NFTs have ascended from a niche novelty to a worldwide movement that is impossible to ignore (if you are completely new to NFTs, there are tons of articles on how they work that I would recommend as a primer. Otherwise, read on). The powerful implications of how corporations can leverage them become clear once they are understood to be more than just “art but on the blockchain”, and actually fixed-supply certificates of ownership for anything. Adopting an NFT strategy produces three useful outputs at the company level:
- New channels for building long-term trust relationships with customers
- Direct revenue generation opportunities
- Developing internal blockchain competency
NFTs are fixed-supply certificates of ownership for anything
Nothing exemplifies the meteoric rise of NFTs better than the marketplace OpenSea facilitating $3.26 billion in transactions over the last 30 days (at time of writing), a 186,000% increase in monthly volume against their average from 2020.
From DappRadar
The vast majority of NFT supply has been from artists or art-focused companies producing media properties for sale. But under the hood, an NFT is just a piece of code that lives on the blockchain called a smart contract that maps token balances to users.
What those token balances represent is defined by the issuer. Art NFT issuers say that one token equals one work of art. The remainder of this piece will show how much room for growth there still is for companies to expand NFT use cases and create incredible value for their customers along the way.
Cultivating Long-Term Customer Relationships
For framing purposes, we will imagine an e-commerce company called ExampleCo that wants to use NFTs called “KARTS” to increase their sales. Although this scenario will exclude key considerations with regards to technical development, marketing, community building, and pricing, hypothetically ExampleCo’s execution was sound and they sold their entire NFT stock in the form of 250 Bronze KARTS (KARTSB), 50 Silver KARTS (KARTSS), and 5 Gold KARTS (KARTSG).
KARTS NFTs: KARTSB (left), KARTSS (center), KARTSG (right)
The NFT smart contract serves as *shared *and persistent storage that users can access through a wallet like MetaMask. Up to 305 NFT holders (fewer if anyone owns multiple KARTS) would have a view that looks something like the below image:
*MetaMask example screen. The live balance on the Rinkeby Ethereum testnet is viewable *here
Recall that of the three tiers ExampleCo released, KARTSG was the most scarce. The presence of the illustrious token in this particular user’s wallet is visible by everyone due to the shared nature of the blockchain, making it a publicly viewable collectible. They can display it however they like, and it serves as marketing for the company every time someone views the user’s account.
At this point, the presence of the NFT in the wallet only amounts to digital swag. But ExampleCo, like most companies, should not expect customers to buy something that does nothing more than advertise their brand. Instead, they can give the tokens utility in the context of their core service offering, using them to access some privilege related to the shopping experience.
One such privilege could be offering discounts on merchandise. For example, the mere presence of an NFT in a wallet can “unlock” a discount for the associated user without requiring them to spend the token. KARTSG holders would enjoy more savings than KARTSS holders who in turn save more than KARTSB holders, while non-holders receive no discount. Using NFTs as “digital coupons” in this manner provides a straightforward value proposition to the buyer, who now receives the hard benefit the token brings along with the ability to display the asset itself proudly in their wallet. Many other NFT issuers have been unable to peg their tokens to concrete value like this because they did not start with any complementary service offering.
Because the blockchain’s persistence makes it the single source of truth for digital asset ownership status, ExampleCo always has access to a real-time, untamperable record of who holds its NFTs. That gives them flexibility to add more rounds of discounts or produce other value-creating events at arbitrary times in the future, giving people incentive to hold onto the NFT for the long term.
The EV of an NFT is equivalent to the total value it will produce over its lifetime
Developing an expected value around the life of the NFTs will also produce a robust secondary market for them, which further promotes the brand. Additionally, the data about how the tokens are being traded can be combined with other on-chain data for the company to produce a robust behavioral snapshot of how the market at large is responding to their efforts. For example, if ExampleCo sees that KARTSS are being sold at a disproportionately high rate, they can infer that they need to offer more value for holders of that tier.
Creating Direct Revenue
By selling a fixed number of NFTs of different tiers, ExampleCo took a sales approach that was tantamount to a one-time liquidity event. This has been a dependable strategy for numerous NFT launches, with artists Grimes and Kings of Leon earning $6 million and $2 million respectively for their similarly structured drops.
Grimes’ “Mars” (left) and Kings of Leon’s “NFT Yourself” (right)
…taking a percentage of trade value allows them to participate in the upside of potential increases in secondary market prices.
But NFTs, like all digital assets, are governed by code. That means it is possible to program in behavior that produces revenue for the issuer long after the initial sale. Taco Bell, for example, sold a set of 25 NFTs that send 0.01% of the value of all subsequent transfers back to them. Each was initially priced initially at $1, which virtually guaranteed that they would be purchased, and now Taco Bell will enjoy the long-term benefits of receiving a payment every time one changes hands. Additionally, taking a percentage of trade value allows them to participate in the upside of potential increases in secondary market prices.
Taco Bell’s “Gimme That”
As the NFT gains value, the amount being paid back to the issuer increases with each transfer
These are only two examples for how NFTs can generate revenue. In practice, there are limitless possibilities. The ideal sale is one where the incentives of the issuer and the buyer are aligned.
Grimes and Kings of Leon found success because people were attracted to the idea of directly supporting their favorite artists, as opposed to doing so through an intermediary like a streaming service. Taco Bell leveraged their brand and social media presence to market funky, low-priced art with low risk and high upside for buyers.
Buyers also felt like they were doing good; a portion of Grimes’ proceeds were donated to climate NGO Carbon180 and part of KoL’s were sent to Live Nation’s Crew Nation fund for out-of-work touring professionals. Taco Bell stated that all NFT residuals, in perpetuity, would go to funding their Live Más Scholarship through the Taco Bell Foundation.
How any company approaches earning revenue from NFTs will largely depend on a unique blend of industry, relationship with customers, and other carefully considered factors. For example, while donating to causes was a piece of the value proposition for buyers in the above cases, it may not need to be for buyers of ExampleCo’s NFTs who are already receiving value in the form of discounts.
Developing Technical Competency
Visa notoriously purchased a $150,000 CryptoPunk specifically for exposure to the blockchain and cryptocurrency space, stating “[f]irst and foremost, we wanted to learn” because “NFTs mark a new chapter for digital commerce.” As a payments company, buying a high-profile NFT of historical significance aligns with their directive of creator enablement.
You don’t need to buy Punks or decentralize your entire company right away, but as mentioned up top, NFTs and the blockchains that power them are here to stay. NFTs are a powerful tool to create initiatives that can build customer relationships and generate sustainable revenue. They carry high upside without needing to impact the core business. Perhaps most importantly, they serve as a low-risk organizational entry point to blockchain and cryptocurrency-based applications, collectively known as the Web3 ecosystem.
The issuer can leverage the blockchain’s inherent security and community’s well-researched conventions for smart contract development, which results in removing large chunks of deployment complexity.* *Recall that blockchains are shared data structures accessible to anyone. Any given chain’s protocol protects the integrity of the data on it, meaning it serves as an always-on production backend. Launch efforts can therefore be squarely focused on token functionality and narrative.
The companies and brands mentioned in this piece have been able to experiment quickly and have enjoyed significant first-mover advantage as a result. Despite such early success stories, the space is still young. While the best time to start planning your corporate NFT strategy was 6 months ago, the next best time is now.