The Ins And Outs Of NFTs

As we think about the future of next gen tech and how it is going to impact our boards, there is the big question of understanding the framework and big elements that fall under metaverse 3.0. The definition of the metaverse varies depending on who you ask.

The term “metaverse” was first coined in 1992 by Sci-Fi author Neal Stephenson; Stephenson described the metaverse as a fully immersive, all-encompassing digital world that exists in parallel with the physical world.

Today, there is still not a singular universally accepted definition of the metaverse; Matthew Ball (venture capitalist and author of The Metaverse: And How it Will Revolutionize Everything) describes the metaverse as “a 3D version of the Internet and computing at large”.

Underneath this 3.0 platform are some nearer term technology pieces that companies are beginning to actively explore and deploy such as smart contracts based on blockchain and distributed ledger protocols, cryptocurrencies, i.e., bitcoin, etc., digital assets, stable coins, and NFTs.

There are many more parts of this topic, but I thought it would be valuable for us to try and learn from some of the companies that have had successful initial forays into digital assets, most specifically the NFT arena.

NFTs are especially relevant if you are in the direct-to-consumer business and part of your target cohort/demographic of customers (employees, ecosystem partners, etc.) is the Gen Z and millennial cohort.

A quick snapshot of how to think about an NFT (non-fungible token): At a high level, it is a unit of data stored on a blockchain…in layman’s terms an NFT is a mechanism of buying a digital asset such as artwork, music or other collectibles that is authenticated as being the “one and only” and provides proof of ownership.

A couple of key characteristics about an NFT is it must be authentic. The NFT digital asset is authenticated on a blockchain. The NFT must be unique and must be scarce.

One of the most well-known NFT applications is for Art. The digital artist Beeple spent a year creating a unique digital image each day and then put it together in a mosaic and sold it on Christies for $69M.

There have been some NFT campaigns that have been especially successful and there are some common threads and elements that are takeaways.

One very successful landmark NFT launch was done by Adidas. The Adidas launch was very well thought through and they engaged a specialty engineering services and design firm Plus. This NFT was especially successful because it was scarce, it was unique, it was valuable, and it allowed NFT holders to purchase special exclusive merchandise. Adidas reportedly brought in $23M in profit from its first NFT drop.

Contrasting the successful Adidas campaign is the unsuccessful Budweiser campaign. Budweiser part of InBev launched unique NFT beer can designs called “Budverse Cans Heritage Edition”. Buyers of these NFTs were promised vague “Budverse perks” but it is not clear exactly what these perks are and owners of the NFTs do not get ownership of the can design according to terms of sale. This misses the mark and defeats the purpose of purchasing an NFT. In addition, there does not seem to be clear crossover into the physical world like there was with the much more successful Adidas launch.

Another very popular NFT is the Bored Ape Yacht Club which is a collection of 10,000 unique and collectible Bored Ape NFTs (which are digital images of apes with disinterested expressions). Each Ape has a unique combination of features like background color, fur color, outfits, accessories, etc. The rarer the combination of features, the more valuable the Ape is considered to be. For example, Bored Ape #7495 has a dagger in its mouth which is a special feature that only 48 other apes have. In 2021 celebrities such as Jimmy Fallon, Serena Williams and Justin Bieber purchased Bored Ape NFTs launching the project into mainstream media. Purchasing a Bored Ape is a status booster and makes owners feel like they are in the same ranks as celebrities; another perk is the sense of community owning a Bored Ape provides. Owners are invited to exclusive events such as yacht parties featuring performances from trendy artists such as Lil Baby.

Luxury powerhouse designer Gucci has recently announced a new NFT project in collaboration with Superplastic (creator of animated celebrities, vinyl toys, and digital collectibles) called SUPERGUCCI. This will be a three-part series of limited NFTs that come with an exclusive 8-inch tall SuperJanky sculpture. This project goes live on May 4^th and there is a lot of hype and anticipation around the upcoming drop.

The company Discord has become a popular way for those who purchase NFTs to come together; Discord is an instant messaging and digital distribution platform where users interact and communicate with voice calls, text messages, video calls, and shared media files in private chats or in larger groups called “servers”. Purchasing some NFTs gets you access to that NFTs specific server, and you get a community of likeminded NFT holders to interact and socialize with. Discord has become one of the leading social media sites for NFT communities; a thriving NFT server can be rocket fuel for an NFT drop.

Another example of the value of NFTs is using an NFT launch to create hype and excitement around a real-world physical product. To ramp up the excitement around the return of the limited time only menu option, the McRib, to McDonalds menu, McDonalds ran an NFT give away campaign on Twitter. McDonalds creating a limited number of McRib themed NFTs to celebrate the 40^th anniversary of the McRib and gave them away to 10 fans on Twitter. To be eligible to win an NFT fans had to be following McDonalds on Twitter and must retweet the Sweepstakes Invitation within a certain time window. More than 21,000 people retweeted within a couple of hours and even after the winners were announced, people continued to retweet and share the invitation (as of April 2022 the tweet had over 88,000 retweets).

We are seeing new value and application for owning NFTs as well as incentives for companies to produce them: companies get PR and successful social media interactions that can grow their following and create deeper brand loyalty and purchasers can have their social standing in the physical world as well as the virtual metaverse world elevated, they can have access to exclusive real world merchandise and perks and can have access to a new community of like-minded peers.

The key thing that I am seeing as we contemplate when it is appropriate for our consumer facing companies to explore an NFT is that the learnable insights seem to be:

– Make sure you have a really good expert services team who is deeply knowledgeable in both the aesthetics and engineering surrounding the creation of the NFT.

– Think though whether your NFT is going to resonate with your target cohort.

– Consider your NFT as leveraging an extension of your brand in a way that must be on message and authentic. The core ethos of your brand, its key emotional messages need to be woven into your NFT.

– Many of the most successful NFT drops have a virtual and physical world element.

It may be time to ask your digital and marketing team how they are thinking about metaverse 3.0 and most specifically do they think there is a business application that makes sense to explore in the areas of either smart contracts, blockchain, digital assets such as NFTs, as a way to create additional relevance and wider audience for your brand in the coming year.

Source: Forbes