Fat Protocol Fat App Thesis

A little history.

Lotus 1–2–3 which was launched in 1983 was the world’s first fat app. It wasn’t the first spreadsheet, but probably the fastest at the time that brought convenience in usage.

Microsoft had a competing product — Multiplan. Multiplan was optimized for portability not speed. Bill Gates initially thought that the holy grail in software was making it available on every PC as possible. There wasn’t any common operating system in use then. So every new computer required a custom/different model of the software.

Microsoft’s business plan was to make customized software. On the other hand, Lotus didn’t have the resources to build different versions of the spreadsheet. So they made only one version for the newly released IBM computer — the fastest PC at that time.

It became so successful that Lotus didn’t have to make other versions of the software. Rather than folks waiting for Lotus 1–2–3 to become available on the PC they had, they went ahead and bought IBM because it ran Lotus 1-2–3.

Competitors like Compaq started advertising themselves as “Lotus 1–2–3 compatible”. IBM did the same too.

Bill Gates got the memo; customers cared more about the software they ran, rather than the computer they ran it on. It was a clear one to see, as in 1985, Lotus 1–2–3 (a single product) did $200 million in revenue, while Microsoft (with dozens of products) did $140 million.

Microsoft then created Windows (which hosted Excel and Word), with the sole purpose to supplant Lotus 1–2–3. At some point, Bill Gates thought it wouldn’t work, and wanted to scrap the Windows project and create software specifically for IBM. But that didn’t happen.

In the end, Windows won over Lotus 1–2–3. Lotus 1–2–3 cost $495 while Windows cost $99.

Back to crypto!

The original thinking was in favor of fat protocols; due to crypto’s open source nature, apps have little or no leverage with users, making profit margins thin (or non-existent in some cases). But the activities on those apps generated fees for the protocol. Leading to thin apps and fat protocols.

But with the recent prioritization of revenue generation and cash flows by these applications, the thinking could be shifting towards a fat app thesis.

Just ask yourself this: are crypto users likely to say, “I want to be on ethereum and will use whatever applications I find there?”

Or will most users be drawn to crypto by an application they want to use and have little or no interest in what blockchain it happens to be on?

Although, despite the recent focus on revenue, crypto apps aren’t making much of it. This past week, ethereum has generated more than double the revenue paid to all crypto applications combined. As of today, protocols are far fatter than applications.

The idea with Lotus was that it was the first example of an application being worth more than the platform it was built on. The question in crypto is whether more value will accrue to layer 1s or the applications built on layer 1s.

In Web2, applications (in aggregate) accrue much more value than the platforms.

Folks would still use FB (assuming it weren’t on the internet), so far it allowed them to message friends and families from anywhere around the globe. In that sense, the app accrues more value than the protocol itself.

In crypto, it’d be a DeFi freak just wanting to use UniSwap, while caring less about what protocol it’s on.

Maybe now, more preference can be given to ethereum because of liquidity. But it might get to that moment where it doesn’t matter much and UniSwap is just UniSwap.

I think the fat app thesis would likely come to fruition. Multi-chain would probably make that happen fast.

2030, OpenSea is where you want to sell your j-peg. And what protocol you are on doesn’t matter. People come in from the outside (the app), rather than from within (the protocol).

Today, you have to be on ethereum first, then use every app on it. Perhaps in the future, we just use the app, regardless of the protocol. That way, the app accrues more value than the protocol.

The history of PCs suggests, between apps and protocols, crypto apps are the ones most likely to grow fat.