What does the NFT revolution mean for brands?
By Sarah Salter, Head of Innovation
In the last year, the wide-reaching potential of NFTs (non-fungible tokens) has captured the public’s imagination. Among the most famous examples is a Beeple artwork auctioned by Christies, which recently sold for an incredible $69 million; a price that made Beeple the most valuable living artist at auction after Jeff Koons and David Hockney. And it doesn’t end there. A dizzying array of digital files have been minted into NFTs and auctioned off for hundreds, thousands, even millions of dollars.
NFTs may seem like a fad, but with the value of NFTs rising to a massive $14.3bn, up from around $340m last year, the numbers suggest this emerging technology is going nowhere fast. Analysts expect the value to double next year and approach $80bn by 2025.
Paying for digital-only content may feel unfamiliar to some. A decade ago, this behaviour was niche. But the evolution of spending within video games points to a burgeoning, now mainstream acceptance of the concept. A recent survey found 24% of gamers spend an average of almost $200 each year on in-game content. Take Fortnite, for example. Last year, its maker booked millions of dollars in revenue from purchases of limited-edition “skins” and “battle packs” that allow players to customise their avatars.
original source: https://wwd.com/fashion-news/fashion-scoops/moncler-fortnite-alyx-collaboration-collection-1235000841/
It has been difficult to tap into the obvious opportunity digital goods offer for brands because online content flows too freely. It can be easily copied, replicated, shared, and distributed. Until now. Since each NFT is unique, NFTs bring verifiable scarcity and ownership to online assets that cannot be manipulated, bringing the elements that endow physical assets with value into the digital realm.
Because NFTs enable scarcity, brands can sell exclusive, limited digital goods, which drives up the asset’s value. Charmin took advantage of this by selling only five designs of its Non-Fungible Toilet Paper, each available in one edition only, meaning it was more valuable than multi editions. It’s a proven tactic, think Clubhouse, which infamously monetised exclusivity and artificial scarcity by creating a social network with constraints on who could join.
Creating scarcity out of both new creations and archival assets is valuable for brands competing for customers on a digital playing field. But NFTs are more than a digital ‘deed’. When linked with physical assets, they have the potential to create mixed-reality experiences for consumers.
For example, last month, Nike reportedly filed several new patents indicating its intent to make and sell virtual Nike-branded sneakers and apparel. The company is also still waiting on a patent for “Cryptokicks”, an NFT that will allow users to ‘breed’ different shoes to create custom sneakers that may then be manufactured in the real world, blurring the lines between physical and virtual while capitalising on the monetisation opportunities in both.
More generally, NFTs allow for better monetisation. Platforms are currently how creators get paid for their content, but NFTs could drastically change this. A new distribution model of media ownership becomes available, allowing creators of digital assets to directly profit from their own work. Take Lindsay Lohan’s “Lightning” NFT. It was initially purchased for the equivalent of $27,2021, then re-sold at $89,472 an hour later. In most NFT marketplaces, the creator receives a royalty from each transaction. In this case, Lohan made a sizable donation to “charities that accept Bitcoin”.
The more popular an NFT is, the higher the demand and willingness to bid to claim ownership. In the world of NFTs, popularity and value is accrued to the original based on how often that creation is experienced, circulated or remixed. A clear example of this is the Doge meme NFT. Despite the image being available for anyone to download online, the NFT sold for a massive $4 million. In September, it was announced the new owner plans to auction off the NFT by dividing it into 17 billion pieces so that many more members of the public can own a small piece of it.
There’s great potential for recurring royalties with branded NFTs. The recurring royalty component is embedded in the digital code of each minted NFT, allowing brands to set the expected royalty rate for resale. Brands will benefit from recurring transactions each time one of their NFTs is sold—plus, they’ll instantly know to whom it’s been sold and for how much.
Moreover, since blockchains can be programmed, NFTs can be equipped with features that allow them to grow in functionality over time or provide direct utility to their holders. NFTs can thus serve as membership cards or tickets, providing access to exclusive events, merchandise, and discounts. The company can even send additional products directly to the owner of a given token. All of this provides NFT holders with value above and beyond simple ownership and it offers creators a way to build a highly engaged community around their brands.
Online games, chat rooms, and merchandise stores might require that you have a specific NFT. As a result, owning an NFT effectively makes you an investor, a member of a club, a shareholder of a brand, and part of a loyalty programme. Bored Ape, for example, has become one of the more compelling NFT projects. Owners of the NFTs become members of the Bored Ape Yacht Club, an exclusive online community offering additional benefits and perks.
NFTs reduce friction in transactions, offer greater security through transparency and decentralisation, and offer a higher level of customisation for digital products and services. So, why aren’t NFT’s more widely used?
With the technology has also come controversy, the most pressing concern being the massive carbon footprint they generate. For example, artist Beeple admitted it costs about $5,000 to offset the emissions from one of his collections.
Environmental concerns have proven to be a massive hindrance to many brands looking to innovate in the space. There’s a plan to shift to a less carbon-intensive form of security, called proof-of-stake, via a blueprint called Ethereum 2.0. Still, until then, brands with a sustainability platform using NFTs will draw scrutiny and risk reputational damage. And there will still be consumers who refuse to participate in a system that they think is inherently harmful, immediately alienating consumer groups.
If the sustainability issue resolves, the rewards for brands will be substantial. The biggest draw being that NFTs are the lifeblood of virtual worlds or the metaverse. Soon, our lives will be wholly intertwined between real and virtual, physical and meta, so not having a stake in this space will be damaging.
As with all fast-moving innovation, the first-mover advantage is paramount. If brands believe the transparency and exclusivity offered by NFTs can elevate its brand position, go fast and, significantly make it more than just a gimmick. First, think about the value to consumers; a consumer poll found that 57% would be interested in Nike NFTs, while only 13% would buy a Charmin NFT. In addition, successful projects will have the element of utility underpinning their value, which means proper strategic planning is critical. Consider why your brand is engaging, if it makes sense to participate, and if it adds value to the community before embarking on an NFT project.
One thing is sure, the NFT space may still be in its infancy, but brands are sitting up and taking note. In November alone, 22 brands from varying industries launched NFTs, including McDonald’s, WarnerMedia and Budweiser. Laying the groundwork now will prepare brands for their growing popularity, establish them as leaders and capture the imagination of a growing generation now and in the future.
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