Challengers to Big Tech’s dominance on the Internet will not have an easy task

Writing in a column in early 2022 about competing visions of the future of the internet, I argued that two much-hyped contenders, metaverse and web3, seemed far-fetched. It’s hard to imagine anyone wearing virtual reality glasses to connect to the internet, cryptocurrency is too complicated, and both are expensive ways to access the global network. The past year has been a wake-up call for promoters of 3-D metaverses and cryptocurrency services, with low profits, higher interest rates and scandals that have provided necessary reality checks, and between devastating failure.

Thanks to Elon Musk and the ongoing drama on Twitter, the third vision — “Web 3.0,” an open, decentralized network that limits the power of corporations and governments — has gained more interest and momentum. Mastodon, a thoughtful open-source alternative to Twitter, saw its monthly active users jump from 300,000 to 2.5 million between October and November, before falling to 1.8 million last week. More interestingly, corporations are setting up their own Mastodon servers just like they did their email and web servers 30 years ago. There is strong interest among developers and some European governments in a federated, interoperable Fediverse based on open protocols that wrest control from Big Tech.

It remains to be seen whether this movement can compete with the giant tech and business models of Silicon Valley. But governments around the world are cracking down on Big Tech on many fronts: antitrust, privacy, data protection, consumer rights, labor regulations, security and public order. As regulation matures, costs will increase, profits may decrease, and political risks will increase.

However, Web 3.0 has a very tall task if it is to emerge as a major alternative to Big Tech. It must overcome two obstacles: strong network effects and uncertain business models.

The first is obvious: any platform that aims to replace existing ones must contend with the mass inertia of the installed base. Even if some influential communities migrate to Mastodon, Twitter still has 450 million active users. You can’t easily change unless your friends and followers do. However, in the short history of the internet, new players like Geocities, MySpace, Orkut, Yahoo! and Skype. The opponent must reach the point of flight before this happens. At the border, Musk’s actions are driving users to alternatives, but the trickle still has a long way to go. Given that Web 3.0 Fediverse alternatives are trying to be friendlier, softer alternatives to Big Tech platforms that evoke emotion, their “pull” factor is weaker.

The second obstacle concerns the information economy. It is not clear how a decentralized Web 3.0 internet can be sustainable on a global scale. Conceptually, the information space has what economists call a public good, which is non-rivalrous and non-excludable. The classic problem with public goods is that not enough people are willing to pay for them because they are always free to roam. Therefore, subscriptions alone are not enough to sustain media businesses, except in niche areas. Fediverse cannot escape this problem unless it develops new organizational structures and financial models.

Also, information transactions have significant positive externalities: everyone benefits from everyone being well informed. These social benefits are lost when, for example, a paywall is erected to increase subscription revenues. Services like Patreon offer a way to make information freely available to anyone, filling the inbox with donations. It works for some, but again, it’s unlikely to be a mainstream model due to the free driver issue. Why donate when you can benefit from the generosity of others?

This is the reason why advertising is the main way to finance information on the Internet. The downside is that an ad-supported business model encourages more engagement and control. The former pushes provocative and socially harmful content, and the latter tends to violate privacy. I’m cautiously optimistic, though, that ad-supported but non-incendiary business models that respect privacy will emerge.

Digital India’s approach to building open digital public infrastructure like UPI, ONDC, Account Aggregators and OCEN offers another path that includes government support to accelerate deployment at scale without depending on Big Tech. It’s not perfect, but it’s a viable option for many countries looking to reduce their dependence on foreign firms. It is in India’s interest to make these technologies open and accessible to other countries.

At the same time, it is crucial that the governance framework of digital public infrastructures does not further weaken the empowerment of 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 also focusing on the balance of power between states.” Shifting control from irresponsible corporations to accountable governments is a good move if the technology advances. designed to strengthen the accountability of governments.

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

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