NFT Strategy for Brands – A Primer
Since the recent market downturn, NFT investors have hardly been opting to buy liquid assets, let alone relatively illiquid NFTs. While many digital art-based collections have faced the harsh realities of the current bear market, certain consumer brands have seen the market downturn as a time to build something with real utility. In the current market, many brands are incorporating NFTs into their existing business framework or issuing collections to promote brand awareness. But since almost anything from art to cash flows can be represented as an NFT, the design space of how to use NFTs is huge, and brands need to formulate a clear objective-driven strategy to go beyond the hype and drive tangible and lasting outcomes. This article introduces a framework for brands to formulate the right NFT strategy for them.
What are NFTs?
NFTs stands for Non Fungible Tokens. Fungible means mutually interchangeable e.g. all ₹100 notes or all bitcoins are fungible – you could use one or the other, and nothing would change. Non-fungible means that one item is not equivalent to another i.e. they are all unique in some way, e.g. one Picasso painting is not the same as another.
Hence, NFTs are unique digital assets whose record of ownership is maintained on a blockchain. Blockchain technology enables the ownership and authenticity of digital assets represented by NFTs to be established in an unambiguous and forgery-proof way i.e. no one can just ‘copy’ the digital data associated with an NFT and claim to be the owner.
NFTs today has been mainly used for representing artwork, especially in the form of profile pictures (PFPs). These are basically digital artworks designed to be used as profile pictures on social media accounts. Some of the popular PFP NFT collections are Cryptopunks, Bored Ape Yacht Club, Azuki, and Moonbirds, with some of them being auctioned for millions of dollars. And yes, while you can right-click-save these and use them as your profile picture, it will be like showing off a fake Picasso painting. Social media platforms like Twitter and Instagram have recently announced verification support for NFT PFPs, allowing the actual NFT holders to stand apart.
Apart from PFPs and other collectibles, there are several other promising applications of NFTs being experimented with. Some examples:
- Real-world assets – Propy, a global property marketplace startup, recently sold an apartment completely online. The property title was transferred on the blockchain as an NFT within minutes rather than the usual weeks-long paper-based processes. Another startup, Vesta Equity, makes it easier for small investors to invest in real estate by fractionalizing a property into a set of 1000 NFTs, which can then be bought and sold individually.
- NFT ticketing – Live events ticketing industry has been riddled with non-transparency and secondary sales of forged or duplicate tickets. Some startups like Yellow Heart are solving this by issuing tickets as NFTs.
- Royalty tokens – Startups like FanTiger are helping musicians raise money by issuing NFTs that represent fractional ownership of their upcoming albums to their fans, thus making them partners in their commercial success.
Brands & NFTs
NFTs shot to global attention in March 2021 when the auction of an NFT digital art collage from a relatively unrecognized digital artist ended with a purchase price above $69 million. The work, called “Everydays — The First 5000 Days,” chronicled several years’ worth of daily sketches from the artist Mike Winkelmann — popularly known online as Beeple. This was followed by selling more artwork by Beeple and other artists, launching PFP projects like BAYC, and non-art collectibles like NBA Top Shots. In 2021, close to $40 billion was spent on NFTs, which has already been surpassed by sales of more than $50 billion in the first half of 2022.
Such huge sums of money brought the spotlight of mass media attention to NFTs, prompting prominent global consumer brands to look for ways to tap into the ongoing hype primarily for PR and marketing.
Since then, brands have dabbled with NFTs in varying ways. On one end of the spectrum are brands like JP Morgan and Warner Music that have simply, and often purely declaratively, bought land in the metaverse (e.g., in Decentraland, Sandbox, etc) to be put to use later. In addition to buying land in Decentraland, Coca-Cola has dropped NFT collections to celebrate culturally significant events like friendship day, pride month, etc.
Fashion brands such as Balenciaga and Dolce & Gabbana have taken it a notch higher by adopting NFTs as the new medium of a display by taking part in the Metaverse Fashion Week that was held in March 2022. Finally, we have the iconic sports behemoth Nike acquiring an NFT collectibles startup RTFKT (pronounced artefact), that now sells Cryptokicks – digital Nike-branded sneakers – for as high as $130K.
The increasing adoption of crypto and NFTs, the initial success of global brands with them, and the decreasing cost of launching NFT collections have prompted even smaller brands and IPs to experiment with this new medium for marketing and community building and increasing brand loyalty.
However, as the above examples illustrate, since almost anything from art to cash flows can be represented as an NFT, the design space of how to use NFTs is huge, and brands need to formulate a clear objective-driven strategy to go beyond the hype and drive tangible and lasting outcomes.
The NFT Scale-Value Grid
An NFT strategy for brands and IPs should help them answer questions like how many NFTs their collection should have, what they should be priced at (including free), and who should be eligible to get them, and what utility they should have.
In order to choose the right NFT strategy for brands, we first need to map the existing NFT landscape. The following is one classification that can be used: a 3×3 grid that categorizes NFT collections along the axes of the (intended) scale of participation and how the value of the NFT is derived and delivered with examples of each type.
NFT Scale-Value Grid: Cult/Club/Community vs Collectible/Membership/Ownership
|Cult||1 of 1 NFTs, Loot||Proof Collective||Nouns|
|Club||CryptoKitties||VeeFriends||BYAC, Meta Brew Society|
|Community||NBA Top Shots||Fan tokens||Royalty tokens|
It is important to note that collections may move from one box in the grid to another over time, depending on the evolution of the vision and execution of the project owners/sponsors.
|Scale/number of NFTs||How value is derived and delivered|
|Cult: ~1K owners; should have high entry barrier – ideally should not be purchasable with just money or not have many willing sellers even at high prices; highly active participation from each member is expected Club: ~10K owners; the intent is to keep the group limited and provide special perks etc.; somewhat active participation expected from members community: ~100K owners; the intent is to maximize the number of participants; low-fi participation||Collectible: No real IP or commercial rights and no existing tangible benefits (eg, NFTs issued under the NFT License) Membership: created with the purpose of giving some tangible benefits, eg, discounts, access to gated events, etc. but no IP or commercial rights over the underlying ownership (IP/Commercial): CC0 or some other type of unlimited commercial or IP license e.g., with BAYC you can sell third party items with your bored ape branding.|
With the help of the NFT scale-value grid, we can narrow down viable strategy options for any brand or IP. For example, commercial IP ownership is easier to confer for new projects eg BAYC or Meta Brew Society, but it will not be a feasible strategy for existing brands/IPs e.g. Batman. Similarly, a brand with a global scale user base should probably go for a Community-Collectible strategy with a low price or preferably free so as to be more inclusive.
The NFT Strategy Pyramid
While brands can just start with one strategy, any long-term successful NFT play will include the layering of multiple strategies from the grid. The most commonly applied strategies are along the diagonal of the grid – Community-Collectible, Club-Membership, and Cult-Ownership. They can be layered on top of each other, thus maximizing outreach as well as the depth of engagement for brands.
A brand can start by giving free collectible NFTs to all its customers, thus building a broad community. A smaller section of the community representing fans can purchase ‘club’ NFTs which will entitle them to certain membership benefits and perks (e.g., previews, freebies, discounts, access to events, etc.). Over time an even smaller section of 1000 true fans can then be rewarded with ‘cult’ NFTs that give them either some form of ownership rights (e.g., a portion of the cash flow from the sale of other NFTs) and highly exclusive ‘money-can’t-buy’ experiences.
We at Woodstock truly believe that impact of NFTs will unfold gradually over the next few years, and there’s immense potential for brands to explore and leverage. NFTs have the potential to convert silent customers of brands to their card (token) carrying members. We are excited to see the creative ways in which brands, IPs, and Web3 entrepreneurs are going to come together and build the next generation of customer engagement tools.
- Flipkart, India’s homegrown e-commerce marketplace, announced a partnership with Nothing for the very first NFT drop at FireDrops, Flipkart’s NFT marketplace.
- Decentralized finance (DeFi) giant Aave unveiled plans to launch an overcollateralized stablecoin called GHO, allowing users to borrow the stablecoin while still learning the yield on their locked assets on Aave.
- Food Delivery Services Uber Eats & DoorDash have started accepting payments through Bitcoin & Shiba Inu. While these companies aren’t yet accepting digital assets directly, cryptocurrency payment firm Bitpay is offering multiple ways to redeem this service.
- Paris Saint-Germain F.C. (PSG), the winning football club of the French Ligue 1, sold NFT tickets worth 30 million yen (about US$218,817) each for its first Japan tour in 27 years.
- Animoca brands announced the Open Metaverse Alliance(OMA3), a DAO to develop metaverse standards. With the aim to solve key challenges of the nascent metaverse, including preserving the freedom of information owned by users, projects like Alien Worlds, Dapper Labs, Decentraland, Star Atlas, and The Sandbox joined this initiative.
- Denver-headquartered IMA Financial Group, one of the country’s largest employee-owned private insurance brokers, became the first broker to issue a certificate of insurance using blockchain technology in July.
*Updated on 1st Aug 2022
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