The Evolution of Web2 Advertising

The landscape of digital advertising has undergone a dramatic transformation since the early days of Web2. Antonio García Martínez, founder of Spindl and former product manager for ads targeting at Facebook, provides a fascinating insight into this evolution. In the nascent stages of Facebook's advertising platform, the company was grappling with how to effectively monetize its vast user base.

"When I joined Facebook, we were totally ignored. Everybody hated ads. We lived in a ghetto because nobody cared about business," García Martínez recalls. This sentiment reflects the early challenges faced by social media platforms in developing sustainable business models. The focus was primarily on user growth and engagement, with monetization being a secondary concern.

The turning point came when mobile devices began to dominate the digital landscape. García Martínez explains, "Towards 2012 or 13, everyone started playing mobile casual games. This device, we started intervening our lives through our phones. And then suddenly that became a massive stream of revenue." This shift marked the beginning of a new era in digital advertising, where user data and behavior could be tracked and monetized more effectively.

The Power of Targeting in Digital Advertising

One of the key innovations in digital advertising was the ability to target specific audiences with unprecedented precision. García Martínez explains the concept of lookalike audiences, a powerful tool developed by Facebook:

"If I'm a buyer of a thing or I'm a super REI consumer or I'm a united elite status member, not that I'm any of those things to be clear, but if I'm one of those things, and Gary, you and I know each other and interact on Facebook a lot, maybe you're in my in that same consumer bucket."

This capability allowed advertisers to expand their reach beyond their known customer base to find similar users who might be interested in their products or services. The effectiveness of this targeting was further enhanced by the integration of external data sources.

"How do we join to the outside world?" García Martínez posits. "We shipped what was called Facebook Exchange and the first versions of custom audiences. It's basically what you said. How do we join to the outside world?"

This integration of external data with Facebook's internal user information created a powerful targeting ecosystem that revolutionized digital advertising. However, it also raised concerns about user privacy and data protection, leading to regulatory changes like GDPR and Apple's App Tracking Transparency (ATT) initiative.

The Emergence of On-Chain Attribution in Web3

As the conversation shifts to the world of Web3 and cryptocurrency, García Martínez introduces the concept of on-chain attribution through his company, Spindl. In the traditional Web2 world, attribution – the process of identifying which marketing efforts are driving conversions – relies on complex systems of tracking pixels and cookies. In the Web3 space, however, the transparency of blockchain technology offers new possibilities.

"The blockchain is a miracle that many is amazing in many ways, but as a marketing database is not particularly good, which part of the reason why we exist is taking the blockchain or the blockchains and turning them into the actual view of the world that marketer cares about," García Martínez explains.

Spindl's solution allows marketers to track user journeys from initial click to on-chain conversion, even if that conversion happens weeks later. This level of attribution was previously impossible in the Web2 world and offers unprecedented insights for crypto projects and marketers.

The Web3 Native Referral Model

One of the most intriguing aspects of Web3 marketing is the potential for native referral systems. García Martínez highlights the GMX model as an example:

"Garrett, you're an influencer. Merck, you're just getting into it. Merck, Garrett is like the loud noisy guy in the discord or on Telegram or whatever. He shares a link. Merck, you go and you actually get to the protocol, you generate $1,000 and protocol fees. Guess what? Garrett gets paid $100."

This model represents a significant departure from traditional affiliate marketing systems. In Web3, the referral relationship can be encoded directly into smart contracts, ensuring transparent and automatic payouts based on actual user activity.

The Publisher Problem in Web3

While Web3 offers exciting new possibilities for marketing and user acquisition, García Martínez identifies a significant challenge: the publisher problem. In the Web2 world, platforms like Google and Facebook act as massive aggregators of user attention, providing clear channels for advertising spend. The Web3 ecosystem, however, lacks these centralized platforms.

"Let's say I've got marketing budget. I've got 50K from the Arbitrum Foundation or whatever, where I've got 50K from the Dow to go and sign up on other 2,000 users. Where do I spend the money?" García Martínez asks, highlighting the dilemma faced by many crypto projects.

This gap in the market presents both a challenge and an opportunity. García Martínez speculates on potential solutions, mentioning questing platforms, wallets acting as content portals, and influencers as potential publishers in the Web3 space.

The Importance of User Experience in Web3

One of the critical observations made by García Martínez is the relative lack of focus on user experience in many Web3 projects. Drawing from his experience in Web2 companies like Facebook, he emphasizes the importance of seamless user flows:

"I do find it strange that the user experience is not front and center in web three in a way that was a book too, because people lived and died by their MAUs, right?"

He recounts his experience trying to play Axie Infinity from the United States, describing it as nearly impossible due to poor user experience. This anecdote serves as a stark reminder of the work that needs to be done in making Web3 applications more accessible to mainstream users.

The Collision of AI and Crypto

As the conversation turns to the future of technology, García Martínez expresses excitement about the potential convergence of AI and crypto:

"You know, then what I want to see with AI, I want to see crypto and AI collide. That's what I want to see. And I'm not sure how to make this happen, but I'd love to see like all the training sets that AI uses like, can those digital rights being coded on the blockchain and paid for and easily accepted like there must be some way to make the two most exciting currents in tech like collide in some crazy way that both sides benefit from."

This vision of AI and crypto working in tandem opens up fascinating possibilities for the future of both technologies. While the exact form this collaboration might take remains to be seen, it's clear that both AI and crypto will play significant roles in shaping the digital landscape of the future.

The Future of Advertising in Web3

Looking ahead, García Martínez offers his perspective on the future of advertising in the Web3 space. He emphasizes the potential for more transparent, fair, and efficient marketing systems:

"At the end of the day, I think web three is going to have a smarter, more interesting, more fair, more transparent marketing stack than web two ever had at all because of things like this."

The ability to verify conversions and attribute value directly on-chain could revolutionize the way marketing budgets are allocated and how success is measured. This increased transparency could lead to more efficient markets and better alignment of incentives between advertisers, publishers, and users.

The Role of Native Tokens in Web3 Marketing

One unique aspect of Web3 marketing is the use of native tokens as incentives. García Martínez touches on this topic, comparing token drops to traditional referral programs:

"Token drops are basically like referral or program type things, right? So they've been using the tools they have, but they've been very poorly measured."

This observation highlights both the innovative nature of Web3 marketing tactics and the need for better measurement and attribution systems. As the space matures, we can expect to see more sophisticated approaches to token-based marketing that leverage the unique properties of blockchain technology.

The Importance of Measurement in Marketing

Throughout the conversation, García Martínez repeatedly emphasizes the critical importance of measurement in marketing. This applies equally to Web2 and Web3 environments:

"The worst mistake people make when they try to do marketing? Well, just spend a bunch of money on ads and don't measure them. That's what, right. Just, but it's actually true. Like, um, not actually measuring effectiveness or running some marketing tactic and not even understanding like where the money went or like whether it was successful or not."

This advice is particularly relevant in the Web3 space, where new marketing channels and tactics are constantly emerging. Without proper measurement, it's impossible to determine which strategies are effective and worth scaling.

The Potential of Web3 Gaming

When discussing potential catalysts for Web3 adoption, García Martínez highlights the gaming sector:

"Gaming can make web three ad tech, tick off. Um, but yeah, I think some truths are eternal, right? Like the joke about like half my ad spend is wasted. I don't know which half, right? But joke is still true and almost every medium you, you could mention in the case of web three, it's more than half. It's like literally 90% right."

The gaming industry has historically been a driver of technological adoption, from mobile devices to virtual reality. In the Web3 space, games offer a natural use case for digital ownership and interoperability, two key value propositions of blockchain technology.

The Challenge of Decentralized Identity in Web3

One of the underlying challenges in Web3 advertising and user experience is the issue of decentralized identity. Unlike in Web2, where platforms like Facebook and Google serve as centralized identity providers, Web3 users often manage multiple wallets and identities across different blockchain networks.

García Martínez touches on this issue when discussing the potential for wallets to become content portals:

"I think wallets could be really interesting publishers. Like wallets are clearly trying to be the content portal for Web3 in the same way that Yahoo was in the early days of Web2."

This shift towards wallet-centric experiences could help address some of the identity and user experience challenges in Web3, but it also raises new questions about privacy and data ownership.

The Role of DAOs in Web3 Governance

The conversation briefly touches on the topic of Decentralized Autonomous Organizations (DAOs) and their role in Web3 governance. García Martínez expresses some skepticism about the universal applicability of DAOs:

"I think in other contexts, we've had clients who've had DAOs or we've had growth teams who it's like, 'Oh, spindle, this is cool. So you can do growth. Great. How about you do a DAO proposal and go get a growth budget?' And it's like, 'Wait, what?' You're telling me you have to go and sit effectively in town hall and propose why I think we should spend $50,000 on this growth campaign to make this number go up. It's like, I don't know, man. Something's not everything has to be put to a vote."

This perspective highlights the ongoing debate in the Web3 space about the appropriate balance between decentralized governance and operational efficiency.

The Importance of Real-World Impact

Despite his enthusiasm for Web3 technologies, García Martínez reminds us of the importance of real-world impact:

"We're still creatures who physically exist in this world, at least until like the meta VR heads, it's good enough and we're all like avatars in this thing. So like that world still needs to exist. So whether it's the network state or the DAO, like whoever can make the guys with the guns show up still kind of wins, right?"

This grounding in physical reality serves as an important reminder that while Web3 technologies offer exciting new possibilities, they must ultimately connect with and improve people's lives in the real world to achieve widespread adoption.

The Potential of Solana in the Web3 Advertising Landscape

While not explicitly discussed in the transcript, it's worth noting the potential role of Solana in the emerging Web3 advertising ecosystem. Solana's high-speed, low-cost transactions make it an ideal platform for implementing the kind of real-time, on-chain attribution systems described by García Martínez.

Solana's ability to handle high transaction volumes could enable more sophisticated referral systems and token-based marketing campaigns. Moreover, its growing ecosystem of decentralized applications provides a fertile ground for testing and implementing new Web3 marketing strategies.

As companies like Spindl continue to develop tools for on-chain attribution and marketing analytics, Solana's technical capabilities position it as a potentially leading blockchain for these use cases. The combination of Solana's performance characteristics and the innovative approaches to marketing and user acquisition discussed in this conversation could lead to exciting new developments in the Web3 advertising space.

The Future of Consumer Web3

Throughout the conversation, García Martínez expresses both excitement and uncertainty about the future of consumer-facing Web3 applications. He notes the current focus on infrastructure and financial applications in the crypto space, but sees potential for more diverse and engaging consumer experiences:

"I don't know. You know, I, I've ever been a consumer guy to be honest, but I, like I wonder why web for consumer hasn't gotten more weird. Like just like strange shit that you just."

This sentiment reflects a broader anticipation in the Web3 community for innovative applications that can capture mainstream attention and drive adoption. As the infrastructure and tools for Web3 development continue to mature, we can expect to see more experiments in consumer-facing applications that leverage the unique properties of blockchain technology.

The Importance of Native Design in Web3

García Martínez emphasizes the importance of designing Web3 applications and experiences that are truly native to the medium, rather than simply porting Web2 concepts to blockchain:

"The theory here is that Web3 is going to start imitating Web2 forms and it would suck if so, right? Because like the whole point is getting out of spumorphism. Like you don't want to imitate the tropes. Like you want to do the cool new thing at the new medium, it's possible."

This call for native Web3 design echoes broader conversations in the blockchain space about the need to move beyond simply recreating existing systems on-chain and instead leverage the unique properties of blockchain technology to create entirely new paradigms for user interaction and value exchange.

The Role of Influencers in Web3 Marketing

The conversation touches on the potential role of influencers in the Web3 marketing landscape. García Martínez notes:

"I think influencers are publishers. If you've got a big audience on Twitter and you're pumping a token or doing whatever, you're a publisher. Decentralized, very fragmented, but you're a publisher."

This perspective highlights the evolving nature of content creation and distribution in the Web3 space. Unlike traditional Web2 platforms where influencers are often at the mercy of centralized algorithms and moderation policies, Web3 offers the potential for more direct and transparent relationships between creators and their audiences.

The Potential of Questing Platforms

One of the more intriguing Web3-native marketing concepts discussed is the idea of "questing platforms." García Martínez notes their effectiveness:

"We just did a study on base measuring layer 3 campaigns and they were pretty successful. I forget the exact percentage, but the layer 3 drove a significant almost as much on chain connectivity as Coinbase's on-chain summer launch site."

These questing platforms, which incentivize users to complete specific on-chain actions, represent a novel approach to user acquisition and engagement in the Web3 space. They leverage the transparency and programmability of blockchain technology to create gamified experiences that can drive meaningful user actions.

The Challenge of Data Privacy in Web3

While Web3 technologies offer new possibilities for user control over data, García Martínez points out that true data ownership and privacy remain complex issues:

"In the naive model, you just get paid that forever. And again, it sounds weird, but actually it's when you think about it, it's super sophisticated. It would be impossible to do in web two, right?"

This observation highlights the nuanced nature of data privacy in the Web3 space. While blockchain technology offers unprecedented transparency, it also creates new challenges in terms of data persistence and the right to be forgotten.

The Importance of User Value in Web3

Throughout the conversation, García Martínez emphasizes the importance of creating genuine user value in Web3 applications:

"The average user is not going to care about a Solana Polygon food fight on Twitter. They just don't care. They want to do cool shit online. They don't even know the throne chain. It doesn't matter, right? Just magical things happen when you get engaged. That's how you need to build it."

This focus on user value, rather than technical specifications or tribal allegiances, is crucial for the long-term success and adoption of Web3 technologies. It serves as a reminder that while the underlying technology is important, the ultimate measure of success will be the ability to create meaningful and engaging experiences for users.

The Potential for Web3 to Improve on Web2 Advertising Models

One of the most exciting prospects discussed is the potential for Web3 to create more efficient and fair advertising models than those that currently exist in Web2:

"Web3 is going to have a smarter, more interesting, more fair, more transparent marketing stack than web two ever had at all because of things like this. We can look at the blockchain and agree. Yeah, you know, it turns out Merck came in and did spend $1,000 in protocol fees. So Garrett, by the way, you are owed 100 bucks and everyone can see that."

This level of transparency and automatic execution of referral payments could revolutionize the digital advertising industry, creating more trust between advertisers, publishers, and users.

The Role of AI in Future Advertising

While the conversation primarily focuses on Web3, García Martínez also touches on the potential impact of AI on advertising:

"I think AI is going to become kind of like a utility that you just pay for. Like we're going to just have this super smart computing that interfaces with humans really well, just like an every damn thing, including crypto."

This vision of AI as a ubiquitous utility that enhances various aspects of digital experiences, including advertising and crypto, presents exciting possibilities for the future of both industries.

The Importance of Building for Scale in Web3

García Martínez emphasizes the need for Web3 projects to think about scalability and mainstream adoption:

"You can't assume the other guy is like a nerdy, de-gen dude like you are, because it's, if you want scale, you got real numbers, you cannot make that assumption. That's not the way it works, right?"

This advice serves as an important reminder for Web3 developers and marketers to consider the needs and preferences of mainstream users as they build and promote their projects.

In conclusion, the conversation with Antonio García Martínez provides valuable insights into the evolving landscape of Web3 advertising and marketing. By learning from the successes and failures of Web2, and leveraging the unique properties of blockchain technology, the Web3 space has the potential to create more transparent, efficient, and user-centric systems for digital advertising and user acquisition. As the industry continues to mature, we can expect to see innovative new approaches that blend the best aspects of Web2 marketing with the novel capabilities offered by blockchain and cryptocurrency technologies.

Facts + Figures

• Antonio García Martínez was the first product manager for ads targeting at Facebook.
• In the early days of Facebook's advertising platform, CPMs (cost per thousand impressions) were as low as 17 cents.
• Current CPMs on Instagram feed ads can reach $8-9, more than an order of magnitude increase from Facebook's early days.
• Mobile casual games became a significant driver of revenue for Facebook around 2012-2013.
• Facebook Exchange and custom audiences were key innovations in Facebook's advertising capabilities.
• Web3 referral systems, like the one used by GMX, can offer influencers a 10% cut of user-generated protocol fees.
• Questing platforms have shown significant success in driving on-chain activity, comparable to major launches like Coinbase's on-chain summer campaign.
• Traditional display advertising typically has a click-through rate of around 3%, meaning 97% of users don't engage with ads.
• Web3 marketing campaigns often have even lower efficiency, with García Martínez estimating that 90% of spend might be wasted.
• Amazon has become one of the biggest players in digital advertising, alongside Google and Facebook.
• Apple's move to on-device ad matching and personalization for privacy reasons is changing the landscape of mobile advertising.
• The podcast advertising industry is still in its infancy in terms of attribution and measurement capabilities.
• García Martínez's company, Spindl, enables tracking of user journeys from initial click to on-chain conversion, even weeks later.
• Friend.tech, a Web3 social platform, demonstrates novel concepts like personal token ownership and automated revenue sharing.
• Elon Musk's Twitter is experimenting with revenue sharing for creators, with some users reportedly earning up to $5,000 per month.

Questions Answered

What is on-chain attribution in Web3 advertising?

On-chain attribution in Web3 advertising refers to the ability to track and measure user actions and conversions directly on the blockchain. It allows marketers to see the entire user journey, from initial interaction with an ad or link to the final conversion, even if that conversion happens weeks later. This level of transparency and accuracy was not possible in traditional Web2 advertising systems.

How does Web3 advertising differ from traditional digital advertising?

Web3 advertising differs from traditional digital advertising in several key ways. Firstly, it offers greater transparency, as all transactions and interactions can be verified on the blockchain. Secondly, it enables more direct relationships between advertisers, publishers, and users, often cutting out middlemen. Lastly, it allows for novel incentive structures, such as token-based rewards and on-chain referral systems, which were not possible in Web2.

What is the "publisher problem" in Web3?

The "publisher problem" in Web3 refers to the lack of centralized platforms or aggregators for user attention, similar to what Google and Facebook provide in Web2. This makes it challenging for advertisers to find efficient ways to reach their target audience. The Web3 ecosystem is still figuring out what the equivalent of these major publishers will be, with potential candidates including wallets, questing platforms, and influential individuals or communities.

How can AI impact the future of Web3 advertising?

AI has the potential to significantly impact Web3 advertising by enabling more personalized and efficient ad creation and targeting. It could help in analyzing on-chain data to identify user preferences and behaviors, generate tailored ad content, and optimize campaign performance. Additionally, AI could play a role in creating more engaging and interactive ad experiences in virtual environments like the metaverse.

What are "questing platforms" in Web3?

Questing platforms in Web3 are systems that incentivize users to complete specific on-chain actions, often in exchange for rewards. These platforms gamify the process of interacting with blockchain protocols and applications, driving user engagement and adoption. They have shown significant success in generating on-chain activity and serve as a novel form of user acquisition in the Web3 space.

How does Web3 address data privacy concerns in advertising?

Web3 addresses data privacy concerns in advertising by giving users more control over their data and how it's used. With blockchain technology, users can choose what information to share and can directly benefit from sharing their data through token incentives. Additionally, the transparency of blockchain allows for more accountable data usage practices. However, it's important to note that privacy in Web3 is still a complex issue, particularly when it comes to the permanence of on-chain data.

What role do wallets play in Web3 advertising?

Wallets in Web3 have the potential to become significant players in the advertising ecosystem. They could evolve into content portals, similar to how Yahoo functioned in the early days of Web2. Wallets have direct access to user's on-chain activity and holdings, making them well-positioned to deliver relevant content and advertisements. They could also facilitate seamless transactions and interactions with advertised products or services.

How does Web3 enable more efficient referral systems?

Web3 enables more efficient referral systems by leveraging smart contracts and on-chain transactions. This allows for automatic, transparent, and immediate attribution of referrals and distribution of rewards. For example, if an influencer shares a link and a user engages with a protocol through that link, the influencer can automatically receive a percentage of the fees generated by that user's activity, all verifiable on the blockchain.

What are the main challenges in user experience for Web3 applications?

The main challenges in user experience for Web3 applications include complexity of onboarding, managing private keys and wallets, understanding blockchain concepts, and dealing with gas fees and transaction confirmations. Many Web3 applications currently cater to tech-savvy users and haven't focused enough on creating intuitive experiences for mainstream adoption. Improving these aspects of user experience is crucial for the growth and adoption of Web3 technologies.

How can Web3 projects measure the effectiveness of their marketing efforts?

Web3 projects can measure the effectiveness of their marketing efforts through on-chain attribution systems, which track user actions from initial interaction to final conversion. Tools like Spindl allow marketers to see the entire user journey, even across different platforms and over extended periods. Additionally, projects can measure on-chain metrics like wallet growth, transaction volume, and token distributions to gauge the success of their marketing campaigns. It's crucial for projects to establish clear KPIs and consistently track and analyze these metrics to optimize their marketing strategies.