Deep thinking: What incremental value can Web3 bring to brands?

In the past two weeks, the market has been so bearish that it can no longer be bearish. There have been a lot of discussions about “whether NFT is dead”. I also wrote a tweet “What stage is Crypto/NFT at now, and is there a future?” "A shallow expression of my own point of view. It is no exaggeration to say that NFT has now reached the next crossroads

• Pessimistically, the burst of the IP NFT bubble represented by PFP has almost reached the lowest point in the past 18 months
• Looking optimistically, the industry will be more aware of the value of NFT, and past experience will help future builders avoid detours

I myself firmly believe in the value of NFT, but the value needs time and opportunity to realize. As an “optimistic pessimist”, my point of view is that this industry needs time (at least 2-5 years), needs value (not just narrative), and needs talents with real business cases. The three are indispensable First, it can break out in the next bull market.

10 months ago, I wrote the article “Three Questions on Building the Soul of a Web3 Brand-Why, What, How”, and conducted a round of analysis on how to build a Web3 brand. Why and What are still valid today, but unfortunately, in the How part, many cases have not come out.

What is the reason here? How to get more brands involved? What experiences and opportunities are there that are worthy of reference for future projects?

Today’s time point is suitable for review and summary. I hope this article can serve as a link between the past and the future, summarizing the problems of IP-based NFTs in the past, and at the same time taking stock of some real values and opportunities to help builders in this industry.

1. What are the problems of IP NFT in the past?

TL;DR

1. The conflict of time and value
2. Conflicts that obscure investment identities
3. Conflict between income and environment
4. The conflict of scale and scarcity
5. The conflict between community stability and price volatility

1.1 Conflict of time and value

Ruby has already elaborated on this point in “Time and Patience Are the Most Scarce Resources for Brands” last week.

Many IPs (such as BAYC/Azuki) will shout the slogan of “Disney in the new era”. What you see is the value of top IP x NFT’s financial and community attributes, which can create high-value and high-sticky assets in a shorter period of time. permanent IP, but ignores the time and cost required for the construction of IP

• Disney’s first well-known IP, Mickey Mouse, made its debut in 1928 and became the main IP in 1937 (making 12 related films per year), which took 10 years
• In the age of Internet & social media, Bubble Mart was established in 2010, and it took 6 years to gain national popularity by 2015

Let’s look again at the time and cost required to produce different content (from 1kx report, link at end)

• Games: Building a AAA video game takes 5-6 years, 100+ employees, and $80M+ in investment
• Animation: Making a 12-episode animated series requires an investment of tens of millions of dollars and years of time
• Movies: It takes an average of $50 million to $100 million to make a high-quality movie, and several years

It can be seen that even if NFT accelerates the fundraising and dissemination cycle, the content production cycle cannot be compressed. We can draw a conclusion that five years is a reasonable cycle for the creation of IP and content, and the development of everything needs to comply with the Basic Law.

In addition, even if the cost of money and time is paid, the probability of success needs to be mentioned. For example, a common saying in the film industry is that one makes money, two draws, and seven lose money.

But the current NFT players have too high expectations and can’t wait for such a long time. I hope that the project party can increase the floor price every month or even every week;

But after the hype, it is often a mess, and it is the players and the industry that are injured.

IP investment is definitely a venture capital investment. In this industry, the exit cycle of USD funds is 5-8 years, and it takes 5-8 years for innovative companies to turn their valuation into value. This setting makes sense.

1.2 Conflicts of ambiguous investment identities

This is the second problem with current IP NFTs. Project parties often rely on the sale of NFT for the first round of financing. Buyers think that NFT is a mixture of consumption and investment. In fact, NFT has the attribute of “investment”.

But in terms of functional design, NFT is hardly directly linked to the value of the project. IP authorization counts as one (it is difficult for most people to use, but it is better than nothing), and the realization of value depends entirely on the “empowerment” of the project party. There are two problems here

1. In the above “conflict between time and value”, the project party does not have enough time to create actual value, and often uses “matryoshka” to empower. Once it can’t go on, there will be a crash;
2. The project party is not responsible for “empowerment”. You think you are buying a stock, but it is actually a small picture.

• Leonidas shared a great insight: the value of art collections comes from the past, the value of stocks Price In the future, figure out who you are, collector or investor

Buyers have an “investment identity” that is not confirmed by off-chain laws and on-chain contracts, and their rights and interests are not guaranteed. It has become normal for the project party to rug and cut leeks.

1.3 Conflict between income and environment/conflict between scale and scarcity/conflict between community stability and price fluctuation

I have elaborated on these 3 points in the article “Companies need to be built on things beyond NFT”, directly quoting

1.1 NFT cannot be used as the main source of income, because it is too dependent on the macroeconomic environment. For example, no one trades in a bear market, and the project party cannot obtain royalties

1.2 NFT needs to be scarce, but the company/community needs to be scalable. These two natural conflicts. If users have to buy NFT to use the product, this obviously limits the development of the company’s scale

1.3 A community built on top of NFT is unsustainable, because people’s attention will also drop when the price drops Countless communities, active when the price rises, drain and fall silent when the price falls

Azuki’s release of Elemental also hit these 3 items

• There is no royalty income in the bear market, only new projects can be released
• The new project is intended to expand the circle, but because it is too similar to OG, it affects the scarcity of the first generation
• Price fluctuations directly cause the largest split and loss in the community

2. Web3 Brand: 3 questions that must be answered

For the large-scale adoption of Web3 Brand, the following three questions must be answered, so that the brand and users can form a healthy relationship, promote the development of the brand, and improve user experience and rights at the same time.

1️⃣ What incremental value does Web3 create for users?

2️⃣ What kind of incremental value does Web3 create for brands?

3️⃣ How can brands better allocate these incremental values?

In the previous article “Building web3 Brand Soul 3 Questions-Why, What, How”, I analyzed it more from the perspective of users. Web3 has undoubtedly enhanced the rights and interests of users, created new assets and new identities for users, and satisfied It meets the trinity needs of “consumption + assets + digital identity” of “sovereign individuals”.

But for the whole thing to work, you need to answer the 2nd and 3rd questions, because

• In the final analysis, the rights and interests of users are provided by the brand. If the brand cannot benefit from Web3, it will naturally not be able to provide more rights and interests to users. Many small partners will face this soul torture when communicating with brands: why should I use Web3, and what are the benefits? (I also discussed this issue intensively with many group friends this month)
• Attach a comment from a big guy “Why are people more active on AI than Web3, because AI is an efficiency-enhancing technology that is good for everyone; but if Web3 just makes the value distribution fairer without adding value , the value of merchants/brands/platforms/governments has been reduced, why should they embrace it?”
• When a brand gains benefits from Web3, if it is allocated properly, it will naturally become more attractive to users; but if it is not allocated properly, it will often have a counterproductive effect. A recent typical case is Azuki Elemental. The project raised 20,000 ETH, but did not distribute matching benefits to Holders (especially for Azuki OG holders and BEANZ holders), which led to the largest community FUD, directly causing the largest community a split and loss of

In the past 10 months, we have researched and interviewed many projects, just sorted out at this point in time, and tried to answer these 2 questions

• What incremental value does Web3 create for brands?
• How can brands better allocate these incremental values?

Due to space limitations, this article will first answer the question “What kind of incremental value does Web3 create for the brand”, and next time I will answer “How can the brand better distribute these incremental values”.

3. What incremental value does Web3 create for brands?

I have summarized 4 comparisons of incremental value of solid

1. More transparent funding
2. A lower-cost way to acquire customers
3. More effective user loyalty
4. Community

Expand in detail below.

3.1 Fundraising with higher transparency

It is always difficult for small and medium-sized brands/individual creators to get their first start-up funds. In the past, such roles mainly relied on crowdfunding platforms to raise funds, but they will encounter the following problems and become users’ concerns about this form of crowdfunding (thanks Input from Felix Wu, Founder of Daxiangdian)

• The user does not have any “ownership” through crowdfunding, and the rights and interests only depend on the documents of the project party, and whether it is given to the user depends entirely on the conscience of the project party.
• Since users have no “ownership”, the project party has no responsibility to provide sufficient transparency, and it is difficult for supporters to understand the use of funds and the progress of the project
• Crowdfunding platforms generally have geographical restrictions, and user payment is basically linked to identity verification, making it difficult to conduct global crowdfunding

And Web3 can better solve the above three problems

• NFT provides ownership of assets, and with Token and DAO, it can become a “shareholder” of the project party and is obliged to enjoy the corresponding rights and interests;
• Based on ownership + data on the chain, users can 100% understand the movement of each fund;
• NFT/Blockchain is inherently a global payment and can easily support global crowdfunding

At the same time, Web3 also provides additional benefits for both users and project parties

• user

1. Asset liquidity: Since users have asset ownership, they can trade assets and have higher liquidity; and they can enjoy the returns brought by asset appreciation;
2. Interactivity: Crowdfunding usually only provides access to one product or service, while NFT can exist in various forms such as virtual goods, artworks, virtual land, game items, etc., providing more interactivity and practicality;

• Project party

Royalty: When NFT is traded in the secondary market, the project party can obtain a royalty income and benefit from every royalty.

2 Typical Crowdfunding Cases

• Documentary “Ethereum: The Infinite Garden” (Ethereum: The Infinite Garden) was crowdfunded on Mirror to 1035 ETH. The documentary has been filmed and is in editing. All supporters will receive NFTs of different tiers, and the names will be included in the credits of the filmmakers. The successful fundraising of 1000+ ETH, the community OG and members’ running around played a very important role;
• In the BlackBird we introduced before, Gertrude’s (a Jewish community restaurant in New York City) raised $55,000 through membership NFT. There are three tiers of membership: Gold, Diamond and Pearl, offering a slew of cool perks for the restaurant’s best future guests, from text message concierge service to personalized bomber jackets to dinners cooked by the king of meme, Eli himself party.

Many project parties issue NFT, which is essentially crowdfunding, but the user rights and interests are very vague, which is also the main reason for rugs and disputes. I will discuss in the next article “How to better distribute these incremental values for brands” Continue to expand.

Documentary “Ethereum, Infinite Garden”

Membership NFT of Gertrude’s (Jewish community restaurant in New York City)

3.2 Lower-cost ways to acquire customers

For Burger King, what is the most accurate, efficient, and low-cost way to acquire customers?

*Let customers from the McDonald’s across the street walk in

Thanks lman for sharing this interesting case

The Open Loyalty we have been talking about has been practiced by offline merchants at such an ultra-low cost. There are countless similar cases

• Zhejiang Province: Sichuan friends hold ID cards, XX scenic spots are free of charge
• Restaurant A: 10% discount on dining with a factory card
• B store: hold XX passport, enjoy XX discount

The above McDonald’s sweetheart card, ID card, Dachang badge, and passport are essentially Tokens that identify the user’s identity, helping merchants find accurate customers more accurately and at a lower cost.

Offline business Open Loyalty: The flow of people outside the store is a public membership pool. I pass some kind of user identity verification to obtain the most accurate users for me

By turning these physical tokens into NFT/SBT, the efficiency of customer acquisition can be further improved

• It is impossible for users to carry McDonald’s sweetheart card, ID card, Dachang badge, passport…but NFT can be placed directly in the mobile phone
• If you are an online business, it is very troublesome for users to give physical tokens
• Physical tokens also have the risk of being faked, and NFT naturally supports on-chain verification and is difficult to fake
• NFT is the digitization of membership, making it easier for brands to manage CRM
• NFT itself is also liquid, and can connect online and offline, which is more attractive to users

Of course, the brand is also worried. Isn’t this just opening up my members? actually

• If you are an offline merchant, when the customer walks out of the store, no matter whether you are open or not, TA is a “public member”
• If you are a catering brand, it is impossible for users to consume three meals a day in your store
• If you are a small and medium-sized brand, the highest priority is to acquire new customers through cooperation, rather than retaining existing customers
• In the current fierce brand competition environment, customers cannot be “circled” and the essence is to improve their product competitiveness

And offline merchants are more motivated to try Web3, because

• Acquiring users through an online centralized platform is relatively inefficient and costly. Users have a steep conversion rate from online coupons to offline consumption, and the platform needs to be taxed;
• Actually, their customers are at the door, just need better benefit design and authentication to get them, Web3 is the best way now

We also discussed this topic in depth this week with lman

It is difficult to go from [centralization] to [decentralization], because there is a redistribution of interests

However, it is relatively easy to go from [decentralization A] to [decentralization B], and technological upgrades bring value increases. Offline business is actually a decentralized physical world, and it is also an excellent way to practice on-chain digitalization and open loyalty place

After writing this, I understand why Ben Leventhal is going to do Web3 “Dianping” BlackBird and establish a “public point alliance in the catering industry”, which has almost gathered all the above characteristics: offline, catering, and small and medium brands. **

3.3 More Effective User Loyalty

We have written a lot of articles and cases about user loyalty, which are effectively reflected in the following three aspects

• Make the brand and users win-win: open the external positiveness of the brand through NFT, turn the points from brand liabilities into user assets, and increase user stickiness
• Turn passive marketing into active exploration: NFT+ participate-to-earn is more conducive to brands using gamification to encourage users to take the initiative to perform a certain behavior, turning content consumption into a very interesting thing
• Brand cooperation reduces costs and increases efficiency: Tokens are new API

Below we expand one by one.

3.3.1 Make the brand and users win-win: open the external positiveness of the brand through NFT, turn the points from brand liabilities into user assets, and increase user stickiness

The more active users are, the more points they have, and they should have enjoyed more benefits; but in traditional loyalty programs, points are brand liabilities, and the brand will limit the number and speed of users’ redemption of points, resulting in highly active users not being able to enjoy matching interests.

Starbucks’ approach is to allow users to convert points into NFT in the new Web3 loyalty program Odyssey; at the same time, Starbucks’ brand power has brought NFT’s external buying, which has become an additional asset for users. At the same time, the transaction itself will bring fun, and the money earned from selling NFT can even motivate users to enter more Odyssey journeys.

A user who earned $79 said that it was just enough for him to buy gift cards and coffee on another trip to Starbucks Odyssey, and when the points reached 500, they were converted into NFT stamps again, forming an infinite collection game.

Starbucks also tested the waters and released the paid NFT Siren Collection, mint price $100, quantity 2k, sold out within 18 minutes, and the floor price once exceeded $600.

Starbucks Paid NFT Siren Collection

The value anchors behind these NFT prices are:

• The market recognizes the value of Starbucks membership, so it can attract external partners (such as Michelin restaurants, Burger King or Netflix) to create a new game layer on top of traditional loyalty programs, in a different way and experience, to reward user participation. The first external cobranding is Aku. Starbucks Odyssey will launch “Aku Adventure” on July 17. Odyssey members complete tasks with Aku and get NFT designed by Aku;
• Starbucks itself can create more gamified gameplay based on NFT, empower NFT and create value. For example, when it releases the second paid NFT First Store Collection, users with 2 Starbucks stamps (NFT) can mint 3 hours in advance, which will encourage users to save stamps more actively;
• NFT is also a kind of “collection”, users who like to collect stamps are also part of the buying

3.3.2 Turn passive marketing into active exploration: NFT+ participate-to-earn is more conducive to brands using gamification to encourage users to take the initiative to perform certain behaviors and turn content consumption into a very interesting thing

Direct quote from Forum3 co-founder Joe

When you enter your first Starbucks Journey, it lets you visit their coffee farm in Costa Rica and answer questions to earn points and rewards. This experience is really cool and super fun. And the feedback has been great: people say, “I don’t know if I want to know about this or need to watch this video, but it’s really cool and I feel like I learned something and love the Starbucks brand.” Interestingly, in the Odyssey These pieces of content existed before, but no one paid attention, interacted or communicated. When you package it to be motivating and not just feel like pitch marketing, the whole experience changes completely.

3.3.3 Brand cooperation to reduce costs and increase efficiency: Tokens are new API

In the Web2 or traditional business world, user data is stored in centralized servers of various brands like isolated islands. If two brands want to cooperate, they need to get through the API, also known as API integration. The biggest obstacle here is that limited by development and business capabilities, there are only a handful of brands that can develop and access APIs, and users have limited choices, as well as data privacy issues.

Take the rewards together program released by Starbucks at the end of 2022 as an example. The first partner is Delta Airlines. If you are a member of Starbucks or Delta Air Lines, you can link your Starbucks account and Delta Air Lines account together, and every time you complete certain operations in Starbucks or Delta Air Lines, you will receive both award. For example, for every $1 spent at Starbucks, while accumulating stars, Delta Air Lines will also award 1 mile of miles; after customers book Delta Air Lines, they can get double star rewards for eligible consumption at Starbucks stores.

This is a typical joint Loyalty system, “your members are my members”. However, it took them years to build this joint Loyalty system. Because different companies have their own databases, technology stacks, and infrastructure, and must build APIs to allow external calls to their data, which requires time, manpower, and funds, and the design and interaction of APIs also requires a lot of discussion and communication between the two parties.

Starbucks is already an international brand with very strong IT capabilities. It is so difficult for other brands.

Victor, CEO of Smart Token Labs, shared a very interesting story, which inspired him to realize “client integration” through Web3, using token as an integration point to access various third-party services at almost zero cost

A few years ago, Victor’s wife was the person in charge of the Booking.comAPAC Partnership. At that time, she wanted to cooperate with some scenic spots in Singapore and give discounts to users who had already bought tickets for the scenic spots in booking hotels. However, these scenic spots do not have the ability to open data at all, and this cooperation can only be ignored. If these tickets are NFT, this cooperation will be very simple. In other words, booking can directly provide permissionless open benefits to such users.

NFT has brought about a paradigm shift in the matter of “integration”, turning the brand-centric API integration in Web2 into user-centric Token integration in Web3. Based on the open model of NFT or blockchain, open data and open consensus mechanism, everyone can play the same game, making collaboration extremely simple. Unilateral cooperation can be established without even communicating, as the data is read without permission (permissionless).

User-centric Token integration brings at least 2 benefits

1. The threshold for brand cooperation is greatly reduced
2. Since it is user integration, the brand side must give users rights and interests and improve user experience

In our previous article “Achieving zero-cost permissionless benefits (Permissionless Perks) through off-chain NFT”, we also shared the corresponding case. At the Ethereum EDCON 2023 held in Montenegro from 5.19 to 5.23 this year, the audience passed a very low Cost verification ticket ownership (through the off-chain NFT provided by Smart Token Labs), you can receive various privileges provided by third parties on the official conference website platform and offline, and realize Open Loyalty. For details, please refer to the article in the appendix.

Another case is the just-concluded Montenegro EDCON. By tokenizing the tickets, participants will get at least 25 benefits, from the free casting ability of Cool Cat, a derivative product around EDCON, to one of the famous local Montenegro restaurants. 50 chances of ‘Njegusi Prosciutto’.

3.4 Community

When I wrote the article “Building the soul of web3 brand 3 questions-Why, What, How” 10 months ago, “community” was the key difference between web3 and web2 brands, and it was also the core competitiveness of web3 brands.

But looking back, the benefits that most project parties receive from the community exceed their feedback to the community; in addition, the price fluctuations of NFT are too violent, which will lead to a series of community problems, including backlash to the project party.

But it is undeniable that the community is the biggest leverage that Web3 brands can use. In this article, I also separate the two and answer respectively “the benefits that the community brings to the brand” and “how to distribute benefits healthier and operating communities”.

The biggest benefit that the Web3 community brings to the brand is the incubation and dissemination of the brand/IP

• Based on the community, brand/IP incubation can be carried out quickly: through the issuance of NFT, on the one hand, it can raise funds, on the other hand, it can quickly test the stickiness and audience of IP, and then iterate a wider range of products and experiences
• Compared with web2 IP, web3 IP has fewer starting personnel, lower capital cost, higher capital utilization efficiency, fast iteration, and low time cost (all IP-type NFT projects have gained this benefit, a typical case is the Yuga Labs/BAYC derivative brand) ;
• Even the incubation does not need to be completed by the official, the brand side no longer has to rack their brains to come up with ideas, just need to provide a good toolkit and a reasonable incentive mechanism, the community will create spontaneously, and even become a new physical product (such as our previous Introduced FWB x Taika );
• Based on the community, IP and brand can be disseminated more quickly
• Both Frank and Kevin, the founders of Degods and Moonbirds, mentioned in an interview that NFT holders are more like brand advocates and communicators (affiliates). Including the emergence of de-id is also based on this thinking;
• Daniel, the new CEO of Yuga Labs and a former Blizzard executive, also believes that in the game industry, it is very important to achieve low marketing cost promotion through close community tap water: “Influencers on social media do not give you high evaluations, and it is difficult for your game to have future”;
• 1KX Research Report: “We believe that when consumers take ownership of their assets in a collaborative and mutually beneficial environment, they are Deep loyalty, commitment and promotional drive”.

In addition, based on NFT, brands can establish a more direct relationship with users, especially for those categories with relatively long chains, without relying on any third-party platforms.

For example, the chain of the publishing industry is very long, author → publishing house → channel agent → channel distribution, it is almost impossible for the author to know who his readers are. Of course, attaching a WeChat QR code to the book is a method, but manual verification is very inefficient, and it is almost impossible to do cobranding, and in case any trigger keyword is enveloped by WeChat, it is almost impossible to retrieve it.

The method used by “Web3 Marketing” is that each book has a scratch card code. Readers can spend gas on the official website to mint an NFT, and then verify the NFT through collab land and enter the official telegram reader group. Currently, there are 197 group friends. Since the reader’s identity is identified by NFT, it does not depend on any IM platform in essence, and it is also very convenient for subsequent cobranding cooperation.

The film and television industry also has the same pain point, and the distribution link is longer. Last year, the QR code of Netflix’s “Love Dead Machine” received NFT easter eggs, and it was easy to build an audience in the future (but I am also curious why I didn’t do anything in the end).

Summarize

I have organized the above four incremental values of Web3 to the brand and the corresponding cases into a Notion page. In the future, I will continue to update and iterate this page, welcome to bookmark and share. I hope this 4-word long article can help friends communicate with brands and on boarding ;)

The bear market is suitable for Build, and we expect to see more and more brands enter the Web3 exploration and expand the Open Loyalty ecosystem.

After answering the question “What kind of incremental value does Web3 create for the brand?”, the last question “How to better distribute these incremental values” needs to be answered, so that the brand and users can form a healthy relationship. relationship, driving the brand forward while enhancing user experience and equity.

In the next article, I will further discuss how Web3 brands can share incremental value more healthily, as well as the characteristics of brands we see in the next cycle, so stay tuned.