Depending on whom you ask, Web3, a new iteration of the internet based on blockchain technology, is a form of monetization, the future of organizing, or a get-rich-quick scheme. But amid this debate, many companies are already testing a range of ways to create value — from increasing brand awareness to experimenting with new models of product ownership — using Web3 tools. These initiatives mark both a technological advancement and a new approach to corporate strategy.
Early adopters of Web3 tools are using them to get a better understanding of consumer behavior so that they can more accurately — and competitively — chart customer journeys and participate in customer communities. These efforts help build companies’ brands and power transparency around supply, production, and distribution, boosting corporate governance and sustainability credentials.
In this article, I examine how three different approaches to Web3 — virtual products, hybrid products, and decentralized ownership — can deliver immediate business value. By experimenting with each, brands can take advantage of this new era of the internet to amplify and diversify their digital footprint.
Virtual Products
Many brands are creating their own Web3 products, often in partnership with established producers of and platforms for virtual assets. Think non-fungible tokens (NFTs), Roblox avatars, Fortnite skins, or property in Decentraland. Companies retain full control over the assets they create, including how they look and work in virtual environments and digital wallets. These experiments both attract the attention of younger audiences and yield useful insights on their behavior.
Kering, the luxury holding company, has a team dedicated to Web3, and its brands Gucci and Balenciaga have unveiled several metaverse initiatives. For example, the “Gucci Garden” experience, a collaboration with Roblox, was a promotional virtual environment that people could explore with their avatars for two weeks in May 2021. As part of the event, a digital version of the real-world Gucci bag sold for 350,000 Robux (the cryptocurrency of Roblox), which is $4,115 in real-world money. Ralph Lauren partnered with Roblox in December 2021 to sell virtual winter sportswear that avatars can try on in stores in that virtual world; the company credited its strong earnings for the quarter in part to the campaign and associated investments.
The virtual Gucci Garden on Roblox allowed visitors to explore the digital version of a real-world multimedia experience that took place in Florence. Courtesy of Roblox
One downside of selling digital products is their limited applicability outside of their platforms of origin. Those virtual Ralph Lauren coats, for example, can be worn only in Roblox, not in Fortnite or other digital spaces. The virtual properties built in Decentraland, like fashion brand Philipp Plein’s building complex, exist only within it. The lack of interoperability between Web3 platforms is an obstacle to greater customer adoption and to greater utility of brand-generated tokens and properties. Another challenge is monetization of Web3 assets. Artifacts like NFTs and game skins are still mostly regarded as marketing and PR experiments and sit outside a company’s production, design, and merchandising functions.
Near term, the biggest potential of digital products is in customer intelligence. These assets, which are cheaper to produce than physical goods, can be used to quickly gauge the appeal of a product aesthetic or design, and companies can then turn the most popular virtual items into physical ones.
Hybrid Products
Another way companies are using Web3 is to enrich their real-world products with digital information. Here’s how it works: First, information about a product is recorded on the blockchain in the form of a smart contract, or transaction protocols that automatically execute legally relevant events and actions according to set terms. Data recorded might include the product’s origin, supply, production, and design, and once recorded on the blockchain, this information is immutable. The physical item thus becomes a collectible because of its uniqueness and authenticity. This allows brands to prevent counterfeiting and to benefit from secondary sales, which has traditionally been difficult to do.
For example, the National Basketball Association’s Top Shot store sells video highlights of especially compelling shots — like a clutch three-pointer from Warriors star Steph Curry or a legendary dunk from the Lakers’ LeBron James — as collectible NFT “trading cards.” Created by Dapper Labs, a blockchain company, in partnership with the NBA and its players union in 2020, these virtual trading cards include not only the highlight clip but also team-specific artwork, game and player stats, a description of the action, a unique serial number, and additional details.
Other examples show the varied ways firms are experimenting with hybrid products. The entertainment company Secret Level creates NFTs of classic TV and film scenes (in conjunction with the content’s creators) that fans can buy, collect, and trade via blockchain. Clothing company Anybodies has a line of NFTs that owners can sell, share, or redeem for its limited-edition hoodies. Coach, the luxury fashion brand, launched an NFT collection for the 2021 holidays, giving buyers a special bag that wasn’t available otherwise. Companies can even, as Adidas has done, record attendance at virtual or real-world events, like a fashion show or a collection launch, on the blockchain and reward the people who came with preferential access to new products and sales, exclusive invites to other events, and personal styling services.
Roblox and Ralph Lauren’s holiday-themed metaverse experience, Ralph Lauren’s Winter Escape. Courtesy of Roblox
The benefits brands accrue from the hybrid approach are twofold: One is verifiable information on products’ origins; the second is community-building. Downsides, however, include the energy and environmental costs of creating tokens and recording information on the blockchain. In the U.S., bitcoin mining — the process of creating new bitcoins by solving math problems that verify transactions in the currency — creates an estimated 40 billion pounds of carbon emissions, according to Business Insider.
In addition, to produce and manage these products, you need talent well versed in cryptocurrency and the blockchain; interdepartmental collaboration, with marketing, production, merchandising, and technology all coming together to develop successful hybrids; and state-of-the-art customer-relationship-management programs so that actions can be recorded on the blockchain and rewarded.
Distributed Ownership
Distributed ownership is a new brand-governance paradigm. Instead of a company selling one item to one customer, this strategy is about multiple customers sharing ownership of something via the blockchain. While I’m not aware of any traditional brands using this strategy at present, digital-first companies are. As the technology evolves and experimentation continues, all marketers should understand how distributed ownership works, since it has the potential to change the way customer communities are managed — and how product value is created and shared.
For example, Otis is a distributed ownership platform where users buy, sell, and trade SEC-securitized shares of collectibles like artworks, comics, jewelry, or fashion clothing items, thus building portfolios of alternative assets. If a consumer wants to invest in the sneakers that Michael Jordan was wearing when his dunk shattered the backboard glass in a 1985 game, for example, they could purchase a small share of the shoes through Otis or a similar platform. The consumer can then earn a return either if they sell their share or if the group of shareowners collectively decides to sell the sneakers.
There are a few scenarios for how this type of governance could play out for legacy brands. The first is a shared shopping cart. In this scenario, there are two item prices: one for individual buying and another for the shared shopping cart. When buyers select the latter, they join a group in which they can negotiate for lower prices and get discounts. A shared shopping cart is suitable for mass-market brands; it is already used by the Chinese marketplace Pinduoduo.
In the second scenario, mid-range and premium brands can encourage group buying, which gives them real-time information about customer demand. This real-time information is based on individual purchase patterns and browsing histories, but also on the purchase patterns and browsing histories of everyone in the buying group. That information, in turn, allows brands to negotiate more-favorable rates with manufacturers. The results are better prices for consumers and less risk that companies will need to offload excess inventory (and devalue their brand).
In the third scenario, for luxury brands, buyers gain shared ownership of a particularly valuable item, like a handbag or a piece of jewelry, that is either passed along through the group or treated like an investment to be later resold at a profit.
At scale, a distributed ownership platform might look like Friends with Benefits, a self-described “headless media community lifestyle brand” network, in which members have different levels of access and governing power depending how many tokens they’ve earned or bought on the collectively owned platform. Perks of membership range from an FWB newsletter subscription to FWB Discord channel access to tickets to in-person events, all aimed at forging connections, creating project teams, or pursuing joint investments. FWB is fully user-led and has become everything from a music discovery platform to a startup incubator to a meeting place for crypto investors. Fee-paying members jointly agree on the purchases and investments the network makes, and all actions are recorded on the Ethereum blockchain.
Brands benefit from distributed ownership because it generates returns on production and property rights, while consumers get tangible rewards and partial ownership. With increased market activity, the value of the token or product increases and, in return, attracts more participants that generate even more activity. It’s a virtuous cycle.
That said, when there is little or no demand, that positive feedback loop between product or token value and market activity doesn’t exist. Another risk brands face in offering decentralized ownership is lack of control. Successful decentralized platforms are still, in most cases, more proposal than reality.
This article first appeared in hbr.org
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