This article was co-authored by Dan Holland, SVP, Product Solutions and Megan Keane, Senior Strategist
First, what is an NFT (Non-Fungible Token)?
NFT is the latest acronym that is taking the marketing industry by storm, and possibly the world. Dan Calladine, Global Head of Media Futures at Carat, defines Non-Fungible Tokens as “an encrypted digital certificate that can be attached to a piece of content to establish the ownership.”
We can break it down further, as such:
Non-fungible = Unique, one-of-a-kind, non-interchangeable
Token = A digital, easily verifiable asset, built and stored on a blockchain
On the surface, the value of non-fungible tokens or NFTs can be confusing. To understand this, it's important to understand that it’s not the pixels that are valuable, it’s the undeniable proof of authenticity and provenance that is attached to it.
As an NFT allows a persistent record of origination and ownership, the original creator can receive a portion of any proceeds if re-sold, creating an annuity stream of revenue. This is sure to disrupt the business models of many industries, especially those that deal with Intellectual Property (IP).
Are NFTs cryptocurrency?
One should not misconstrue an NFT as a cryptocurrency although they do share some similarities i.e. created and stored on blockchains such as Ethereum.
As The Verge puts it “a bitcoin is fungible — trade one for another bitcoin, and you’ll have exactly the same [value]. A one-of-a-kind trading card, however, is non-fungible.”
Are NFTs a fad?
There is certainly a lot of buzz and NFTs have some classic hallmarks of a fad:
- Speculation as an asset class:
- Movement from industry press to mainstream press:
- Everyone from your boss to your grandma is asking what an NFT is:
- 81% of Americans are “aware” of NFTs according to an Adweek/Harris Poll survey
Brands are jumping to be first to the market:
So, should businesses and brands care about NFTs?
Right now, branded NFTs are experiments. Brands connected to internet culture, like Pizza Hut and Taco Bell, can harness them to garner engagement and headlines. However, as the hype around NFTs fades, broader use cases will become more apparent. While ‘collectible’ NFTs still could act as a fun brand building move, by focusing on the fad you may miss the bigger opportunity.
Some of the possible opportunities for brands are:
Digital Collectibles: Minting unique or limited-edition digital assets to drive brand interest and scarcity. For example, Top Shot from the NBA turns game highlights into NFTs so fans can “own basketball’s greatest moments.”
Bridging the Physical World: To date, most NFTs are purely digital assets, but some brands are connecting them to physical goods. Nike, for example, has patented shoes as NFTs, or CryptoKicks, which allow users to ‘breed’ custom sneakers that may then be manufactured in the real world. An NFT could also be a gift with purchase to a physical product such expensive wine or a car, leading to incremental value appreciation.
Access to Content, Services & Experiences: In early March, Kings of Leon became the first popular band to offer their latest album as an NFT – and they won’t be the last. Musicians have a continuous use case both in terms of bringing their unique music and content to fans and D2C ticket sales that cut out the intermediaries and resellers like Ticketmaster. This goes for different types of artists and live events as well.
Monetization of Intellectual Property: Similarly, to the King of Leon example above, many brands have unique IP that could be leveraged within the NFT construct, not least entertainment, and content brands. You can easily see this extending further into categories such as fashion and luxury, with Gucci for example recently announcing that their movement into NFTs is imminent.
Authenticity of Ownership: There are also opportunities for businesses that don't deal in “digital assets”. An NFT could just be the digital certificate that represents a real-world asset like a real estate deed. Storing ownership verification on blockchain turns a cumbersome process into a seamless, secure transaction.
Membership & Identity: As we think about digital identities and storing of personal data, the underlying technology behind NFTs could have an incredible impact. Companies like Microsoft are bringing cross-platform NFTs to games, enabling gamers to carry their gaming assets with them to unlock perks from different games.
Retention & Loyalty: NFTs also have the potential to create consumer delight and enrich the consumer-brand experience. Brands can attach NFTs to a reward system for loyal fans, using CRM to customize the offers encoded into the NFT such as free gifts, discount or access to exclusive content or VIP programs.
What are the key considerations for brands?
- NFTs can be a fun brand-building move, but in order to stand out in the noise, real creativity needs to come into play
- Really think about the value to consumers: 57% said they would be interested in Nike NFTs, while only 13% said they would buy a Charmin NFT (Adweek/Harris Poll)
- Currently, the opportunity is greatest for brands that deal in IP i.e. entertainment or have a focus on design i.e. luxury/apparel or automotive
- Today, the process behind NFTs is energy-intensive and there is risk of reputational damage from consumers who equate this with environmental concern. Dive deeper on The Verge.
Like all emerging technologies, brands should carefully consider how best to leverage NFTs to drive incremental benefit to their business, product and brand. If used correctly, NFTs have the ability to do all three.
At dentsu, our promise is to help clients navigate, progress, and thrive in a world of change and be champions for meaningful progress. We stand-by to receive your questions and help you navigate this opportunity. Get in touch>