When I see VCs proudly brag about airdrops being the future of customer acquisition and there being no analog in web2, I remember when I used to provide 10s of thousands of installs to startups in 2015 by incentivising users. Everyone was big on incent apps then. There was a flourishing ecosystem. Every marketeer wanted to work with us.

It did not end well.

By it did not end well I mean that everyone soon realised that giving out money to users just to juice up installs and thereby game playstore ranking meant that your retention took a hit. It ofcourse served the purpose of getting your first users. Incentivising users was a great way to spend your customer acquisition budget. Not so much when you wanted ROI on your spend. But that is what people wanted then: installs. Your valuation depended on your DAU.

You ask any growth marketer and they will tell you that incentivised growth works only post PMF and if you have a product that can hook users fast and have shorter CAC payback period. Most of these users will jump from one incent app to another, just to collect the rewards. They have no loyalty.

Google’s playstore algorithms are also smarter now and do not just optimise on velocity of installs.

Between 2014 and 2016, I saw the Indian startup ecosystem move from vanity metrics like installs and DAU (that led to further rounds) to your retention matters most narrative to finally land on ‘show me a path to profitability.’

Not many startups survived this change as expected. And as someone working on an ads product I had a ringside view of the transition.

The funniest part: Everyone knew then. Just like everyone does now. People understand how capital markets work. They know how interest rates affect private market valuation. They are still writing “probably nothing” on fund raising news and pumping fake growth just to secure their bag.

We are in the installs ~ valuation phase now when it comes to web3. Lets wait and watch what happens in the next few phases.

I still feel that some variation of airdrops will be the main lever for customer acquisition for web3 consumer products. I am sure there will be smart contracts deployed to stagger airdrops to retention metrics. Like how ESOPs work today for employee retention.

But I am not willing to pretend that we have found some magical pixie dust that solves acquisition. And incentivising user is some new invention by web3 and something ancient web2 companies never thought of. If you pay me, I will also shout from my rooftop about your product. That is not loyalty. Nor does it tell you the true value of your product.

Aaron Levie argues the same here, here, and here.

Related read: Tokens as CAC - Are Crypto Companies More or Less Efficient in Acquiring Customers?