it easier for people to connect, browse and even listen to a tune or two. Web2 was about converting the time people spent on the internet, and all the content they share online, into real businesses.
Somewhere along the way, a few companies gained a lot of traction, one of them, of course, being Amazon, as well as a few others that Wall Street affectionately calls FAANGMs: Facebook, Apple (AAPL) – Get Apple Inc. Report, Netflix (NFLX) – Get Netflix, Inc. Report and Google.
(Amazon is the first ‘A,’ while ‘M’ is for Microsoft (MSFT) – Get Microsoft Corporation Report. Google is actually Alphabet (GOOGL) – Get Alphabet Inc. Class A Report, but it’s still a ‘G’ in FAANGM.)
Some stats: Meta, which also owns Instagram and WhatsApp, has 3.5 billion users across its networks, according to the Harvard Business Review. More than half of global online ad spending goes through Meta or Alphabet.
In search, Google has more than 60% in the U.S. and more than 90% in Europe, Brazil, and India. Apple earns more in annual profit than Starbucks (SBUX) – Get Starbucks Corporation Report collects in revenue. Microsoft is a top-three vendor to 84% of businesses.
And Amazon takes in more than 40% of online spending in the U.S. and runs nearly one-third of the internet through Amazon Web Services.
Amazon Is Seemingly Unstoppable
It’s that last figure that has those in the world of Web3 doubling down on their efforts to reshape the internet and enable people and companies to connect and transact without having to go through the likes of Amazon.
What Web3 actually is is difficult to define. Web3’s roots are in blockchain, a digital ledger that gives definitive and irrefutable proof of a transaction.
Over time, that has evolved in ways that enable people to create their own digital goods – digital tokens like ether, solana, XRP, dogecoin and all the other cryptocurrencies that make headlines today — and many more that don’t.
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Theoretically, Web3 enables people to build anything on the internet they want, without having to rely on existing platforms like Google or Facebook, or tools like Amazon’s AWS cloud computing services.
And crucially, the new services could be owned, in part, by the people who built and use them.
Web3 and Tokenization, Explained
The means-to-an-end part is equally important to understand.
Anyone who creates or helps develop an app in Web3, which is known as “dapp,” or decentralised app, can receive tokens that give the holder a say in the fees it charges, how it evolves or the working groups formed to oversee it.
Tokens can also be sold or given to a dapp’s users — to reward them for winning a battle in a blockchain game, for instance, or for sharing their computing bandwidth.
Token owners can form communities known as decentralized autonomous organizations, or DAOs, and get to vote on how the dapp’s funds are distributed.
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The rules are set via a “smart contract,” essentially a line of code that automatically triggers an irreversible exchange of value once a set of mutually agreed conditions are met. Helium, a decentralized wireless network, shows many of these Web3 apps in action.
“It’s not about raising the most capital and ‘winning’ Web3, but about building new communities and a better internet,” according to the co-founder and CEO of blockchain infrastructure giant Figment.io, Lorien Gabel. “Web3 is a human project. Tech is just a means to that end.”
Redemocratizing the Internet
It’s that last part – the literal remaking and rehumanizing of the internet – that has driven a frenzy of activity: people idealistically quitting their jobs and moving to crypto and blockchain companies like Figment that are in theory trying to remake and redemocratize the world wide web.
At the same time, the frenzy is being fueled by cold, hard cash – billions of it – coming from the likes of Andreessen Horowitz and many other well-known venture capital investors. These investors may be optimistic about a more democratic internet but are equally keen on seeding the next Amazon and minting cash from it.
VCs invested $30 billion in crypto-related projects including Web3 in 2021, according to research company PitchBook.
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Web 3 “is intrinsically tied with financial value,” Li Jin, a venture capitalist and one of the few prominent women in the Web3 world, told Vox. “Any time you introduce financial success, that’s what really incites strong emotion.”
Of course, Amazon is not sitting on its keister waiting to be overrun by a bunch of idealistic creators building Web3.
The company already has a full Web3 division called Web3 Labs, which in its own words “provides the insights, platform and developer tools to support your blockchain journey.”
Amazon and Big Tech Aren’t About to Roll Over
To be sure, not everyone believes Amazon, Facebook, Google, Microsoft, Apple or any other big-tech giant is about to take over the internet.
“Today many people in the industry, as well as academics and investors, seem to think that the large tech platform companies uniformly benefit from strong network effects, which inexorably propel them toward global dominance. But that is demonstrably false,” Columbia Business School professor and veteran media and tech investment banker Jonathan Knee told the Harvard Business Review.
While clearly dominant and successful, Knee argues that the backbone of what Amazon and others rely on — network scale — isn’t something that can be cornered and owned by a few players.
“In the absence of significant fixed costs, any network-effect-driven business is going to attract competition from new platforms that find they can break even at extremely low usage levels,” said Knee. “Also, network effects are not the primary driver of competitive advantage at most of these companies.”
A lot of Web3 pioneers and developers, not to mention deep-pocketed investors, beg to differ.
“Our 100+ institutional clients and billions in [assets under management] is just the beginning for us,” Figment’s Gabel said.
“Our belief is that the majority of value and data will be exchanged, settled, and stored on POS (proof of stake) blockchains. We will continue to make this space more accessible and approachable to the next generation of Web3 investors and developers.”
