Over the past year, interest in Non-Fungible Tokens has plunged. Many on Twitter argue this is a good thing; that the concept was a scam all along. Others claim that the technology remains revolutionary and will one day be the biggest thing in the world. They blame external factors and bad actors for the current market depression.
I care little for either side; they’re probably both right, as is often the case. At the end of the day, NFTs exist, and they don’t seem to be disappearing. The technology was first adopted by web3 companies, who never really seemed to be able to differentiate business from scams. It was then over-taken by large multi-national companies, who are by their nature dull and unimaginative.
The shine having seemingly worn off, now is the right time to have a serious, honest discussion about how to view and use NFTs within your business. But first…
1. Do YOU need an NFT strategy?
Despite what some parts of the “industry” says, not everyone needs to have an NFT strategy. This is not an industrial revolution or a “new internet”. Before jumping in, it’s important to ask the following :
Does your brand have recognizable assets that could be turned into NFTs, such as a trademark character, notable branding, luxury products…?
Does your brand have an engaged community who identify as fans of your brand, products or services?
Do you want these people to have a stronger voice and a bigger role within your organisation?
Can you tie an NFT to real-life perks such as exclusive events, discounts, or early access to products?
Do you have the bandwidth and freedom to test out an innovative but unproven marketing channel?
If the answer to all of these questions is no… go outside, build something real, make a name for yourself and then start thinking about NFTs. Chances are, at that point, you won’t need them anymore.
A lot of entrepreneurs have made two mistakes over the past two years. First, they tried to assert that NFTs have self-sustaining value. They do not: digital assets are inherently contextual. Secondly, and more importantly… by their very nature, most centralized companies do not NEED to use NFTs. If I need to explain why, you shouldn’t be messing with cryptography.
2. Defining NFTs’ Value proposition
You don’t create digital tokens purely to make money. You create tokens because they add value to existing and/or potential customers. Which in turn give you money. Here’s how organizations and creators can use NFTs to leverage existing content and interact with their customers.
Develop new offerings
Due to the digital nature of NFTs, the line between different types of offerings is blurred. This is a sign of the times.
New products : Earlier this year, GAP launched “hoodie art” as an NFT, which unlocks physical clothing.
New services : Plenty of companies are betting on future metaverse users wanting to glam-up their digital avatars with wearable NFTs designed by luxury houses like Louis Vuitton, Valentino and Burberry.
New partnerships : Nike created CryptoKicks in partnership with RTFKT studios. The sneakers have sold for over $5K.
These examples show the incredibly dull way traditional actors see the world… We shouldn’t let them gain more power in this space. There are so m+any cooler things you can do with NFTs.
Create new forms of value
The concept of potential new value is fascinating, as the below can be mixed and matched as needed. There are a lot of innovative ways to interact with customers there.
Exclusivity : Many people in the recent past purchased NFTs simply to show people online how cool they are and how much money they have. Exclusivity has long driven luxury sales; NFTs are no different. The internet has been a great equalizer for decades, but this may be coming to an end, for better or for worse (probably the latter).
Social capital : Exclusivity is often shared by and with people of similar socio-economic backgrounds. This creates social capital. NFTs can be used to bring like-minded people together, in online communities, coordinated around a token. As an example, the most well-known social DAO, “Friends with Benefits”, gives access to NFT-related events in exchange for thousands of dollars. Do with that information what you will.
Community : Social capital and its own form of exclusivity naturally leads to the creation of communities. Lazy Lions, Bored Apes Yacht Club, Wall St Bulls… every NFT collection has its own group of fans and followers. In these communities, NFTs have two functions beyond mere financial incentives. Primarily, they act as artifacts of networks, which reinforce the community’s value by being the one thing everyone has in common. They can also represent voting shares in the community, whether officially or unofficially.
Access : By their very nature, NFTs are unique and cannot be broken down. As such, their unique code can work as a key to grant access to a community, to a real-world event, to a concert, to a sale… Mixed with the other forms of value mentioned here, this can be quite powerful.
Authenticity : Since tokens are unique, they can also be used as authenticate products they may be linked to (ex : YSL sends an NFT to your digital wallet when it sells you a bag). For industries suffering from plagues of fakes, this opens many possibilities. Not to mention the many use cases around identity.
Utility: A utility NFT isn’t just a piece of code or a pretty picture. It can also serve a real purpose online. The easiest example to grasp is equipment for video-games that give players new and unique attributes. Another, more advanced example is the utility garnered from an NFT that also acts as a voting token within a DAO. In the future, we can think of utility with regards to national identification, but we are far from it today.
Rewards : the blockchain being transparent, it’s easy for brands to identify who may own a specific number or combination of NFTs, and reward these people through a promotion or a unique gift, thus increasing brand loyalty.
Investment : with all the above in mind, one might think it wise to buy specific NFTs early, and keep them as they accrue the value highlighted. This is why many people bought NFTs over the past year. That was a mistake. But who’s to say, as the market matures, if it will continue to be? A company might get a head start by believably implying future value exists.
Entertainment : At the end of the day, why can’t I just like a silly picture and enjoy owning it as a piece of a company's history, or as the totem of a community? What’s so wrong with that? For all its glory, the digital world has always lacked biographical indexicality — a way of seeing the full history of a digital asset. And history has value, if only in the eyes of its beholder. As such, NFTs create hedonic value: owning one creates pleasure for its own sake. Companies can do well to understand that.
None of the above is mutually exclusive. This is not to say that your NFTs need to do it all — this is a mistake we see too often.
Improve customer relationship
All of the above ensures customers are :
More Engaged : Customers that are part of an exclusive community, from which they derive value, will work to improve that community. Companies dream of having active promoters : NFTs are a way to get there.
More Aware : an NFT collection, if done well, has a tendency to be self-propagating. This means more free advertising to potential customers. However, that awareness is meaningless if there are no benefits to entering a relationship with the NFT issuer.
More Loyal : If a customer is engaged, and gets regular rewards, and those rewards improve as he becomes more entangled with the NFTs’ issuer, why would he switch to a different service provider? NFTs are a path to unprecedented customer stickiness.
Drive long-term value
If everything goes well, NFTs are a path to :
Customer retention : a relationship having an exponential value, customer stickiness is increased.
Customer acquisition : Said value lowers the net cost of customer acquisition.
Data & Insights : having a more digital relationship on a transparent blockchain allows companies to have access to more data, which they can then use to improve their offer. Ethically, of course.
New revenue : this should not necessarily be the end goal, as mentioned above. But it can be a VERY nice cherry on the cake.
3. Going deeper : building an NFT business model canvas
I’ve long bemoaned the way the business model canvas is taught in business schools. Too rigid, no interconnections, no focus on ecosystems…So I don’t use it. What I’ve created instead are a set of questions that one might instead ask as they build a case to bring NFTs to the attention of a boss or partner. You’re welcome.
Consumers
Who are the consumers of our company’s digital assets?
How are these consumers different from other types of customers — if at all?
What are their current purchasing motivations? What do they value? What do they look for as customers of our brand?
What kind of digital assets do they want to buy today? In the future?
Business case
What is the potential contribution of digital asset sales to our company’s top and bottom lines?
Will digital asset sales be additive? Or will they cannibalise some physical sales?
What investments are required today? Over the long term?
Go-to-Market
To what extent should our brand mint its digital assets as NFTs and / or pair physical assets with an NFT?
How can our brand reduce the environmental footprint of NFT mints?
Should we translate our digital assets to the virtual realm or create entirely new assets?
How can a brand authentically activate digital or digital/physical product pairings?
Brand Experience
Which elements of brand identity can and cannot be easily communicated in a virtual world?
How can our company authentically build community in a virtual environment? Is that an objective in itself?
How can our brand and sale platforms convert those communities to engage in the real world — if at all?
Partnerships
What kinds of partners would be a suitable match given our objectives, positioning and values?
What do these potential partners bring to the table (consumer access, digital credibility, technology, long-term vision...)?
Talent
If we don’t go through a partner, what proportion of our workforce is skilled in 3D modelling, rendering, blockchain technology...?
If the proportion is small, can we feasibly train our existing workforce or will we need to acquire new talent?
If this is more than a marketing gimmick (it usually is), how do we adapt our culture and structure to be nimble in a fast-evolving space?
Should we launch and operate NFTs within a siloed team or across the organisation?
These questions are in no way exhaustive, but they should put you on the right path. You’ll need to be on it, because planning is the easy part. Execution is where it gets hard… and fun.
4. Launch, run & coordination
Beyond the big plans and fancy marketing announcements, real work is needed for any project, whether on the blockchain or not. Below is a list of things to work on to ensure a sound NFT strategy and vision, as well as a successful implementation and roll-out.
Strategy & innovation
Define long-term strategy based on value opportunities (continuous POCs are not a strategy!)
Continuously monitor market movements and trends (it’s better to be a mediocre surfer on a big wave than a great surfer in a bathtub)
Identify what will be accepted / rejected by customers through rapid prototyping and regular improvements
Identify internal strategic focus areas, and link up with them (see bathtub comment)
Marketing
Ensure NFT-related activities align with brand guidelines
Test out target audience, markets, products
Develop communities (One? Many?) through meaningful projects
Manage campaigns alongside roll-outs of other offers
Collect new data points to improve marketing
Business Units
Manage NFT product management roadmaps
Build business cases and work through the high business value ones
Document priority features for customers
Work with creative teams / developers on creating assets
Leverage existing IP / create new digital IP
Technology
Understand blockchain risks and trade-offs versus other technologies
Select a tool stack according to company requirements
Integrate new tools into existing systems (oh the humanity)
Define and prepare long-term customer support
Finance
Build services to support the custody of NFTs
Handle crypto payments and reconciliations (lol good luck)
Understand financial impacts of NFT sales on the organisation
Manage royalty payments / collections
Manage associated taxes with NFT mint / exchange
Legal
Advise what local / global regulations allow (now and in the future)
Review all smart contracts, rights and obligations
Advise what types of rights are acceptable
Enforce copyrights, trademarks and patents
Work with Finance & Treasury teams on tax implications
5. Planning for risks
The world of NFTs is new and exciting. Just like the new girl in high school. And just like the new girl in high school, NFTs are dangerous. Damn it Jessica, my leg still hurts when it rains. Though NFTs can create a significant amount of value, they can also be net value-destroyers if risks are ignored.
For the brand
NFTs offer new mechanisms to present a brand and engage with consumers. Accordingly, they can hurt a company’s image, reputation, and legacy if done improperly. NFT offerings should be executed with the same level of rigor that a new product launch entails; quick cash grabs may damage consumer trust in the long term.
For instance, proof-of-work solutions to validate NFTs’ authenticity require significant energy cost. Brands looking to be perceived as ‘green’ should consider this in their blockchain selection process.
Scams, Hacks, Fraud and Theft
NFTs offer authentication, provenance, and title to ensure the proper rights management of assets. But fraud is common in this market — counterfeits have always existed, and always will. Fraudsters may mint an NFT relating to a work that is not their own and without the creator’s permission. Additionally, various hacking schemes exist to steal NFTs from their rightful owners. Not to speak of social engineering scams, or outright cyber-attacks.
These risks can be mitigated by purchasing NFTs from reputable creators, undertaking the proper due diligence of an asset’s provenance on a secondary market, and storing assets in secure wallets. This will probably never be enough, and strong contingency plans also need to be in place.
Ownership rights / rights transfer
The purchaser of an NFT owns the token. But owning an NFT does not equate to owning the underlying IP itself. Often these rights remain with the creator of the NFT. In order to preserve these rights and maintain transparency, legal contracts need to be constructed in the real world. These conditions would also need to be carried over to secondary markets and rights transfers.
Technology, however, is as much an art as it is a science. If the contracts are forever airtight, future innovation may be stifled. It is sometimes better to become a meme and be paid for it in free marketing than to sue a pre-school for IP “theft”.
Technological risk
Any NFTs released on a permissionless chain are subject to the technology risks posed by that chain. If a network goes down, (*cough* Solana *cough*), your NFT assets may be at best useless, and at worse the source of lawsuits. Yet, centralized chains can be at risk of hacking as well.
There is no right answer, only a thin line on which we must walk the best we can.
Regulatory risks
NFTs are a relatively new asset class. As such, much of the legal and regulatory framework surrounding them is still under development. This should not stop organizations looking to offer NFTs from enforcing existing regulations through KYC, AML, CFT tools.
Regulatory considerations around how NFTs could be regulated in the future (i.e., as a security) will soon present additional challenges. Best be as ready as possible today.
Loss or Damage
An NFT can occasionally be tied to an underlying asset or access to a physical experience. However, the NFT and the underlying asset it represents are separate. While the NFT will contain information about its link to the underlying asset and its holder, should the underlying asset be destroyed, lost, stolen, or the event halted, the NFT itself could be rendered worthless. It is important to have contingency plans in place for such an event
This article highlights but a speck of the efforts necessary to bring a new technology to the mainstream of an organization not specifically built around it. And, as I mention throughout, all these efforts may be for naught — the technology needs to improve, the laws need to catch up… and a new vision of “value” needs to emerge. I have nothing but respect for whoever earnestly wishes to hold the NFT banner within a non-web3 company.
Good luck out there.
