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Writing in a recent 2022 column about competing visions of the future of the Internet, I argued that two of the much-hyped contenders, the metaverse and web3, seemed too far fetched. It’s hard to imagine everyone wearing virtual reality glasses to connect to the internet, crypto is too complicated, and both are expensive ways to access the world wide web. Last year was somewhere between a wake-up call and a devastating setback for promoters of 3-D metaversions and crypto services, with lower profits, higher interest rates and scandals serving as decent reality checks.

And thanks to Elon Musk and the drama still unfolding on Twitter, a 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 thoughtfully designed open source alternative to Twitter, grew from 300,000 to 2.5 million monthly active users between October and November before retreating to 1.8 million last week. What’s even more exciting is that corporations are deploying their own Mastodon servers, just as they did with 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 would take control away from Big Tech.

It remains to be seen whether this movement can compete with the formidable technology and business models of Silicon Valley. But governments around the world are pushing big tech hard in many directions: antitrust, privacy, data protection, consumer rights, labor regulations, security and public order. As regulation arrives, costs will rise, profits may decline, and political risks will increase.

However, it is Web 3.0 that has a very difficult task if it is to emerge as a mainstream 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 withstand the mass inertia of the installed base. Even with some influential communities moving to Mastodon, Twitter still has 450 million active users. You can’t easily change unless your friends and followers do. However, the short history of the Internet has a number of examples of new players displacing seemingly entrenched incumbents such as Geocities, MySpace, Orkut, Yahoo! and Skype. The opponent must reach a breaking point before this can happen. Musk’s actions are pushing users toward alternatives, but there’s still a long way to go before the flood turns into a deluge. Given that Web 3.0 Fediverse alternatives are trying to be kinder and gentler alternatives to big tech big tech platforms, their “pull” factor is weaker.

The second obstacle concerns the information economy. It is unclear how a decentralized Web 3.0 Internet can be sustainable on a global scale. Conceptually, the information space has the characteristics that economists call public goods, which are non-rivalrous and non-excludable. The classic problem with public goods is that not enough people are willing to pay for them because they can always ride for free. This is why subscriptions alone are not enough to sustain a media business, except in very specific industries. Fedivers 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, say, a paywall is built to boost subscription revenues. Services like Patreon offer a way out by filling the revenue bucket with donations, thus making information freely available to everyone. It works for some, but is unlikely to become a mainstream model due to the free driver issue again. Why donate when you can enjoy the benefits of others’ generosity?

This is why advertising has been the dominant means of financing information on the Internet. The downside is that an ad-supported business model drives greater engagement and control. The former ends up inciting provocative and socially harmful content, while the latter tends to violate privacy. I’m cautiously optimistic though that ad-supported but non-intrusive and privacy-respecting business models will emerge.

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

At the same time, it is important that the governance framework for digital public infrastructure does not further disempower citizens over governments. As I wrote, “Web 3.0 requires a shift in the balance between the state, the platform, and the individual, while also following the balance of power between states.” Shifting control from unaccountable corporations to accountable governments is a good move if technology is designed to strengthen government accountability.

Nitin Pai is the co-founder and director of the Independent Center for Public Policy Research and Education.

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