October 24, 2023

The Data-Driven Way of Deciphering Web3 Users

[Editor's Note: This is an edited and condensed version of a speech given by 0xScope Chief Marketing Officer Raffaele Ragini during the GM Singapore conference on September 15, 2023. Watch the full speech here.]

Everyone knows that a company grows by increasing its users, prices, and/or sales. But what is the basic condition for growing all three? It’s all about knowing your users better. This is where identifying your Good User Base (GUB) is crucial to company growth.

Good User Base (GUB)

It’s important to keep in mind that a user has different value levels for different companies. When you know your GUB, you know who your most valuable users are. You know that investing money in prioritizing these users will create more value for both your company and your best customers. This is a very common framework in marketing: it's called segmentation, targeting, and positioning. This process allows you to identify an actionable GUB that will most likely fuel company growth. While this principle comes from Web2, it is also crucial for Web3 companies.

How do you find your GUB in Web3? First, you must filter your users’ addresses to identify which of them can be included in your GUB. Next, you can look into their behavior, so that you have an idea of how to segment them into different categories. Then, you can proceed to positioning and marketing with your campaigns.

For example, if you’re an NFT platform looking for your GUB, the first thing you will do is to look into Web3 users and filter which ones hold NFTs on certain blockchains that your platform supports. Next, you would look into NFT holders in your platform and segment them between NFT traders and NFT collectors. You would know that these two segments have very different user behaviors. Next, you can do positioning and marketing by looking at your competitive advantage and choosing which segment makes the most sense to target now.

Problems with Finding your GUB in Web3

Of course, this is not as easy as it sounds. Compared to their Web2 counterparts, Web3 companies face some challenges when it comes to defining their GUBs.

First, filtering based on behavior is difficult on Web3. In a Web2 company like Facebook, you can simply put your targeting and budget details to show your ads to audience segments that have already been pre-determined based on your criteria. You don’t have that in Web3 right now, and it can be tricky to get insights into Web3 users’ behaviors.

Second, in Web3, we look at addresses, not entities. A common mistake being made in Web3 marketing right now is that projects, blockchain ecosystems, and the media often talk about the number of addresses and which of them are active. But remember, because we are in Web3, one address does not mean one user. Let’s explain that in a simpler way.

Let’s say you’re Elon Musk, and you want to know the number of people actually using the social network formerly known as Twitter. Do you just count the number of accounts and say that this many people use your platform? No, because one person can actually have multiple accounts and bots that they use on X. And this brings us to the last problem: a lot of Web3 activity is generated by bots. My colleague Phillip Torres recently told CoinTelegraph that as much as 80% of blockchain activity can be generated by just a small number of entities. Simply put, if your Web3 project has 1 million addresses, better watch out because 800,000 of those addresses may actually be controlled by a significantly smaller group of people.

Beyond GUB: Value Generating Force (VGF)

Let’s go back to your GUB. Let’s say you’ve identified your core users. You may think, “Great, now I just market to these people and my company will be the next unicorn!” Actually, no. While zeroing in on your GUB is definitely important, that’s just half the battle. Knowing your GUB is a temporary competitive advantage, not a permanent one.

Remember that when we position ourselves, we do it relative to our competition. The Web3 space is increasingly becoming crowded with many companies offering similar solutions. We should always try to look for a niche where our company is more valuable than the competition due to any given factor. Therefore, just knowing your GUB is not enough, because if rivals see that you found a profitable niche from that GUB, they will definitely try to grab that from you. They can just develop a product that directly competes with yours. And just like that, your GUB advantage, the one that you said will make your company the next unicorn, is gone, and all you have left is a last-place horse in the race.

Now, you ask, how do you gain an actual, sustainable, defendable, long-term competitive advantage? What will actually turn your horse into a unicorn? The answer is: develop a Value Generating Force (VGF).

Your VGF will consist of seven sources of strength for your company. Hamilton Helmer, a renowned Stanford professor and investor, came up with this term, which he defined as the combination of seven forces that drive your company’s growth journey, from origination to takeoff to stability.

According to Helmer, the seven VGFs are Cornered Resource, Counter Positioning, Network Economics, Scale Economics, Switching Costs, Branding, and Process Power. The first two VGFs are crucial for small companies that want to move to the next level. The next three VGFs will determine how much a company will move on from origination to takeoff and beyond, or if there is actually a beyond to talk about. Once you get past takeoff, the last two VGFs should be there to keep your leadership position against both established rivals and upstarts that may run circles around you.

Here’s a quick example of a VGF. When a data company like Chainalysis secures an exclusive three-year contract with the South Korean government for data security, it translates to a defensible advantage for the company. You know that South Korea will not go around looking for rival data companies during those years. Alongside that exclusivity, there is a guaranteed cash flow for the company. That’s a cornered resource right there.

We’ll not discuss all seven VGFs any further, though I encourage you to look those up. The important thing to remember about VGFs is that they also depend on how well you know your GUBs. Once you keep your core audience in mind, no matter how big or small your company is, you will be able to retain your focus on securing advantage after advantage. So in the same way that GUBs don’t matter much without long-term advantages through VGFs, you also won’t be able to develop your VGFs without knowing your GUBs well. When you know your GUBs, you end up offering more compelling products and services, therefore strengthening your VGFs. Once you secure your VGFs, you become more valuable to a wider range of users, therefore growing your GUBs. This is a virtual cycle that strengthens your company and makes it more valuable not just for you and your co-workers, but also for your investors and users.

Now, how do you strengthen both your GUBs and your VGFs? This is where a data-driven approach to knowing your Web3 user base and positional advantages come into play. The good news is that there are a variety of tools that help Web3 companies in achieving their goals. In the next section, we discuss how tools and solutions made by companies like 0xScope can be used for these purposes.

Data-Driven Methods of Growing Web3 GBUs and VGFs

Nowadays, there are powerful analytical tools that are built on user-based data on Web3. These tools help Web3 companies zero in on their core users and inherent, unique advantages. Here are a few examples:

1. Blockchain address tracking. This kind of tool processes data on all addresses on any given blockchain. By looking into all the addresses of this chain, we can unearth relationships between these addresses, as well as certain patterns that emerge. You will be able to see the behavior of any user on a chain, and then you will be able to tag these behaviors in a way that is most beneficial to your Web3 company.

It’s like when you use Instagram, and you like a puppy picture, the app’s algorithm will know that you like puppies and optimize your experience. We basically do the same thing, but on Web3, on-chain. With blockchain address tracking tools like 0xScope, you can select the labels that you wish to have, then you can filter from all the addresses on a chain and download that information. This will allow you to more easily create marketing plans around the data and insights you just obtained from that particular user base you looked into.

2. Address behavior analysis. Analyzing the behavior of people on Web3 through blockchain address behavior tools can help you distinguish people from bots. From our observation and experience, bots have very predictive behavior. It’s important for any Web3 project to constantly look into user behavior and filter legitimate user actions from bot-driven ones, so that your campaigns and growth plans become more effective.

Good data analytics companies create new ways to detect legitimate and bot-driven behavior. These solutions are able to give you a better picture of the real users you have and what they actually do on Web3, from the protocols they use to the addresses they interact with. Of course, you can take note of all this information because it's publicly available, but with dedicated behavior analysis tools, you get unique advantages due to the sheer dedicated capacity of analytics companies to process countless multiple blockchain-related sources with machine learning. As a result, you are able to create useful dashboards and other data-driven presentations for your company, allowing you to serve your users better and identify your unique advantages, which help you turn your horse into a unicorn.

3. Web3 competitor analysis. A good Web3 analytics tool allows you to track the health of your project compared to your rivals. It’s not enough to have a unicorn. It still has to win races for you. So you need your Web3 tools to give you the means to assess your position compared to your rivals. How far ahead are you in the first place, or how much catching up do you need to do?

For example, with tools by companies like 0xScope, you can see rankings and scores for each project’s user base on supported blockchains (Ethereum, BNB Smart Chain, Arbitrum, Polygon, and Base, with more to come in the future). This way, the tools are able to tell you how authentic your user base is, as well as those of your rivals, in terms of engagement, loyalty, spending power, and security level.

Why is this data useful? Because with Web3 competitor analytics, you can see where you're weak, and you can go and try to strengthen it. You can also see competitors that are doing better than you and, most importantly, why they are better. You can also find potential partners to cooperate with, while also knowing which of those companies are already cooperating with your competitors.

Let’s give an example of how we can help identify your strengths and weaknesses in relation to your rivals. Let’s say that your user spending power is low. With Web3 competitor analysis tools, you are able to tell how much money each user on your platform has in their wallets. You can also monitor your campaigns' performance versus your rivals. This way, you can see if the money that you spent has actually brought meaningful returns. These advantages are important not only for Web3 projects but also for marketing agencies doing work in Web3, among many other use cases.

When we sum these all up, a data-driven approach to knowing your Web3 users can help you find your GUBs, strengthen your VGFs, and create long-term value. There are infinite ways that data, tools, and services by Web3 analytics companies like 0xScope can be valuable to you.

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