What does Web3 mean for SaaS companies? (Part 2)
An interview with Colin at Protocol Labs
In the first part of my conversation with Colin at Protocol Labs, I learned that we can consider Filecoin to be the “Airbnb of cloud storage," offering a Web3 alternative to the current default cloud storage options, e.g. AWS, Google Cloud, and Microsoft Azure. This post covers the second half of our conversation, focused on Protocol Labs as a company. How does it operate differently from a Web2 company?
As I mentioned in the last post, I should disclose that I do own some Filecoin, and neither post is intended in any way to promote the token. The purpose of these posts is to share with you my learnings about what Web3 means for SaaS companies. And I learned a lot!
Let's dive into the operational side of Protocol Labs, starting with a basic question. Why is the Filecoin token important for you?
Protocol Labs came up with some of the research and participated in the first implementation of the Filecoin network, so the company earns 15% of the total tokens, and those vest over six years. That creates a long-term incentive for our team to continue contributing. And 10% of the Filecoin tokens were part of an early fundraising round, a SAFT -- simple agreement for future tokens -- which is the Web3 equivalent of the SAFE note that many SaaS companies raise during their seed rounds.
So if the Filecoin network becomes heavily used and large, the network will become valuable, and we can continue contributing to the Filecoin Ecosystem and also redeploy them into other protocols in the future. Our intention is to create many protocols that are complementary and ultimately lead the web to a much more decentralized version of itself.
We also invest in many of the application-layer companies that are within our ecosystem to help them succeed by being value added investors to Builders on the network.
When Filecoin storage providers receive the block reward, does that dilute your "stake" of the ecosystem?
Yes, the creation of new Filecoin through block rewards is determined programmatically, so we know what to expect.
You don't have subscription revenue, right?
Correct. We're very different from a SaaS company in that way.
I know you run "ecosystem" at Filecoin – which I think of as the external-facing side of your company. What are your goals?
Our mission is to make the stakeholders of the Filecoin network successful - specifically clients, storage providers, and developers. Our strategy is threefold. First, we work on ecosystem multipliers, which are major new use cases for the protocol. For example, we want to be the storage network for all blockchains, and we create integrations with them for that reason. We also want to provide storage for video use cases, which requires partnering with folks who can transcode video in addition to storing it. And we want to be the protocol for browsers like Brave, which we're integrated with.
Were these partners of yours previously using a centralized storage provider?
Sometimes yes, but sometimes they were not storing their data to begin with and just throwing it away. For example, 99.9% of video surveillance is thrown away because it would be too expensive to store it. But with Filecoin you can store that data much more cheaply, which unlocks a totally new data set and use case.
I know of some Web3 companies that don't believe in hierarchy. They don't have direct reporting lines. Is that true at Protocol Labs?
We've experimented with that previously and it didn't work perfectly. So yes, there is hierarchy. But it's a more open working group since we don't directly employ everyone. There are multiple entities within the ecosystem that are all working toward common goals. We try to empower the leads of each working group to make decisions. The leads are currently from Protocol Labs but in the future they'll be from all sorts of different organizations, and they'll rotate.
What do you decide to keep in-house? What does your org chart look like?
I oversee all marketing and comms; hackathons; developer onboarding, which is everything from developer advocacy, to support, to grants, to accelerators; data storage provider growth; an application research group, which creates prototypes of potential applications and inspires other developers to run with those ideas. I also oversee our investment fund that invests in the applications and tools that build on top of IPFS & Filecoin.
As the "Airbnb for file storage," you're essentially a two-sided marketplace. What do you do to support each side?
On one side, we work on the developer funnel – bringing developers in through hackathons and education, creating accelerators and grants programs for them to flush out their projects, and then helping them find seed funding as those projects transition into businesses. About ten thousand new teams participated in our Hackathons in the last year. Then we have accelerator programs for a hundred of those, and we partner with Techstars, Tachyon, Outlier Ventures, and others on these. These one hundred teams come out of the accelerator with seed capital, three months of mentorship, and a demo day, and Filecoin ecosystem funds outside of ours have specifically earmarked over $50M to invest in these applications. We think four billion-dollar businesses will emerge from this pipeline in the next 5-10 years. It's similar to how Salesforce and Apple built their ecosystems.
We also work to expand our "supply side" -- the community of data storage providers, making sure they're well supported and geographically diverse.
Is marketing different from what it would be at a Web2 company?
Some aspects are definitely similar, but the job of this team is to represent the voice of the ecosystem. It's much more important for them to highlight the applications and companies building in the ecosystem -- like a new company raising a big round of funding -- rather than promoting Protocol Labs.
Revenue-related concepts like demand gen don't make sense for our business. It’s more about making the stakeholders of the Filecoin project successful - like ensuring storage providers are profitable, developers and clients can reliably store their data, etc. If those stakeholders are successful, so will the Filecoin network.
How do you measure that success? What are your KPIs?
We have quarterly OKRs like most folks. For example: quarter-over-quarter growth in the number of new teams building on our technology in hackathons; the percentage of those that convert to accelerators; the growth in the capacity of the network; the number of data storage providers.
I'm wondering what your approach to "customer success" would be. For example, do you have a support team that helps the data storage providers?
We don't, but there are other companies within the ecosystem who provide that. We love to decentralize by seeding new teams to take on some of the traditional SaaS functions rather than do it ourselves. In fact, the whole unit that I oversee is actually comprised of folks from many different organizations that are part of a more open working group. I don't think Protocol Labs will ever be more than a few hundred people, because there will be many different businesses that will serve the ecosystem.
Thinking of other factors that would make "customers" successful…What kind of infrastructure do people need to store their data on Filecoin?
There are eight or ten developer tooling companies that sit on top of our protocol layer. By analogy, if you wanted to use HTTP without your browser – good luck! The developer tooling companies abstract the technical details away, so that a developer can call a clean set of APIs to store their files and move them around. One example is Estuary.Tech – they’ve helped clients store over 12 million files and 800 TiB of data on Filecoin. Another is nft.storage – which is specifically geared towards helping store NFTs on Filecoin.
We’re also seeing a variety of specialized consulting companies cropping up to help onboard folks for different use cases. For example, if you want long-term archival storage – large data sets that are infrequently retrieved – there are certain organizations that can help you with that. Other organizations might help you with super fast retrieval. And others could help you store a bunch of NFTs.
In the Web2 world, many SaaS companies have emerged to help other SaaS companies run their business: marketing automation, sales tech, customer success, etc. It strikes me that in the Web3 world, you could imagine completely new categories of software being created to suit the very different types of relationships between companies. “Marketing automation” software might be replaced by "ecosystem management software", for example.
That’s exactly correct.
What do you think are going to be the biggest categories of applications that will emerge in the next year?
On Filecoin, it’s really hard to say. I would bet you that in three years, the largest category is something that I couldn’t possibly dream up today. That’s what we’ve seen with Ethereum and IPFS as well. Who would have thought NFTs or decentralized finances would be the big thing?
But there are a few things I’m super excited about now. One is video. Video is around 60% of the web traffic today. It’s very expensive to store video data, and it’s hard to retrieve it. The cost proposition of Filecoin is compelling.
Are you thinking of content delivery networks (CDNs) but based on blockchain?
Exactly. There are two roles in the Filecoin network. One is long-term archival, handled by larger data storage providers. Secondly, there are smaller players, focused on retrieval, that are geographically located where the data needs to be served the most. The retrieval nodes act like a CDN to pull the most frequently retrieved files and distribute them locally. They enable quick access video. The next generation of browsers will probably be built on this technology.
Some people think that we’re still in the infrastructure phase of Web3 development, and that the application phase is still several years away. What do you think?
We’re still in the early adopter phase for Web3, but we’re starting to see some potential to cross the chasm. NFTs were a specific use case that got Web3 into the general spotlight. Filecoin could be a big part of a Web2 to Web3 transition because it’s more accessible and has more direct benefits to a bunch of different stakeholders. We’re not quite at that transition moment but I don’t think we’re that far away either, and I think it’ll catch a lot of people by surprise. That’s also true in the case of decentralized finance, which has only recently started to become a big part of traditional finance.
What else should SaaS companies be thinking about?
SaaS will probably evolve as your customers’ requirements evolve. In the future, customers may require verifiability of data. The key promise of Web3 is that you don’t need to rely on the vendor to verify that something’s happening the way it should.
Summarizing some of my takeaways from our conversation: It sounds like there are 3 trends that will drive SaaS to Web3. One is a desire for cheaper storage. Two is your customers wanting to be able to verify their data as used by your SaaS application. And three is that the SaaS company itself may risk disruption from an alternative that's serving the specific needs of Web3 companies.
You got it.
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