Being Onbrand, Onchain
By: Karen Shen, Collab+Currency
In the past few years, many of the largest consumer brands in the world entered the web3 space for the first time.
Brands like Tiffany & Co debuted their genesis NFT collection to the world, selling out their CryptoPunks collaboration within 22 minutes and generating $12.5 million in sales. Reddit rolled out their avatar collectibles project, eventually minting ~19.9 million collectible avatars on Polygon. DraftKings debuted a digital collectible marketplace that reached $4.5 million in daily trading volume. Porsche, Starbucks, and Gucci would follow closely behind.
Today, a number of high-profile brands continue to experiment with blockchain-based environments. In June 2023 alone, Louis Vuitton dropped the VIA Treasure Trunk NFT collection, Nike’s dotSWOOSH released its first community-led digital sneaker collection (OF1), and Lacoste launched their new blockchain consumer loyalty program.
But have any of these traditional initiatives — now numbering in the hundreds — actually been successful?
This article aims to shed light on the opportunity set for traditional brands entering web3 — first through the lens of brand history, then through a discussion of quantifying consumer crypto success, and finally, by describing the qualities of projects that have best capitalized on the consumer crypto opportunity.
The History & The Opportunity
Pre-industrial revolution, delivering a high-quality product or service was the main method by which to differentiate a product offering.
A durable pair of leather shoes. A sturdy chair.
With mass production (mid-1700s to mid-1800s) also came the ability to generate larger quantities, at a scale, efficiency, and quality never before realized. By the end of the 19th century, the quality delta between incumbents and new entrants narrowed as a result of mass production, and businesses looked for new ways to differentiate their offerings.
Over the next century, a new vector of competition emerged — the brand.
By the end of the 20th century, many of the largest commercial organizations had been trained on the art of the brand, which involved messaging a company’s unique values to an identifiable (and large enough) group of consumers that could identify and resonate with that messaging.
For clear examples, look no further than Apple and Nike — two giants of cultural commodities.
For humans, one strategy to fit into a cultural group is to consume what that cultural group approves of.
- If you’re a Silicon Valley VC, you own a Patagonia vest.
- If you’re a graphic designer, you use an Apple Macbook.
- If you care about fitness, you wear Lululemon and a Whoop.
- If you follow street fashion, then you purchased a pair of Adidas Sambas this year.
But it isn’t just the Apple and Nikes of the world that understand the power of branding and marketing. In 2022 alone, a projected $738.5 billion was spent on advertisements globally — with many firms often targeting granular segmented profiles.
Starter pack memes are instructive here.
As humans, our identity is composed and shaped in part by the products we decide to purchase.
As Toby Shorin poses in his article, Life after Lifestyle, “stare long enough, and you begin to see the whole: an economy where culture is made in service of brands.”
In a world where religion is declining, and your sense of community and belonging on a day-to-day basis is mostly, if not entirely, reliant on your profession, brands and subcultural groups are in many ways filling this gap.
These organizations have become our proxy micro religion, a belief system, and something for us to identify with.
There are, however, limitations.
Today, consumers seek more meaningful ways to connect and participate in these cultures, beyond economic participation. In part, this may explain why people feel increasingly lonely in a world that has become hyperconnected, in spite of the online sub-communities that exist for each of us in every small corner of the internet.
While consumers look to their favorite brands and subcommunities to bring genuine value to their belief systems, traditional brands are mostly unable to fulfill these needs — often, legacy commercial systems do not readily support the type of relationships that consumers desire.
Herein lies the opportunity.
Web3 is a technological design space that includes properties of decentralization, crypto-economic incentives, and hyper-financialization.
But web3 is also a cultural movement. Its features are designed to incentivize cultures, networked communities, co-creation, and ownership. With web3, facilitating culture around commercial systems can be a product in and of itself.
Take Friends with Benefits–a digital community where the cultivation and generation of culture is the project’s first product. Or, PFP collections like Milady’s, where a community first formed around a group of digital objects for the sole practice of counterculture memes. Projects like Hume bring fans of virtual music avatars together to guide an artist’s creative process, social decisions, and future product lines.
In this new feature-rich design space, a brand’s first product may not be for sale — but simply facilitates a new type of internet relationship within a brand’s orbit.
Traditional Brands & Web3
An Overview
To date, approaches from traditional brands can be broadly categorized into the following buckets:
- Metaverse Initiatives (digital stores, digital fashion shows)
- NFT Collections
- Digi-Physical Goods
- Loyalty & Rewards
- Community & Co-Creation
Many brands have warmed to the idea that crypto provides new ways of creating value, products, services, or net new business models; however, after speaking with representatives from some of the biggest brands in the world, it is clear that success continues to be measured against traditional metrics.
Often, brands are only willing to invest in high-risk initiatives like web3 insofar as they are able to generate meaningful returns. Common metrics include ROI, brand awareness and perception, retention, and customer acquisition, among others.
I’ll briefly point out where brands have broadly met these success metrics, where they may be falling short, and why.
Revenue generation hasn’t been a problem among brands that have released NFT collections (Table 1). Nike tops the table with ~$80.37 million generated across all of its NFT collections from January 2022 to July 2023, while McLaren’s considerably smaller NFT collection generated $293,984. It’s unclear what each project made in net profit, though we know that NFTs offer some of the highest margins in products today.
However, where brands appear to be falling short is in retaining consumer attention and creating long-lasting value for their user base as exemplified through their secondary volume activity (see Graph 1) and average floor price (see Graph 2).
For many brands, these projects were their first foray into web3. Notwithstanding the larger downturn experienced by the crypto market, these initial attempts may have fallen short of fully embracing the cultural potential inherent in web3. Perhaps lacking a thorough understanding of their users’ needs, these brands failed to leverage web3 as a solution to address these challenges effectively. Essential aspects such as ownership, community, co-creation, and provenance may not have been harnessed in a manner that resonated authentically with their established user base and brand identity.
Earlier, I touched on how today’s consumers are looking for more meaningful ways to connect with brands. They want to participate in a community and practice the values of that brand, and few have done this skillfully through web3.
In the following section, I share examples of brands that I believe are making good progress toward this vision — a design space I believe will provide the most optimal outcomes for traditional brands in web3.
Case Studies
Reddit’s Avatar Collectibles, Nike’s dotSWOOSH, and Starbucks Odyssey stand out to me as brands that are best capitalizing on this consumer crypto opportunity.
Here’s a quick TLDR on their web3 approaches:
Each of these endeavors is in the very early stages of testing and development in web3 — and they don’t exist without shortcomings. Reddit has been successful in the number of avatars their users have collected but data reveals that only a small percentage of users traded their avatars. Meaning, few users have actually been translated into the web3 ecosystem. dotSWOOSH and Starbucks Odyssey’s web3 efforts only scratch the surface of community engagement experienced by their issuers, which ranges between millions to billions of people.
Yet what makes these three brands stand out to me is that each of these brands’ first web3 products facilitates a new type of internet relationship within a brand’s orbit. Specifically, each has activated existing audiences into a new digital environment by focusing on the following three qualities — (1) Brand Authenticity, (2) Abstraction of Web3, and (3) Community Participation.
Brand Authenticity
Consumers have historically responded positively to brands that are consistent in their messaging and positioning. This logic will inevitably be applied by consumers to brands experimenting with new technologies.
In our examples, Reddit, Nike, and Starbucks incorporated web3 in a way that is original to their audience, and which organically fits into their core product positioning.
For Reddit, their user base enjoyed access to customizable avatars for many years before becoming collectibles that were purchasable and ownable over a distributed ledger. For a decentralized, community-led, pseudonymous platform, providing a means of expressing visual identity, while maintaining pseudonymity, has always served an important role in the core product.
dotSWOOSH is not Nike’s first try at weaving the concepts of community and co-creation into their product. Nike By You (previously known as NikeID) launched back in 1999 and is Nike’s co-creation service where consumers can customize their own shoes and try their hand at designing a Nike product. dotSWOOSH is the digital extension to this initiative, allowing members to co-create virtual collections. With dotSWOOSH, members are exposed to additional utilities such as special access and benefits that are unique to their dotSWOOSH ID.
Finally, Starbucks Odyssey is a simple web3 extension to their wildly successful rewards program — already enjoyed by over ~27 million active US-based loyalty members.
Abstraction of Web3
The majority of traditional retailers are not familiar with the ins and outs of how blockchain technology works — and it shouldn’t be a prerequisite for them to engage in a technology deep dive in order to access the core benefits of digital objects.
Across Reddit, dotSWOOSH, and Starbucks Odyssey’s web3 endeavors, you’ll notice that you can hardly tell that these are crypto-related initiatives. Each of their communications channels has minimal references to blockchains and crypto. Instead of using the term NFTs, they use collectibles, boxes, posters, or stamps. The wallet-creation process is entirely abstracted away and there is no expectation for users to own a self-custodial wallet.
Community Participation
For reasons that I’ve outlined in previous sections of this article, consumers today seek more meaningful ways to connect and participate with brands. Reddit, dotSWOOSH, and Starbucks have each used the web3 design space to introduce a new way to activate their communities.
With the collectible avatar collections, Reddit saw an opportunity to involve their most engaged artist communities to help create and design the avatars. Each time a collectible is sold, independent artists receive a percentage of the sale price.
The OF1 virtual collection was curated by dotSWOOSH ID holders who voted on their favorite Air Force 1s. Other members created a visual storyboard for the dotSWOOSH studio challenge for a chance to design a virtual shoe alongside Nike’s skilled designers and be part of Nike’s first-ever virtual collection.
Finally, Starbucks Odyssey members are incentivized to engage with the company beyond just economic participation. Members participate in activities (called ‘Journeys’) like watching videos, taking quizzes, competing in games, and testing new Starbucks drinks. Once they’ve completed a Journey, they earn collectible Journey Stamps (NFTs) as rewards — which they may continue to own or sell.
Parting Thoughts
For most of human history, firms competed mostly on the quality of their offerings.
Post-industrial revolution, the brand became an important source of product differentiation and success.
Today, we’re witnessing the emergence of the next wave–the relationship that brands can cultivate with their consumers.
Web3 and its ability to incentivize cultures, networked communities, co-creation, and ownership, is the next important vector for competition. It provides brands with a rich design space to find new ways to connect with their community, at a time when consumers are seeking deeper connections.
For that reason, I believe it has never been a better time for brands to experiment with web3, and I’m hopeful that we’ll see important milestones crossed over the next year.
I’m excited to continue tracking these ideas — if you’re building, writing, or investing in the consumer crypto space, reach out to me on Twitter — my DM’s are open!
As always, thank you to my Collab+Currency team, especially Derek for helping me refine my thoughts. A special shout-out to @NakedCollector for your help on the visuals.
*Disclosure / Disclaimer*
Collab+Currency may be an investor in companies mentioned in this article.
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The above material and content is educational in nature and should not be considered to be a recommendation to invest in a digital asset. Investing in digital assets, NFTs or cryptocurrency (collectively “digital assets”) is highly speculative and volatile, and digital assets are only suitable for investors who are willing to bear the risk of loss and experience sharp drawdown. Past performance is not indicative of future results.
