Welcome to the Block & Mortar newsletter! Every week, I bring you the top stories and my analysis on where business meets web3: blockchain, cryptocurrencies, NFTs, and metaverse. Brought to you by Q McCallum.

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There was a lot of news this past week about tech companies’ disappointing earnings reports: Amazon, Google, and Microsoft all had to explain why their numbers weren’t up to snuff, and the stock market reacted accordingly.

Facebook Meta FaceMeta was hit especially hard. In part because its multi-billion dollar investment in metaverse technologies – well, its own, narrow definition thereof, which largely relies on people buying VR goggles – has yet to pay off.   People can’t tell whether the company is poised for a win, or it’s too far ahead of its time, or the guy in charge is using the metaverse pivot to hide from the harsh realities of the online ads business.

At least Apple managed to outshine its tech peers this week.  It also raised some eyebrows in web3, for a very different reason:

In-App NFTs

If you want to build applications for iDevices, you have to first register with Apple’s developer program.  That program’s rules define what your app is allowed to do while running on a device.

Last week, Apple made a little note about NFTs in section 3.1.1 of those rules (emphasis added):

Apps may use in-app purchase to sell and sell services related to non-fungible tokens (NFTs), such as minting, listing, and transferring. Apps may allow users to view their own NFTs, provided that NFT ownership does not unlock features or functionality within the app. Apps may allow users to browse NFT collections owned by others, provided that the apps may not include buttons, external links, or other calls to action that direct customers to purchasing mechanisms other than in-app purchase.

(For more coverage of Apple’s rule update, check out coverage on TechCrunch, The Guardian, and Gizmodo.)

The section we’ve put in bold describes token-gating.  An NFT represents an item that can only be held by one person at a time, so it’s about the same as an access pass.  Token-gating has already been used for event tickets and loyalty cards.  It’s hardly a stretch to imagine how it could be useful to unlock features in an app.

Is it OK for Apple to throw water on the NFT party like this?  The answer is … it’s complicated.  Because this isn’t just about NFTs.  It also involves marketplace dynamics.  Consider:

• A marketplace is a space that connects different parties.  

• The App Store is a marketplace that connects iDevice application developers to iDevice owners.

• Apple is the middleman that runs that marketplace, and it takes compensation as part of performing that role.

(Just a side note: the textbook definition of a marketplace is that it makes it easier for the parties to interact.  The App Store is the only place for these parties to interact, if they do so through a native iOS app.  So that complicates things.  We won’t go into detail about the various lawsuits app developers have filed against Apple because of this.  Just know that middlemen don’t always have the best reputation.)

Maybe Section 3.1.1 is just a clarification?  Apple charges app developers a modest annual fee to be part of the program, sure.  It also charges consumers considerably more, for the privilege of buying iDevices.  But Apple gets the developers a second time when it takes a cut – usually, 30% – of any in-app purchases.  Based on the updated rule, Apple sees token-gating in apps as a way for developers to side-step that 30% haircut.  So 3.1.1 may just be business as usual, with extra wording specifically for the web3 era.

Maybe this is about getting a piece of that sweet, sweet crypto pie?  Based on our reading of Section 3.1.1, it looks like Apple will permit token-gating so long as the NFTs were acquired through in-app purchase.  If so, taking a percentage of an NFT’s purchase price can add up.  Especially if the exchange rates shift back to more crypto-friendly values, where an NFT’s listing price in tokens would represent a greater amount of fiat currency.

Maybe this is about something else altogether?  Apple already lets some apps bypass in-app purchases.  Sort of.  You can login to the website of a newspaper or other service provider, pay them directly for a subscription, and then use those same login credentials to access special subscriber-only areas inside the associated  iApp.  (Or, if you’re Roblox, you can just … run an entire game store within your iOS app and Apple seems fine with that.) 

If an NFT represents a record of a purchase etched into a blockchain, and a website login represents a record of a purchase stored in some service’s database, it seems odd that Apple would treat them differently. That leads us to ask whether the company has grand cryptocurrency plans of its own, and Section 3.1.1 is the first step.  This seems far-fetched, though.

Will Apple back down?  Of all the ink (“pixels?”) spilled over Section 3.1.1, we haven’t seen anything positive.  But it’s unlikely that Apple will reverse the rule.  It’s not the sort of company to announce an unpopular change, experience backlash, then claim it was made in error.  That’s totally PayPal’s turf.

People like rules.  Sometimes.

We’ve touched on web3 regulation in past newsletters (#6, #10, #17, #23, to name a few) but we said it best in #14: 

[A lack of clarity about rules pushes people’s] behavior to the extremes.  The one involves the get-rich-quick charlatans innovators who try lots of money-making scams ventures while their activities are still not-yet-illegal.  The other is the group of folks who wait on the sidelines. They don’t want to make any plans until they know precisely what’s allowed.

What separates those two is how they feel about a certain Possible Future Event, the one in which regulators declare the activities illegal and take the money away.  The innovators are willing to take the chance because, hey, maybe they don’t get punished and they walk away rich. The sidelines crew doesn’t like all of those question marks on their balance sheet.

We’re not the only ones who see it this way.  A recent Bloomberg article points out that both retail and professional investors want more oversight of the crypto space. Which makes sense.  You never want today’s successful trade to become tomorrow’s subpoena.

Diet web3

The term “web 2.5” describes services that are very close to web3 in concept, but which obscure or outright omit the blockchain backend.  In some ways this is considered a smooth on-ramp to the full web3 experience.  It’s also a subtle way to label the competition as old-hat.  But between environmental concerns and the sharp drop in cryptocurrency prices – affectionately dubbed “crypto winter” – the web3 label can be more of a blessing than a curse.

All of this is to say that Roblox, a metaverse property some put squarely in the web 2.5 camp, is attracting commercial interest precisely because it is blockchain-free:

Across the board, major corporations are fishing for ways to engage with the metaverse. But sinking crypto prices and values for NFTs, when coupled with a string of celebrity endorsements gone wrong, have ratcheted up the level of scrutiny and hesitancy surrounding new projects, causing investment into blockchain-related ventures to shrink. Meanwhile digital platforms like Fortnite, Minecraft and Roblox — with tens of millions of daily users that serve as functioning versions of the metaverse in many people’s eyes — are viewed as relatively innocuous virtual spaces, where companies can safely experiment with the commercial possibilities of web3,

The take-home lesson here isn’t that “the technology is unimportant.”  Instead, we see it as “focus on the technology as it relates to your goals.”   And for many businesses, the plain and simple goal is to engage with people.  Existing customers, potential new customers, either way.  If people are hanging out in off-chain metaverse properties like Roblox and Fortnite, that’s where the brands’ marketing teams will set up shop.  It’s that simple.

“This week’s podcast rec: a16z’s Ali Yaha on The Defiant”

This week we stumbled across The Defiant podcast’s interview with Ali Yaha, general partner at Andreessen Horowitz (a16z) .  We enjoyed it, and we think you will, too.

Yaha describes how the company chooses investments and how it supports its portfolio companies.  Of particular interest, around the 17:00 mark, he raises the point that a blockchain doesn’t run on a computer, but that a blockchain is a computer. The hardware on which the code runs is irrelevant because the network itself is in control.  This drives home the point of decentralization and gives us a new way of looking at blockchain technology overall.

The wrap-up

This was an issue of Block & Mortar.

Who’s behind Block & Mortar? I'm Q McCallum. I've spent the past two decades in the emerging-tech space. And I'm very interested in web3 use cases.

Credit where it's due. Big thanks to Shane Glynn for reviewing early drafts. Any mistakes that remain are mine.

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