8 min read

How Pallet is Thinking About Web3

How Web3 will impact the recruiting industry.
How Pallet is Thinking About Web3

Hello friends đź‘‹,

Welcome back to the Pallet Post. Today's post talks about how we've been thinking about Web3 and its potential implications on the recruiting industry.

Before we get started, if you aren't familiar with Web3, these are three articles I'd recommend reading for a primer on the subject:

📖  The Ownership Economy by Jesse Walden

📖  A Prehistory of DAO's by kei

📖  Why Decentralization Matters by Chris Dixon

The recruiting industry is ripe for a Web3 takeover.

We don't believe that every product is suited for Web3, but we do believe in its inevitably. While Web2 has pushed the internet far beyond what was imagined during its conception, sclerotic products have popped up across industries, especially recruiting.

There exists a massive opportunity in the promise of Web3 to reorganize the way recruiting happens. With it comes the promise to reinvent organizational structures, upend traditional hiring models, radically redistribute earnings, and double down on existing incentive structures.

What is it?

At its core, Web3 is about altering outcomes. More specifically, shifting where value accrues in the system. In a Web2 reality, centralized networks are the kingmakers— the Facebook’s, Twitter’s, and LinkedIn’s of the world that retain the overwhelming majority of the value (user data) from its network participants– suppliers and consumers.

As Chris Dixon describes in his famous piece Why Decentralization Matters, the problem with centralized networks is “that they follow a predictable life-cycle where they do everything they can to recruit users and 3rd-party complements like developers, businesses, and media organizations. They do this to make their services more valuable, as platforms (by definition) are systems with multi-sided network effects.”

Dixon uses the S-Curve above to demonstrate that platforms can pull a bait and switch (spoiler, they all do it) once network effects kick in. Essentially, the easiest way for a platform to scale is to start charging businesses and developers to reach their customers and deliver customers ads and products based on their accumulated data. A network shifts from a phase of attraction into a new phase of extraction.

Simply, a platform can get too big for its own good. Businesses are forced into a competition for an ever-shrinking piece of the profit pie, and consumers are barraged with a deluge of advertisements and noisy feeds aimed at the lowest common denominator. The relationships with network participants change from positive-sum to zero-sum. The value accrued is overwhelmingly siloed to the aggregators, not those creating content, participating, or driving the network forward.

It's a highly competitive and overtly individualistic paradigm that needs to change.

Web3 enables this change. While the Web2 model follows a cooperation –> competition trajectory, Web3 shifts the model to a straight line of cooperation –> cooperation. Utilizing consensus protocols/standards and shared bank accounts strips the value away from the middle-men and transfers it towards its edges to the network participants.

Under the auspices of crypto-economic networks, Web3 also unlocks entirely new businesses models. According to Dixon, crypto-networks, “align network participants to work together toward a common goal — the growth of the network and the appreciation of the token.”  

When the network becomes stronger, everyone wins, not just an inner circle of founders and investors. From the few to the many, Web3 opens up ownership opportunities where many users can earn value from their collective contributions.

Recruiting is ready for Web3

When it comes to recruiting, the prospect of changing outcomes is a two-pronged issue. There is the primary issue of the actual centralized products themselves and the environments they create. Secondly, there is the issue of re-contextualizing the most important recruiting heuristic there is– referrals.

Let’s approach the first issue.

Most products have yet to figure out a way to generate better outcomes for their users; it’s a problem that is endemic of Web2; it’s just particularly relevant in the recruiting industry.

While these platforms first promise and facilitate genuine interactions from all its participants, scaling is inevitable to become the de-facto recruiting platform.  It’s a uniquely Web2 problem; its current structure forces products in the space to reach a critical mass of users to maximize revenue. Recruiting becomes a game of volume, not quality.

This is the reason why we've said that the next LinkedIn won’t be another LinkedIn, and that Hiring is Human, recruiting marketplaces aren't suited for vertically-situated scaling. Time and time again, we've seen platforms move further away from the most important recruiting metric– referrals. While some recruiting products have overlooked this entirely, most have decided to optimize for metrics like application volume.

Even attempts to productize referrals, while it might not be the product's core functionality, have failed. The LinkedIn referral, while it might be a nice boost on your collage-like profile, is still a relatively meaningless signal. The referral action is not risky enough for it to carry enough value.

“Referrals will forever be the most cherished point of evaluation in the hiring hierarchy because they carry the most weight amongst all candidate signals. The referrer assumes risk of social capital when they make a referral. By referring someone, you are putting your own credibility on the line, sticking your neck out on behalf of someone else. A lousy referral can damage your professional and personal reputation in the same way, that a good referral can boost your professional and personal standing.”

Even if the people at LinkedIn do understand that referrals are the most critical signal, incorporating risk into their product would be misaligned with their revenue model because it shrinks the total number of viable candidates. Additionally, the product architecture incentivizes people to stay active on the platform, not to drive positive outcomes. It’s not optimized for passivity. Instead of pushing that value outwards to its consumers (job seekers) and suppliers (recruiters) and extending it infinitely within these pockets, Web2 has helped create a deep chasm between each party on these platforms.

But don’t mistake the critiques above as total repudiation of all things Web2. We love Web2. Pallet is built on Web2. Web2 has catalyzed the Creator Economy and accelerated the ability for an individual to be rewarded for their creations. As each centralized aggregator garnered additional defectors-- new creators, communities, and tools popped up to fill the power vacuum. It’s this late-stage of Web2 that’s helped usher in these new, digital, community-driven centers of gravity. As we’ve mentioned before, these are the places that are currently powering hiring activity online. Packy McCormick described this activity as the “Great Online Game”

“The way you play in one area unlocks opportunities in others. Sharing ideas on Twitter might get you invited to a Discord, your participation in that Discord might get you invited to work on a new project, and that new project might make you rich. Or it might bring you more followers on Twitter and more Discord invites and more project opportunities and new ideas that you want to explore which might kick off any number of new paths...The Game rewards community and cooperation over individualism and competition.”

As we developed Pallet, we understood that the central aggregators were poorly suited to incentivize cooperation; after all, searching for a job online and sourcing candidates online is a uniquely individual and competitive experience. Any product we developed had to live as an extension of the current recruiting activity already happening. We realized that hiring activity was much more passive than active and that the most promising hiring activities were happening "off-platform."

It was this bustling under-current of informal recruiting activity that was powering hiring, and most interestingly, we discovered that it:

a) relies heavily on referrals
b) referrals are driven by social incentives

We’ve found that professional people, whether creators or careerists, often compile a rolodex of former colleagues and people they've met that are good at what they do. A list of great engineers, awesome product people, or rockstar marketers– it's a people collective, a natural byproduct of working with other people. Usually, they’ll keep this list on their notes app, create a group chat on Twitter, or maybe it's only a mental catalog– either way they've naturally been curating people. When they see cool opportunities pop up within their network, they are more than happy to share or "drop" these people with others. For recruiters, these analog rolodexes are gold mines of talent. They bypass the noise of traditional recruiting platforms and rely on the most important recruiting heuristic; the referral.

And while this is certainly better than using a central aggregator, the outcomes here are still fractured; siloed to the referrer and referee. The referee gets hired and referrer receives the altruistic rush from having helped someone they know.

But what if, there was a way to widen the scope of this outcome, and provide the option for people to get paid while doing it?  

To us, this is the most exciting potential of Web3 because it helps accelerate what we've already developed for our Talent Collective product so far. While we've been testing a non-productized version of these curated talent networks with corresponding Web2 style drops, we've been eyeing integrations with a more cooperative, Web3 architecture into the product.

To take it from a single player to a multiplayer product. Like I said before, we think Web3 is inevitable, and we've been fortunate to discover that our product is uniquely aligned with Web3's overarching goals, and while it's still aways away, here's a little preview of how we think Web3 could impact recruiting.

How Pallet is Thinking About Web3

Web3 helps opens thousands of new doors for audience builders and people curators. It widens the outcomes of existing referral activity and lays an additional incentive structure on top of it; financial capital. Web3 allows new organizational structures (call them DAO’s if you’d like) that would allow a collection of people to create a small-time recruiting agency.  The organization's strength comes from its talent, not its managers– and the beauty here is, that everyone shares an equal stake in its success. As Jesse Walden describes, it's true economic ownership,

"The ownership economy doesn’t always mean a literal distribution of tokens, stock options, or equity. It also doesn’t necessarily mean that an application or service is entirely built on a blockchain. Rather, it means that ownership — which may manifest in the form of novel economic rewards, platform governance, or new forms of social capital — can be a new keystone of user experiences, with plenty of design space to explore."

For a full-time-creator, this turns your audience into a true asset. With an audience of 1,000 people, it’s natural that you'll find talented people there. This is especially true if your content is professionally driven, a la Femke, Lenny etc.

What's great is that you have the opportunity to deepen the impact of your content profoundly, beyond community participation. Instead of labor-based contributions (producing content) in traditional DAO's, the focus is the outcome– getting other people hired. As a creator, it also allows you to rely on your reputation as a referral point for recruiters.

There's also a much more significant financial upside here than content creation (hint: placement fees). You will have effectively removed the need to create content ad-nauseam. This new type of activity is much more passive. The only action is the initial referral into the network.

There’s also risk baked into this structure– when everyone in your organization reaps the collective benefits of referring someone into the network; you agree to share financial rewards with this additional referee. It reduces the overall percentage claim you are entitled to. However, by referring likely hires into the potential talent collective, you increase the likely hood of a larger overall pot.

The above case still applies to a careerist, who might not have an audience of 1,000 people, but knows 20 talented people. These collectives prioritize quality, not quantity.  In essence, the more enthusiastic recruiting networks members are, the more valuable the network becomes. The more valuable the network and its participants, the greater the rewards everyone shares. The net result for people curators is a vibrant network of invigorated brand representatives bolstering their own social and financial capital. At the same time, recruiters are provided an expansive, living, breathing network of talent across verticals and specialties.

The best part is that neither party has to go anywhere new to participate in this new world of recruiting. It's just another extension of being online. Our original goal with job boards was to seamlessly embed job search into the rest of our online lives, and this Collective idea pushes the envelope a step further. You've already done the "work" by following someone's content or having a good relationship with a colleague– with collectives; you don't have to do anything different to reap the rewards.