Demystifying NFTs and why Corporations need to start thinking about them

NFT? Few individuals and organizations are familiar with the term, and less can correctly define it. Yet, the pandemic has accelerated the advent of this new technology taking both the crypto and business world by storm during 2020 and 2021.

According to a survey of American adults, “2% say they are very familiar with NFTs” NFT Market Analysis

Let’s start by defining it:

• NFT = Non-Fungible Token
• Non-Fungible = One-of-a-kind; cannot be changed once created or exchanged equally for an asset of a like kind. Example: The original Mona Lisa cannot be equally exchanged for a replica, though the art appears identical, therefore the original piece is non-fungible
• Token = a small piece of data that you can own

Put that together, and NFTs can be defined as a one-of-a-kind digital token (or piece of data) that certifies true ownership over a unique digital asset that cannot be replicated. Using the Mona Lisa example above, no 2 exact NFTs can exist and for that reason the original carries immense value, since there’s only 1. The “provenance” of this piece, as it’s referred to in industry, means that only 1 original can be traced back to its original creator. To that end, NFTs carry with them an element of scarcity and by creating this scarcity in the digital world, they can quickly become valuable. How valuable? Here’s a list of the top 10 NFTs ever sold, with the most recent fetching up a cool $91.8 million this past month, Top 10 most expensive NFTs ever sold

Now, without going too far down a rabbit hole, NFTs are also a crypto asset. Therefore, their existence is enabled by cryptocurrency technology, such as blockchain. Blockchains like Ethereum validate the minting, or creation, of NFTs on the blockchain and record its unique identifier on the digital ledger to make the NFT authentic and unable to be manipulated. Once minted, the NFT can be traded and sold, just like any other collectible for personal use, or to support a brand/artist you like.

So what exactly can be considered a NFT? The short answer, virtually anything. Who can become a participant? Pretty much any individual or organization one who wants to be on the creator or collector side of the equation. NFTs are a global shift into the still nascent participation of digital assets and how one can be created, bought, valued and exchanged. Moreover, they have quickly become the digital analog of many physical real-world assets and currently represent objects such as: digital artwork, photos, music, videos, in-game items, etc. And just like any hot new asset category that gains momentum, so does its desirability which, in turn, attracts new users. So far in 2021, consumers have transacted at least $26.9 billion across NFT marketplaces (2021 NFT market report). That’s more money produced in one year than of some of the world’s largest companies, which certainly affirms and demonstrates a strong interest associated with this asset. But it does beg the question, what’s the long-term benefit to both the retail and corporate sides of the market aside from just a digital collectible?

The influx of attention and investment in NFTs has been nothing short of remarkable and the sale numbers speak for themselves. It is also looking less and less likely to be a fad-driven hype as conversations around the topic by corporate executives behind some of the world’s largest brands have already begun. The questions front and center in the debate surrounding NFTs is, can brands use them to attract more customers and is there long-term sustainable utility? Research firm Gartner seems to think so, and believes that NFTs are well underway to becoming embedded within an organization’s brand strategy at scale.

“By 2024, Gartner predicts that 50% of publicly listed companies will have some sort of NFT underpinning their brand and/or digital ecosystem presence.” Gartner Top Predictions for 2022 and Beyond

Though it is too soon to tell how accurately that prediction may play out, what we do know is that many corporations this past year have had to succumb to the radical shift from physical to digital catapulted by the pandemic. Some even proactively ventured into the NFT space and have intentionally put themselves in the spotlight. Listed below are a few of the world’s largest firms, by industry, and how they are entering the NFT space.

Apparel, Footwear & Accessories

• Nike — Nike acquires NFT collectibles studio RTFKT
• Adidas — Adidas’ first 1st NFT drop earns $23 million

Beverage

• Coca Cola — Coca-Cola to Offer First-Ever NFT Collectibles in Charity Auction
• Pepsi — Pepsi announces brand’s first-ever foray into world of NFTs
• Robert Mondavi — Robert Mondavi Goes NFT with Bernardaud Bottles

Sports

• NBA, NFL — (1) NFT deal to create exclusive digital video highlights; (2) Warriors Announce First-Of-Its-Kind Partnership with FTX

Publishing

• Artifacts — Collectible NFTs from a Chinese publications 118 years of archives

Hospitality

• Marriott — Marriott Bonvoy Debuts Travel-Inspired NFTs

Payment

• Visa — (1) Visa jumps into NFT craze for $150,000; (2) Engaging Today’s Fans in Crypto and Commerce
• Mastercard — Payments giant has minted its first NFT teaming up with Jose Mourinho

Notice how most of these brands are familiar. Not only are they familiar, but they are companies who all share rich heritages with very devout consumer bases. A consumer base that can probably easily associate different moments of joy or different purchasing experiences with the respective brand. This shows that there is vast interest in the unique value proposition created by NFTs, one where digital scarcity and verifiable ownership can benefit brands looking for new marketing strategies to engage with customers.

The companies listed above have wasted no time in being early adopters of this space. Of course, these are also multi-billion dollar firms willing and able to make large bets too, but in this rapidly-changing business and tech world we live in, a first-mover advantage cannot be underestimated. Being aware of cutting-edge technology and understanding how it can benefit the business and bottom-line, is a key to growth. CEOs of firms watching on the sidelines need to take note and realize that taking action will be more effective than taking no action.

While not all consumers currently are clamoring for NFTs, there are enough buyers that brands should not want to miss out on. That being said, studies do show that active NFT consumers are avid about wanting brands to indicate and clearly define what their long-term brand strategy is and how NFTs will play a role. With what we’ve seen so far, it’s still an area that needs a lot of work. Currently, NFTs can be seen as leverage to unlock new experiences for customers, to boost their digital presence by celebrating elements that are core to the brands, and to solve community conversion or retention problems.

As these strategies get more refined, the focus will be on being able to meaningfully engage with the customer, blending elements of both the physical and virtual world. Using Nike as an example, their brand has a very physical medium that allows them to engage with consumers. With their recent acquisition of a NFT company, they now have a way of rewarding their customers through digital representation, which can be anything from auctions for a new limited series of Nike items, or in-person events. Discovering the utility and integration of this new technology and how it will affect the ability for brands to expand and maintain relevance will be where the important conversations are had.

It’s worth mentioning that NFTs do seem to be a common ground in terms of new technology adoption for C-level executives. Just look at how quickly some of these well-established names mentioned above have entered the space. And whereas a lot of time has been spent over the last few years talking about the economic and cost-benefit blockchain disruption can have, it’s still very complicated. NFTs are not as complicated, are visually appealing, and have great potential use-cases as marketing tools.

That being said, NFTs won’t make sense for all brands, but that’s ok. But at the same time, being a first-mover in this economy will only present opportunities to capitalize on this emerging digital asset class. The financial commitment made by many of the firms listed above (and others) to invest heavily in this space is already underway. The NFT ecosystem will change how consumers engage with a brand and make those experiences more interactive, and the line between the virtual and physical will become much thinner.

The long-term value in this asset will be in organizations creating an intimate consumer-centric strategy that educates consumers about engaging with their brands in a seamless way. To get there, executives will need to assess the relationship they have with their target audience to commercialize NFTs in a strategic way that aligns with the overall brand strategy. Consumers will then have to be able to easily buy into the idea and have control of those digital assets. Only time will tell how effective these strategies will be and how NFTs will continue to add value, but its clear that companies are taking the digital asset class and collectible space more than seriously.