Georgios Petropoulos: The promise of Web3 and the future of platforms

The researcher at MIT and Stanford talks about his recent Bruegel article "Web3: the next internet revolution" and the promise and limits of Web3 technologies

Georgios Petropoulos is a leading expert on platforms and disruptive digital technologies. He is a non-resident fellow at Bruegel, a research associate at the MIT Initiative on the Digital Economy, and a digital fellow at the Stanford Digital Economy Lab.

In February I came across an essay posted on the think tank Bruegel titled Web3: the next internet revolution by Harang Ju and Georgios Petropoulos. I had attended enough crypto industry conferences to hear this from ‘crypto bros’, but Petropoulos is a scholar who works with a few distinguished members of the Luohan community including Geoffrey Parker, Marshall Van Alstyne and Erik Brynjolfsson with appointments at both Stanford and MIT centers, Petropoulos has written extensively about traditional platforms. He knows their problems, but also their unique strengths.

I sat down with Petropoulos for a dive into his views on Web3 and I took the opportunity to question and challenge him.

Unlocking value for users, but when and where?

Economics often loves the idea of being able to assign values to things. I worked in finance for many years, and for a while it was vogue to securitize more of the economy. Similarly, Web3 promises that many more things can be assigned value, property rights, and markets. Imagine a Yelp (or Dianping) where reviews could be assigned rights. In theory, you could unlock economic value. This value may not involve every reviewer — perhaps only a tiny fraction of the particularly insightful influencers. They could issue their own token for those that want to read their reviews, and this token could allow access across multiple platforms.

This sounds great, but I did ask how practical this might be across all our online interactions? To Petropolous, platforms that facilitate content might see the most value from Web3. Here is where there is great desire by content creators to have control. Platforms will continue to be important to connect and communicate.

The obvious question is how much blockchain code makes up for market regulations. Certain the absolutists think that blockchain can substitute for law. Petropolous has thought about this. Certainly, code will regulate these new markets in very efficient ways that often will give more power to users. But he also believes regulations will play a critical role, and thinks anti-trust law is instructive. He thinks regulations are needed to protect users from abuse of power, to regulate competition between platforms — many of these problems may not get coded away so easily. The ultimate goal is to give more value of the ecosystem to users and creating user choices.

Ultimately this relates to the first question of when centralized vs decentralized platforms make sense. Petropolous sees centralized systems are providing many advantages - and continue to be important gates for user interaction. But importantly, they will not be the only gates. Users will be able to use multiple platforms, or even be off platform.

I personally don’t know if it can work that smoothly. The value of networks is usually believed to be n^2 — so the more people move off a platform, and especially the popular content, the less value it has. Also, will the incentives be enough for platform operators? We have not yet answered the question of whether platform operators earn outsized rents for the function they fulfill. Finally, I worry about splintering from another perspective. They potentially give us more niche platforms - think of how politically divided many countries are these days. If we were able to easily create our own networks, would we splinter more than we already do?

Petropolous does not disagree with the premise of my concerns. Yes, decentralized technologies by their nature will allow the creation of focused, niche groups. That has both positive and negative connotations for society. To me, that augurs another worry — who to hold responsible. Our fellow Marshall van Alstyne discussed the problem with fake news being one of externality mismatch: platform operators do not internalize the negative externalities of fake news and polarization. But at least having a large influential platform means it is subject to social and regulatory pressure. But a hundred small platforms may not.

I’m not sure either of us - or society at large - have a definitive answer to this question yet. One big question is we do not yet know how these platforms will be owned and controlled. Is a decentralized Amazon controlled more by the suppliers or consumers? Would a decentralized Facebook or Twitter be owned by advertisers or users? To Petropolous Web3 adds these extra dimensions to platform strategy so these are all questions that will get answered as the models experiment and mature. Most economists think more choice is ultimately beneficial. I think it’s possible that Web3 technologies may end up serving an important ‘fleet in being’ effect, in forcing traditional platforms to evolve to the benefit of users by being a viable alternative. Petropolous agrees this may end up being the effect. But this continues to be a fast evolving space and thinkers like Petropolous will be crucial in helping understand it.