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Web3 Research Report: A New Paradigm for Brand Engagement

The next generation of the internet is consumer-led and features the tokenization of data and other personal assets. In Web3, users — not big centralized platforms — have control over their data and take part in a platform’s upside.

The problems that digital advertisers have faced in Web2 — particularly, the inability to track users and access critical user data at scale due to privacy regulations — are solved by Web3 platforms that enable advertisers to compensate consumers with tokenized rewards for their engagement and consent to share data.

By providing consumers with a clear and equitable value exchange, brands earn loyalty and trust while opening the door to a new world of engagement opportunities.

The ability for brands to target consumers has never been easier given the ubiquity of the internet. However, a fragmented digital media ecosystem poses one set of business challenges for brands seeking to understand digital consumers, while a combination of privacy and data rights present a separate set of legal considerations to navigate. As a result, the $600 billion global digital advertising industry is ripe for disruption.

The days of consumers being analyzed and productized without any say in the matter are coming to an end. In the evolving digital landscape, collection and monetization of data by the largest consumer-facing platforms can no longer be inferred, it must be declared.

The new data economy unfolding is consumer-centric and requires permission for brands to participate.

While there is no single element driving this paradigm shift, the Web3 ethos of transparency, trust and ownership may be attributed to blockchain-based protocols. These protocols, known as smart contracts, enable a variety of engagement and transactions between consumers and brands in the real and digital worlds.

The Internet has evolved from viewing and authoring to owning.

The dial-up days of Web1 gave way to Web2 tech giants that harvested and monetized consumer data without their knowledge or consent. The arrival of Web3 represents a power shift from centralized enterprise technology vendors to decentralized, blockchain-based platforms that give control to the data owner: the consumer.

Consumer data: from EXPLOITATION to OWNERSHIP

As the saying goes, “if something is free, you are the product.”

Freemium Web2 business models made popular by Google, Meta (formerly Facebook) and other consumer-facing platforms generate billions in ad revenue. Consumers agree to allow these big tech vendors to collect, analyze and monetize their data in exchange for the privilege to use their platforms.

The advent of blockchain technology has opened the door for peer-to-peer transactions of digital assets, such as Bitcoin, non-fungible tokens (NFTs) and other cryptocurrencies.

While this itself is transformative, the ability for consumers to take greater agency/ownership of their data, including the ability to earn cryptocurrency rewards by sharing their attention and data with brands, enables a paradigm shift.

New solutions for a cookieless world

Historically, the ad industry has utilized a combination of first and third party cookies for campaign targeting, measurement and optimization. As Apple and Google implement stricter privacy and tracking constraints across their ecosystems, the inability to leverage third party data creates serious challenges for brands and agencies looking to drive engagement and maximize return on ad spend (ROAS).

To highlight the significance of third party cookies, consider the following survey from Innovid: How important are 3rd party cookies for your current marketing strategy?

How will brands adjust as cookies crumble?

While first party cookies provide a more reliable means for marketers to understand consumer behavior, it is still limiting as the consumer is still unknown. Obtaining personally identifiable information (PII) such as name and/or email address is the ultimate goal for brands that seek ongoing and authentic one-to-one engagement with consumers.

Marketers will need to explore new ways to build one-to-one relationships with consumers en route to acquiring PII. Otherwise, CMOs and their agency partners will rely even more heavily on the Web2 consumer platforms that have become data overlords that rent audiences for advertising, sharing minimal campaign insights. While rent-to-own audience options would be ideal for brands, this is not feasible given Web2 business models and data privacy laws.

Zero-party data to the rescue

Understanding consumer behavior is paramount to a brand’s ability to deliver relevant, timely messaging. This is where the value proposition of a zero-party data platform becomes interesting for marketers in a cookieless world — imagine an opt-in rewards program that connects brands with consumers where time/attention are exchanged for a micropayment. The brand is able to tell its story to a qualified audience that has given consent to share information such as name and email. This quid-pro–quo is how zero-party data works: an equitable value exchange between consumers and brands.

Without the crutch of 3rd party data available for tracking, analysis and segmentation, brands will need to consider alternative means to obtain zero-party data.

If brands provide clear messaging and value exchange, consumers will share their data.

History tells us that consumers love free things (even if they are the product) as well as discounts. In addition to free or discounted items, consumers are also receptive to sharing data if it enables personalized or bespoke experiences. By leveraging zero-party audience platforms, brands can leverage one or more of these aspects to earn trust and attain fresh, fully-permissioned zero-party data.

To highlight how receptive consumers are when it comes to receiving something in return for their data, consider the following from Cheetah Digital:

Despite consumer interest, marketer knowledge and adoption of zero-party data is still in its infancy (stats below also from Cheetah Digital):

The value proposition and interest in zero-party data will accelerate as a cookie-free world becomes a reality. Investments in consent-based consumer platforms will become table stakes for brands that seek to remain relevant and maintain growth.

With proper data, permission, and orchestration, a brand can deliver an improved — or ideally- exceptional customer experience (CX). Per McKinsey, cookie degradation means brands will be pressed to earn consumer trust through compelling CX:

“The most prepared advertisers we studied are designing consumer experiences in which consumers actively consent to sharing data (for instance, transparency on data collected, visibility into value exchange, data collection seamlessly embedded into user experience). Indeed, experiences that are valuable to consumers tend to generate data as a byproduct.”

Brand touchpoints through micropayments

The ability to conduct financial transactions through ecommerce and payment platforms has been around for nearly two decades. While the definition of a micropayment varies (under $1 to $12), latency and cost factors have largely stymied mainstream use. As cryptocurrency adoption accelerates, retailers are accepting a variety of digital currencies as payment.

The list of notable companies accepting crypto payments is diverse, including: Starbucks, Home Depot, Overstock.com, Whole Foods, AT&T, DISH Network, AMC Theatres, Twitch (owned by Amazon) and more.

The ability to accept crypto payments extends beyond the largest retailers as 36% of small to medium businesses in the United States accept some form of crypto.

Serving as the backbone for credit and debit transactions, global payment processors such as Visa, Mastercard and Paypal are getting on board the Web3 bandwagon by supporting crypto, including NFTs.

During the 2022 Financial Technology Conference, Cuy Sheffield, head of crypto at Visa highlighted the NFT opportunity:

“Technology behind non-fungible tokens (NFTs), which are designed to be digital representations of real-world objects, could be set to strengthen the speed of commerce and therefore serve an important catalyst for the entire payments ecosystem.”

Financial institutions are also creating crypto-related products and services for clients. For example, Goldman Sachs supports Bitcoin-based loans and re-established a cryptocurrency trading desk, while peer Fidelity Investments allows clients to allocate Bitcoin to their 401K plans.

The above is interesting for brands and marketers as it means consumers are utilizing cryptocurrency in a variety of ways. Forward-thinking CMOs who seek innovative ways to drive digital engagement have a treasure trove of opportunities in Web3.

Web3 adds liquidity to loyalty rewards programs

Brands such as Marriott, Southwest Airlines and American Express have established industry-leading loyalty rewards programs. The value proposition of offering consumers perks for continued patronage is logical but requires significant resources. Facilitating loyalty rewards requires human capital and technological resources outside the means of many organizations. Perhaps the biggest hurdle loyalty programs face: liquidity constraints.

Blockchain-based rewards (e.g., NFTs or tokens) address multiple points of friction, including standard rewards programs that typically lock a consumer into that brand’s ecosystem. From a liquidity perspective, tokenized rewards can be transferred from one wallet (i.e., consumer) to another or used for a variety of purposes. This differs from rewards programs that limit ownership and site-specific use cases. In this vein, a universal rewards token (such as Permission.io’s ASK) expands liquidity exponentially, whereby a consumer is able to earn and use rewards across multiple brands.

Even during market downturns, technological adoption can accelerate

As we learned from the Web1 dot com bubble, not all companies survive market downturns, especially those without sufficient funding or sound business models. Adoption of blockchain and cryptocurrencies will continue fueling development of Web3 despite any “crypto winter.” Similar to the dot com bubble era, platforms that address market needs will prosper, while those without utility will fall to the wayside.

In the timeline below, adoption of the internet (1990–1998) and crypto (2014–2022) follow similar trajectories to reach 100 million users over an eight year period. While the dot com bubble in 2000 disrupted and bankrupted many online businesses, consumer internet adoption accelerated. By the end of 2003 — just three years after the beginning of the dot com crash — over 700 million consumers (11% of the global population) were online. If crypto adoption follows a similar pattern (assuming 2022 is a “bubble”) we can anticipate that by 2025/2026, crypto will experience widespread adoption.

Brands drive Web3 adoption and engagement through tokens and NFTs

Brands are also ramping up investments in crypto rewards, largely through non-fungible tokens (NFTs) and development of virtual worlds in the metaverse (e.g. Decentraland, Sandbox). For example, the world’s largest brewer and software company, as well as iconic CPG and lifestyle brands, are investing in solutions that enable next-generation brand engagement.

Established in 1936, Anheuser-Busch minted 1,936 NFTs to commemorate its foray into its virtual world, dubbed Budverse. Out of the lot, 1900 Core Heritage NFTs were minted ($99 each) and 36 NFTs were part of the Gold Heritage ($999 each). The NFTs represent different designs and vintages with a company press release stating each collectible is a “key to Budverse and can unlock exclusive benefits, rewards, and surprises.”

Other brands investing in Web3 include:

Smart contract protocols embedded in NFTs make them a powerful tool for brands to drive consumer engagement. In addition to artwork and collectibles, an NFT can serve as a digital key — opening the door for exclusive experiences in real life (IRL), online or in the metaverse.

Web3 is a team effort

Advertising agencies who have long acted as shepherds for brands are doing their part to prepare clients for the next iteration of the internet. The largest agency holding companies (e.g., WPP, Publicis, Dentsu) and independent agencies are acquiring boutiques, including the addition of executive avatars to deliver deeper digital experiences for clients. In addition to traditional media agencies, IT consultancies (e.g., Accenture, Deloitte Digital) are making moves to participate in Web3.

Web3 is a work in progress; however, the world’s leading brands, technologists and agencies are collaborating to build what will result in a more decentralized, consumer-centric internet. Blurring of real and digital worlds will accelerate, creating new revenue streams in the data economy. Instead of big tech companies dictating how, where, and when consumer data is collected and monetized, consumers are at the helm in the Web3 data economy.

Marketers seeking alternatives to audience rentals from big tech data oligarchs should consider joining the Web3 movement. Blockchain-based solutions open the door for new types of value exchange and engagement between brands and consumers. By enabling marketers to offer tokenized rewards, Permission.io provides the bridge to Web3 for consumers and brands to interact in a transparent, mutually beneficial way.

Download the full report here.

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