NFTs are big unlock for consumer brands. Nike, Shopify, Instagram and Bulgari are already using them in different ways. We’re going to look at how consumer brands can use NFTs.
I can’t get myself to continue with commenting on the current market sentiment. Bitcoin has fallen by 14% in the last 5 days, and we’re headed for a recession. But as I’ve said before, we’re early in Web3. We should be concerned with 5 to 10 year horizons, not the movement of the market in the short term.
NFT market is big
The NFT market was estimated at $80 billion for all of 2022.
Given the bloodbath in the markets and an upcoming recession, this number will be smaller in the short-term. But even at 50% of the original estimate, it’s a sizeable number. Let’s look at two different points of view to demonstrate this.
Short-term: daily NFT trading volume is falling consistently.
Long-term: there are only 4.3m Ethereum wallets that have ever interacted with an NFT.
I’m interested in the long-term view. There are 5 billion internet users in the world today. Only a fraction of these users have interacted with an NFT.
Let’s start by looking at why NFTs are required in the first place. NFTs offer unique advantages:
- Tradability. NFTs unlock a secondary market. Users can buy and sell them. This creates more liquidity for users, and allows the brand to earn a royalty fee on each sale.
- Ownership. They enable your users to become owners. When the value of the NFT goes up, users and the brand benefit. This incentivises users to market your product.
- Traceability. Assuming the blockchain is public, anyone anywhere can view the history of an NFT. This prevents counterfeit and fraud.
How brands can use NFTs
Let’s dive into how brands can use NFTs.
Brands can develop communities using NFTs. Based on the level of contribution and activity in the community, customers could be eligible for different tiers of NFTs. Customers develop affinity to their NFTs and like to display them. For the brand, this helps create a sense of loyalty and unlocks a new marketing channel via users.
Instagram announced yesterday that they will let users display verified NFTs on the platform.
NFTs can be used to gate access. Users may be able to access an event only if they own a specific NFT. Alternatively, users are eligible to buy products only if you own an NFT.
Shopify launched token-gated stores via partners. Users can access a store only if they own a specific NFT.
High-value goods can use NFTs to establish authenticity. For example, Bulgari is launching a collection of 10 watches. Each watch is accompanied by an NFT for digital art and authenticity. The NFT runs on a blockchain built by LVMH called Aura.
NFTs are programmable — this remains the most interesting use case for me. Ultimately, NFTs are pieces of code that run on the blockchain. You can build logic into them — i.e. if X happens, do Y.
Coachella is selling NFTs that transform into a 15 second video after the event has taken place.
Brands could choose to gamify their experience. Nike launched an NFT sneaker with RTFKT. Once users have a base sneaker, they can make changes. They can also combine sneakers and create a new one. A different approach would be to partner with an app like Stepn (an app that pays you to walk or run) — which Asics is doing.
Challenges with NFTs
The NFT experience is far from perfect:
Clanky user experience
The UX is still clanky. Most users don’t want to risk setting up a wallet and save their seed phrase. We’ll see the best brands abstract away the complexity and make the experience simple for users.
High transaction costs
Transaction costs are high on chains like Ethereum. Chains like Solana and Polygon are solving this. For example, Meta is partnering with Poylgon whose fees are a fraction of Ethereum’s.
Phishing scams are everywhere. NFTs are an easy target because of their value. Again, brands could reduce the pain here by simplifying the user experience for customers.
As an extension of the above, NFTs have earned a bad reputation because of the ‘rug pulls’ — a creator launches an NFT collection and then runs away with the funds. Unlikely to happen with established brands, but brands will need to get users over the bad rep NFTs have earned.
Brands should view NFTs as a new tool to earn revenue, market their product and convert users into owners of the brand. We’re only scratching the surface in terms of what NFTs can unlock. We have a long way to go before NFTs become mainstream, but with brands like Nike and Meta entering the space, it’s moving fast. I’m excited to see how consumer brands continue to innovate with NFTs.