NBA Top Shot and Product-Market Fit
How Early Product Design Decisions Effected Dapper Labs’ Ability to Retain Users and Value
I love Dapper Labs’ sports NFT products.
At least I want to love them very badly. I don’t think I’ve ever found a product more engaging in my life. But I’m increasingly concerned about what the data says on if that product has ever really been designed to effectively fulfill its core user promise: that moments can hold long-term value.
And what matters there is not whether my personal portfolio has gone up this month, or some lucky user’s has, or whether I personally won a game or giveaway, or if you earned free moments, or which moments are the “smart trading decision” and which are not. What matters to assessing Dapper Labs’ success in fulfilling this core promise to users is the Market Cap.
The continuous downward trend of this metric for years highlights a crucial failure in Dapper’s strategy for sports NFTs that has been present from the very beginning: that despite efforts to retain value, the platform has not addressed the core reason behind its quantifiably diminishing appeal.
TL;DR? Just know I will not be pointing out flaws without giving their solution.
Measure What Matters
To start, am I just a hater and FUDing? Sure, I’m not the most diplomatic member of the Top Shot community. I can be a little confrontational and stubborn (we visionaries frequently are).
But I promise you that no product or process has ever been improved by people who cry “FUD!” at constructive criticism.
So let’s look at what that data says on how the long-term success of the product is trending.
First, the active users over time (excluding the Q1 2021 peak). You can see pretty reliable spikes around drops, which is why Dapper wisely chose to go with a weekly drop cadence in Series ‘23–24: fewer players per drop, but more frequent drops to drive users to the site… but you can also see that the number of users it was working to drive to the site has been steadily going down over time by looking at the shorter and shorter spikes. Compare May 2021 to May 2022, then May 2022 to May 2023, then May 2023 to now:
“Well maybe less people are just showing up because all the flippers are being weeded out and the true fans left are holding!”
Market Cap is a great way to measure that then. It measures the sum total of every moment’s values (either low ask or average sale price) multiplied by its available supply. It’s a great approximation for the value of holding moments here in general- the happiness of seeing your account value is up vs the frustration that it’s down again, just measured in the aggregate. So if the remaining users are holding more, that should be reflected in a rising or stable market cap over time.
Here is LG Doucet lamenting this continual downward trend of Top Shot’s overall market cap in June 2023, which had been steadily losing ground each year since opening to the public. The market cap had continually lost value each year by that point in June of 2023:
That number has steadily fallen lower still as of writing this in May 2024:
What’s notable is that the continued drop in Top Shot values can’t be explained away by the fact that burning is reducing available supply being multiplied to value. Burns are done by users for something of equal or greater value that would then be added to the market cap in place of what was burned, otherwise a rational user wouldn’t be burning.
The consistent fall in market cap also can’t be explained away by new supply diluting the values of older moments. If that were the case, values of individual moments would just shift from old ones toward new ones and the market cap would remain the same. It also can’t be explained away that moments used for utility lose value when that utility is granted because the reward moment’s value is then being added to the market cap to make up for it.
What this all tells us is that the value of holding moments isn’t shifting between individual moments: with each passing series, more and more people are saying holding moments isn’t valuable to them at all and leaving.
“Yeah well it’s just a bear market! Things are down everywhere!”
This is an outdated argument that is no longer true.
Here is the value of the total stock market index over the same period Top Shot has existed:
Maybe something a little closer to home? Here’s holding bitcoin over the period Top Shot has existed:
What a bummer article for Top Shot’s fans, right??
Not at all! This is not to say Top Shot is doomed.
But there has clearly been an inherent flaw in the product design from day one that still exists today which we need to think through and correct. But for us that came here for a love of sports and an excitement about the potential future of digital collectibles, who have known no other way. “How could that be true? I love Top Shot and it’s always been like this,” we’d think. A fundamental flaw would likely be hard to spot. And as the business who made those decisions, having the humility to question their fit for market is likely even harder but even more valuable.
So maybe let’s start at the beginning with a history lesson. I promise it will be brief but important.
The License and the Decisions for the Original Product Model
You likely know NBA Top Shot well enough to know how Dapper makes its money from the product: pack sales and the 5% transaction fee from marketplace sales. You may also know that every year there is a base set Common moment released of every active player in the league. You probably haven’t thought about how those two facts are related, or how it is the driving force still today on how the product is able to retain (or not retain) users and value over time.
My best guess at the revenue sharing model that was worked out in the original license agreement between Dapper, the league, and the player’s association is:
- Dapper keeps all revenue from direct pack sales to support its staffing and operational costs
- Of the 5% transaction fee that Dapper collects from sellers:
- 1% goes to the league
- 1% goes to the team
- 1% goes to the player’s association
- 1% goes to the player
- 1% stays to support Flow Blockchain - Every series, each player who has played more than some agreed upon number of minutes needs to have at least one moment minted so that all of the above license parties can receive a cut from transaction fee revenue.
So Dapper chose to build the Top Shot product with a fundamental product model of:
- Spend months curating the best moments from all active players. Repeat along various themed Sets.
- Mint and sell them all in packs with a large range of players. Some would be popular players and moments to chase, but also a lot that no one was asking for except that the license required Dapper to mint and release them.
- Each drop, hold back the best moments or the most popular players to be a drop challenge reward: only earned by users that buy a bunch (or all) of the moments just released that they wouldn’t otherwise want.
- Reward users who collect one of each player in the full set when it closed with CS bonuses, pack airdrops, master challenge rewards, etc. This and the point above would ensure that no pack would be a total loser, and there would be at least some demand driving transaction volume for each party in the revenue sharing model.
- Repeat with different pack drop for different Set theme.
This was certainly one potential product design. It worked well for the closed-beta NFT-native audience that it was designed for, who were coming from collecting CryptoKitties and weren’t always collecting players and moments because of sports fandom. This audience frequently would post in Discord “I just pulled [player name] in my pack, are they good? How much will they be worth?” They typically wanted to be told what to collect to be rewarded… so Dapper started doing literally just that with each drop.
But this was not the best product design within the framework of that license for the fans that would follow. I’ll explain why.
What is Product-Market Fit and How Does It Apply Here?
Warning: I am going to be using the word “Product-Market Fit” a lot here. It’s a bit obnoxious business speak, I know. Kind of like “let’s circle back on the low hanging fruit and find synergies by thinking outside the box.” But it is the correct word for the mismatches we’re seeing between user expectations, how the product wants to market itself, and the actual product experience and economy.
Another thing to note is that the “product” being described here is not the serialized blockchain sports highlight in general or the cube design; it is the way those are packaged, sold, and rewarded to users.
Okay, so what actually is product-market fit?:
Without an effective one, users do not feel rewarded to continue buying the product or recommending it to their friends.
But how do we know that the specific model that Dapper chose for sports NFTs was a poor product-market fit for its target market?
Listen to a question asked of former head economist, now GM (as far as I know), for NFL All Day back in October 2022:
You can almost hear the restrained sigh from Noah, because the fact that this is a question at all means the product is not designed in a way that most of its customers understand or even want.
And again back in April 2023 (it keeps coming up):
This is what poor Product-Market Fit looks like.
The specific foundational decision that Dapper made for the design of sports NFTs which made the product such a poor fit to meet the long-term desires of its target market was… Sets.
I can hear the comments (pitchforks) already:
“What does that have to do with anything? I love set collecting!”
“The organic set based communities that sprang up were some of the best parts about Top Shot! #MILKGANG for life!”
“Set collecting has been a part of sports card collecting forever, that’s REAL collecting!”
So let me get out ahead of this one. I do not mean the fact that Sets of moments exist is the problem with the product-market fit. And I definitely do not mean that users collecting whatever they want, being proud of completing a set, and connecting on it is the problem.
It is the reliance on Sets to drive demand that causes the main pain points in the product’s fit for its current market: waiting long periods to compile moments based on a themed Set, needing to then fill those drops with less popular moments users weren’t otherwise asking for, then needing to drive demand for most of the moments in those drops by holding the popular moments back for as drop challenge rewards and master challenge rewards and “gotta collect ’em all” incentives.
So why is that a problem? Let’s hear again from NFL All Day economist and GM:
Which leads to:
Okay, well that discussion was theoretical and detached. Let’s look at the specific real word logic for how this over-reliance on Sets creates real tension between what users would like the product to be and how it actually works.
‘The Ja Morant Problem’ and #NBATopShotThis🏀
The poor product-market fit for can be seen most clearly in what I call ‘The Ja Morant Problem’.
With the Top Shot 1.0 product design, curation every season becomes a tightrope of: “Wow, that was an amazing dunk Ja had last night and everyone is talking about it! That would make a great Throwdowns moment, people would be lining up for that! …oh wait, we can’t release that yet.”
And why not??
“Because what if he tops it tomorrow! We’re trying to compile a set of the best dunks of the year and it’s only November.”
Okay, so logically you’d need to wait weeks or months to see if this really is his best dunk of the year. And you’re doing that for all the best dunkers in the league because they have the same logical issue here.
But you have to release something before the end of the year! This is a business and it needs pack revenue. So you pick one of these great dunkers, cross your fingers and pray they don’t top themselves a week later, then add a bunch of other marginally interesting dunks from less popular players where no one will be too upset about which dunk you pick.
But now you’ve filled your packs mostly with moments no one was asking for and need to drive demand for them… drop challenges to the rescue! “Gotta collect ’em all, and then we’ll give you a free reward moment”
Okay, so which moment as the reward? Obviously the best one or from the most popular player. You can’t drive people to collect things they don’t want by rewarding them with something they wouldn’t care about.
So now you’ve created several problems:
1) People’s collections ARE now filled with stuff they never wanted and you made them lock
2) You now need to give people some way to gain utility out of a shallow but broad collection of player’s moments they didn’t otherwise want: enter Flash Challenges and now FastBreak that just digs the “Collect Only One” hole deeper
2) Utility, and the fear of it being diluted, becomes the key driver to the value of moments on the platform
3) To ensure you’re not oversupplying a player’s market and diluting those that bought that player’s moment early, you can’t mint too many moments for star players and now need to again wait weeks and months compiling Sets of moments out of fear it won’t be the player’s best moment.
The product is not minting the moments people want and users now do not want more moments to be minted once they have their one. So you can’t create a product that catalogues the best moments of the NBA that year, the moments fans are talking about now, because the limitations on doing so required to protect the artificial demand drivers is actively limiting that. Trying to drive engagement with a #NBATopShotThis🏀 or player tweet campaign that cool new moments should be minted doesn’t connect with the audience then because that is misaligned to how the product actually works.
So the Dapper has now lost two main opportunities for market differentiation through this Sports NFT 1.0 curation and incentive model: Speed to Market and a Demand-Based Economy.
Panini absolutely should not have this market advantage over digitally-native NFTs. You can disagree on the level of restraint they show with it, but they do capitalize on both Speed to Market and a Demand-Based product with Panini Instant, because they aren’t worried about holding things off for months because of a reliance on curating sets of moments for an audience they think needs to be told what they should want:
So the fundamental issue with Dapper’s product-market fit for sports NFTs is that:
1) The curation, release, and incentive model was a good fit for the original product audience of NFT-native users.
2) The way that userbase mostly saw the product was in fundamental conflict to the business’ ongoing revenue needs of releasing continued supply, and they are mostly dormant or sold off completely.
3) That original core product design is no longer serving the current or prospective userbase of active NBA fans, which is why the market cap is continually falling. The design is preventing fundamental wants of the target audience from being met, which prevents a consistent user value proposition to spend here.
3) There is a radically different core design available that would be a much better product-market fit for ongoing engagement, economic health, and growth, but it is a drastic turnaround to what Top Shot actually is for a user.
“So then smartass, how would you have built this product that would have been soooo superior?!”
I’m glad you ask (sarcastically, but still asked).
NBA Top Shot 2.0 and Its New User Activity Loops
The way the user interacts with sports NFTs needs to mirror how sports fandom actually works. The product design needs to support that behavior for engagement in a way the original product design missed out on: speed to market and demand-driven economy.
It needs to satisfy the expectations of Dapper’s license agreement with the league and player’s association in a way that maximizes the moat this exclusive license grants it.
It needs to reinforce behaviors that are good for its own long-term financial viability AND its core value proposition to users with a clear path to their success, without imposing competing systems that undermine either.
And lastly, the user interface (UI) needs to reinforce these new user activity loops to drive a completely different “what exactly do I do here?” user experience (UX).
So what does a successful product-market fit actually look like for a user on NBA Top Shot 2.0?
Continued here: https://medium.com/top-shot-decisions/nba-top-shot-2-0-e2e72a8e68ab
