Web3 for Brands: Beyond the Hype

As I talk with marketers and the community, I still hear a lot of pushback against "Web3". This is where we stand and how brands can lead the next wave of Web3 adoption.

Jan 24, 2023

It’s one thing to talk about the Web3 opportunity, but another to make it tangible.

In my conversations with marketers and the community, I still feel skepticism, uncertainty, and concerns about Web3, NFTs, and frankly, about the entire space. Questions pop up such as:

What is Web3 for?
Why is Web3 different and better than Web2?
What is the actual use case of NFTs?
Why does it have to be decentralized?
Isn’t all of crypto a ponzi scheme?

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Many dismiss Web3 as hot air. A hype. A meaningless buzzword. Nothing with substance. A fad like 3D television.

We’ve learned that innovations often face pushback. Major technologies of the last 100 years, such as radio, television, or the car, were ridiculed or declared outright dangerous.

So does Web3. It’s unfamiliar, abstract, uses lingo that no one understands, it’s hard to use, it still lacks mass market use cases, FTX damaged its mainstream reputation… okay, I get it.

But instead of pushing back and getting hyped up among ourselves about how cool Web3 is (even though it it p-r-e-t-t-y cool) we should closely listen to the sceptics, start talking their language and articulate why this thing called “Web3” matters – to them, not to us.

Only then, the next wave of adoption will succeed.

I encourage you to read my recent article on the Web3 opportunity first if you are unfamiliar with the concept of Web3. Then come back here for a reality check.

For all others, let’s start with where we stand now.

"Where do these tempting roads lead?" my mind wonders, as they guide me towards the inevitable. Skybound by outrunyouth.

FTX-bitcoin-crypto-web3-avalanche

A few weeks ago I wrote about crypto’s identity crisis. I argued that FTX wasn’t just about a giant fraud, millions of betrayed clients, and a pinch of “bad luck” anymore. Over the last few years, the whole space has been infested with deceptive practices and bad actors.

This has shaken the trust of the industry beyond crypto finance. It opened trenches within the community. And it’s like a giant avalanche that pulls everything with it into the abyss.

Blame games have emerged. Bitcoiners blame altcoiners. They start fighting the “crypto” people. Vitalik Butterin now starts talking about “Ethereum” and not “crypto”. Web3 folks insist Web3 is separate from “crypto”.

VC money has dried out. Funding is at a two-year low.1 Only projects and protocols that deliver product market fit and have real token economics will have a chance to survive and rise in value.

Meanwhile, brands are hesitant to associate themselves with “crypto” until the dust settles. Crypto now stands for FTX, and FTX stands for fraud. Associating your brand with it is perceived as a risk. “Crypto” has almost become taboo – for some at least.

On top of that, most brands who entered Web3 haven’t seen meaningful engagement beyond the first drop. Only Nike and Adidas stand out, with a secondary/primary sales ratio of 14.3x and 29.6x respectively.

They likely outperformed others because

both brands already have high brand awareness and appeal to the broadest group of consumers,
both brands partnered with existing, strong Web3 communities (RTFKT and BAYC),
and both brands produced better content and brand stories.

Out of the 118 major brands who entered Web3, most of them are discussing how they should continue. I would love to listen to the internal talk: “Guys, how can we improve engagement?”, “What impact did it have on our ROI?”, “Did we achieve conversion?” might be some of the questions thrown around.

Why should those brands return?

Broken trust

Recently, National Geographic dropped its first NFT collection “GM: Daybreak Around the World”. It’s a collection of 16 photographs taken at the break of dawn around the world, captured by National Geographic photographers and digital artists.

The announcement was met with a backlash on social media, calling NFTs a “bubble” that “already popped,” “bullshit,” “an extinct species,” and even “another way to launder.” Using the picture of a Bored Ape, a symbol of the NFT mania, to promote the drop, was an unfortunate choice and likely contributed to it.

cory @coryrj

@NatGeo Could not imagine a promotion more antithetical to the NatGeo mission statement if I tried. Between the well-documented climate impact of the NFT market and your absurd tardiness to buy into this pyramid scheme, you should be deeply ashamed of this.

Netflix experienced a similar backlash back in June 2022 when it launched its NFT mini-game on “Stranger Things”. The same happened to Wizards of the Coast with its popular game Dungeons & Dragons.

This, ladies and gentlemen, is the popular opinion of NFTs (and crypto) right now. The space has always had its fair share of critics. And it seems to me that we didn’t make too much progress in changing that over the past years.

We should all be on a mission to fix this.

Broken UX

Let’s stick with National Geographic. I went through the whole process of purchasing a National Geographic NFT. Without a digital wallet, it took me over 30 clicks, including KYC verification through Blockpass before I could even attempt to purchase an NFT. It works like this:

Moving from the National Geographic landing page to the Snowcrash sales page
Clicking on “buy now”
Setting up a Polygon wallet with Magic Link
1st inserting of my email
1st code verification through email
Sign in with my newly created wallet
Get verified through Blockpass
2nd inserting of my email
Open another magic link in a new email
Starting the ID verification process by taking photographs of my passport and my face
Waiting for about 15min until a verification success email
Returning to the Snowcrash sales page to purchase the NFT
Purchase of the NFT with wallt signing

It would take me even more clicks if I already had a wallet, since my wallet is linked to Ethereum, which requires a switch to Polygon.

Here’s a gif showing the whole process up to ID verification:

Now imagine doing all this on your phone. This is a terrible user experience.

Wait: Imagine doing this without having a clue why you would need a digital wallet, a private key, KYC verification with some company you don’t know and trust, just to make a simple purchase on the internet, in the first place.

It’s cumbersome for us crypto nerds. It’s probably mind-blowingly unfathomable to most.

The majority of users are lost. Understandably so.

Let’s summarize my biggest pain points with the National Geographic NFT buying experience:

It’s way too long: Today, 30 clicks is about the same as you need to open a bank account. Users are used to email sign-ups that take 10 seconds and 3 clicks. Let’s make this shorter.
Too many interfaces: landing page, sales page, magic link, wallet browser extension, email, Blockpass.
Missing context & unfamiliar language: Average userhave no idea what "wallets" are. They don’t understandow “private keys” and they certainly don’t see the point of using them. They probably don’t know what a “blockchain” is either. And they also don’t understand why they need to submit their most personal data to a random company (Blockpass) they don’t know and don’t trust. Blockpass’ landing page doesn’t strike me as super trustworthy either.

Again, the next wave of adoption will happen with non-crypto users. This is why we should all be on a mission to fix this.

What problem do you solve?

For the next phase of Web3 for brands, brands need to go beyond “another” NFT drop. Users want real utility and value. It doesn’t matter whether it’s an NFT, whether it’s Web3 or some kind of metaverse. Let's forget about technology.

The only thing that matters is the user.

Spotify is where I listen to "mp3s" not because "mp3s" are cooler than CDs. Or the iTunes store. I use it because it’s a much simpler, smoother experience. And hey, I actually don’t care how streaming works.

McKenna Sweazey

did a great case study on Christmas shopping in the metaverse, visiting virtual stores from Givenchy, Charlotte Tilbury, and others. The take-away: It’s neat. But limited. Mobile lacks immersion. The virtual stores is not rich enough. The experience is lacklustre at best.

Jean-Marc Pontroué, CEO Panerai:

I don’t want to [release] NFTs if it doesn’t have any added value, or just because it’s trendy to make NFTs but we don’t really know how it works.

However we look at it: The user experience needs to be better than in Web2. That’s the only thing that matters. Everything else is secondary. Utility first.2

Utility first

Going forward, brands who enter Web3 will have to find real use-cases that go beyond NFT drops. Those NFT applications need to

have a clear value proposition in a brand’s ecosystem
be easier to use for non-crypto-native users than Web2 alternatives. If they’re not easier to use, the value proposition needs to be so big that UX limitations don’t matter (at least at the beginning)
Be transferable and tradable outside of the brand’s ecosystem to unlock value that is unique to NFTs
Improve the discoverability and curation of its NFTs, so users can access the right NFT at the right time when interacting with a brand touchpoint.

To find those applications, brands need to start from the user’s perspective. It’s not about a loyalty strategy or marketing strategy or digital strategy, but about a customer strategy. What needs do I cater to? What problems do I solve? This might include:

Having access to and participating in exclusive experiences and communities
Participating in shaping a brand or product
Being adequately rewarded for my loyalty to a brand instead of loyalty points or “paper” gift cards that are easily lost and limited in what you can do with them
Having an unforgeable provenance and warranty claim for the products I bought increases the (resell) value of those products
Showing off my social status within the brand’s community and even beyond the brand’s ecosystem

This list is unfinished and in flux. Builders and brands are rushing to try to identify actual problems to solve and needs to address with this new technology.

They’re experimenting, carrying hypothesis into the world and see how people react. Then they adapt. That’s the beauty of change.

Example: Rolex [insert any high-end watch brand here] ⏱️

Rolex may have records of a client if the watch was purchased through an authorized Rolex retailer. This is because the retailer would likely have to provide customer information to Rolex for warranty or service purposes. However, if the watch was purchased through a non-authorized retailer or on the secondary market, it is unlikely that Rolex would have any record of the client.

If each Rolex watch was sold with a corresponding NFT, this could not only make it more difficult to counterfeit, but Rolex could more easily identify loyal clients and engage them in creative ways. As all NFTs live on the blockchain, relevant wallets could easily be identified. By showing off all their Rolex watch-NFTs on social media, those wallets/clients could achieve social status beyond the one watch they wear.

Here, a lot of questions arise. E.g. How do you establish the link between a wallet and a real person? How do you build communities & platforms on which a client’s wallet can express social status? The list carries on.

Beyond utility: collective brand building

NFTs don’t live on their own. A Web3 strategy is as much a marketing strategy as a customer strategy. It’s woven into the branding and marketing process. It augments how a brand does business.

Brand building in Web3 is transparent, participative, and owned by the community. Beyond the product, users can now own part of the brand, part of the story, part of the culture they help to create. This changes the way customer communities are managed — and how product value is created and shared. indeed, value creation in Web3 is in large part about using shared ownership to incentivize participation and engagement from many people at once.

It also requires building relationships between brands, communities and creators. Often, community members become part of value generation through co-creation. These communities can be managed, incentivized and rewarded through blockchain-based tools. They may even be organized in a decentralized way, so called DAOs.

Bobby Hundreds, Founder of the popular streetwear brand The Hundreds, on their Web3 Strategy:

That also means that if we want this to become anything of meaningful and sustainable value, we have to let it grow authentically, support and participate in the culture, and most of all, believe in it.

That's so important that I’ll write about it in a separate post.

Example: The Hundreds 👖

The Hundreds recently sold NFTs themed around their mascot, the "Adam Bomb”. Owners would gain access to community events and exclusive merchandise, providing a way for the brand’s fans to meet and engage with each other. The Hundreds also introduced royalties (in form of in store credits) to NFT owners associated to Adam Bombs that were used in some of its clothing collections. This created a sense of partial ownership in the brand. HBR writes:

Partially decentralizing the brand’s value in this way led The Hundreds’s community to feel even more attached to the IP and to go out of their way to promote it — to the point that some community members even got Adam Bomb tattoos.

Example: Australian Open (AO) 🎾

In 2022, AO launched the “AO ArtBall” collection with the goal to set a new standard for global fan engagement. AO ArtBall NFTs, a collection of 6,776 from the '22 collection and 9,230 from the '23 collection, give members access to the AO and the ArtBall community, as well as tennis, sport, and entertainment experiences. What's even cooler, they come with a free serving of strawberry ice cream in the Rod Laver arena. Just joking.

Art Balls: The Australian Open serves up interactive NFTs and a metaverse

AO ArtBalls are:

A direct connection to AO’s core product: ArtBalls can gain in value depending on the rarity and depending on the real-world outcomes of AO tennis games.
Art / collectible: Each ArtBall is unique with ongoing value and can unlock physical collectibles such as tennis balls used in championship matches.
Access passes: To worldwide member IRL experiences, such as ArtBall member meetups, stadium tickets for global Grand Slams, coaching experiences, tickets, merch, stadium tours to other live sports.
Learning tools: Access to curated, token-gated learning experiences for all things Web3 and crypto.

The AO team works closely with its community and is highly transparent about the process. It conducted surveys, town halls, listened on Discord, and met with ArtBall Members across the world, to help guide the strategic direction of the project. Yet, community involvement can go much beyond that.

Example: Porsche 🏎️

If there’s a recent example of a high-profile brand who didn’t follow the utility x community playbook, it’s Porsche.

Porsche recently launched its own NFT collection. Owners can customize the collectibles based on three categories (Performance, Heritage, Lifestyle) and make it more unique with randomized individual traits, resulting in different utilities in the future. If you’re unfamiliar with the case, I explained it here.

Porsche’s mint day was anything but successful. The mint was closed early, supply was cut, and a fraction of the 7500 NFTs were sold. First analysis: Missing community space, lack of community interaction, vague utility.

Porsche’s Discord channel is a one-way communication channel, preventing community members from participating. It’s likely that Porsche consciously decided against opening Discord to the broader community. This is because Discord doesn’t provide the environment in which a brand like Porsche wants to be seen, nor the user segment it wants to engage with.

Again: Utility x Community.

A deeper analysis is needed though.

I encourage you to read this Twitter thread, encapsulating the “Web3 perspective”:

warrenhimself ⌐◨-◨ 🎟 @nullinger

1/ Why I will not mint the Porsche NFT, although I am in the first wave. A 🧵 After careful consideration, I have come to the decision that I will not be minting Porsche today, even though I am in wave 1 of the Allowlist. My main reasons for this are that I don't

Challenges (yet to be solved💪)

Everything I just talked about relies on blockchain infrastructure that’s being built. The most pressing infrastructure challenges to be solved include:

UX: How can we make the Web3 experience easier, smoother, more straightforward? How can we avoid experiences like the National Geographic example above? (Example projects: Magic Link, Web3Auth, ClubNFT, various wallets, etc.)
Interoperability: How do we ensure that branded collectibles are interoperable across platforms (and increasingly 3D worlds)? Adidas, for example, claims that its Virtual Gear collection designed to be worn by virtual avatars is interoperable with other identity-based projects and worlds, adapting to the metaverse environments being built, so that the ‘Virtual Gear’ is ready for all frontiers of Web3. I have yet to see how this works in practice - but that’s the vision. Here’s a helpful piece about metadata standards for NFTs.
Scaling: How can we build on blockchains with enough throughput that are also secure? L2 applications (e.g. Optimism, Arbitrum, Polygon) and zero-knowledge roll-ups on Ethereum are doing a fantastic job in making that a reality – soon. (Example projects: zkSync, Starkware, etc.)
Privacy: How do we preserve privacy for certain transactions and wallets? E.g. do I even want everyone to see that I own multiple Rolex NFTs? Solutions like zk-SNARKs and zk-proofs are promising, but there is still a need to explore how these technologies can better protect privacy in transactions and wallets, such as concealing the ownership of certain NFTs.3 (Example projects: Aleo, ... others?)

They will be solved.

So what? Utility x Community

Ultimately, brands are now empowered with technology that allows digital, transferable ownership. At the most fundamental level, the questions brands will need to ask are:

What utility within my brand ecosystem can I unlock?

And beyond utility:

What do customers/users love about my brand and how can I amplify that? How can I engage and reward my most loyal fans in more relevant ways?
What stories and artefacts can I attach to digital assets that are uniquely tied to my brand and move beyond utility, to make them more emotional and personal? (an NFT isn’t and shouldn’t be treated like a QR code!)

For the next phase of Web3 for brands, the battleground will be user experience and the relationships brands build with their communities and superfans.

The devil will lie in the details. Things will take longer than initially thought.

Let’s keep questioning, experimenting, building.
And stay open to change.

– Marc

Cover artwork: Skybound by outrunyouth.