I originally published this piece via Interlace Ventures
Interlace Ventures is an early stage VC investing in the future of commerce. For the past few months, we’ve been exploring the intersection of Web3 and commerce, specifically in the context of modern brands/retailers and their engagement with consumers.
The conversation about Web3 and brands has largely been centered on NFTs and brands’ respective NFT projects. These types of projects are just one permutation of NFTs. Given the programmability and transferability of NFTs, there is a much larger opportunity ahead for brands to leverage this technology beyond the digital art that has generated hype over the past few months.
The fundamental ethos of Web3 is about enabling the distribution of governance and ownership, i.e. it has the potential to facilitate new forms of incentives in a more efficient manner than traditional technology. This gets interesting in the context of the continuous innovation across customer acquisition, retention, and loyalty.
“Shopify for NFTs”
In recent months, we’ve seen numerous brands launch NFT projects, including Adidas (Into the Metaverse) and Dolce & Gabbana (Collezione Genesi), as well as emerging and crypto-native brands (Poolsuite, Bored Breakfast Club).
The barriers for brands to launch their own NFT projects are lowering, with multiple startups building products in the space. Examples include Novel Shop, Rare Circles, PERC, Mintgate, and many others. Essentially, these products enable brands/creators to launch NFT projects directly to their consumers while owning the entire customer journey. They are often described as “Shopify for NFTs”, i.e. whitelabeled marketplaces and storefronts, and will typically offer the ability to build/design custom storefronts and allow brands/creators to create and mint NFTs (i.e.. upload various layers and generate NFTs with unique combinations of these layers). Several of these NFT commerce solutions also offer the ability to structure and deploy plug-and-play, token-based loyalty schemes in which customers can earn and accrue tokens based on their behavior as a customer.
Simple onramps and ease-of-use are crucial, especially at a point in time where the majority of consumers don’t yet have a crypto wallet (the number is still in the low hundreds of millions, representing just over 1% of the world’s population). Enabling NFT purchases via credit/debit card payments can act as a significant step towards making NFTs more accessible to a wider base. Shopify’s recent foray into the world of NFTs enables this, allowing these “DTC NFT” products in their ecosystem to utilize Shop Pay for NFT purchases.
Although these products are still at various stages of completion, one thing is certain: brands are willing to leverage Web3-native tech in an effort to create rewarding experiences for their customers.
Brands x Web3
The technology allowing brands and retailers to launch NFT projects and distribute tokens to customers will soon be ubiquitous. Integrating this infrastructure into a long-term strategy is imperative.
In my opinion, several legacy brands have launched NFT projects that come across as rather off-brand and opportunistic, simply capitalizing on hype rather than being part of an enduring strategy.
MeUndies was recently met with backlash from many of their customers after announcing on Twitter that they had joined the Bored Ape Yacht Club.
Given their widespread appeal among certain demographics of consumers, NFTs in the form of collectable digital art may be helpful when it comes to onboarding consumers to Web3. However, the focus on tokens, whether NFTs or not, may actually act as a distraction. Do the majority of customers need to know if they are interacting with an NFT any more than they need to know if they’re interacting with a Shopify or Magento powered e-commerce store? This terminology adds a layer of complexity that most consumers don’t yet understand. As time goes on, we will likely see brands move away from this terminology and/or elect not to adopt it in the first place.
Regardless of what terminology brands use when communicating with their customers, tokens should provide their holders with unique benefits (“utility”). Ultimately, brands and their consumers will determine what “utility” means for their community, and to what extent the mechanics will exist in the background versus front and center. However, potential examples of utility include rewarding specific behaviors such as UGC creation or survey responses, spending incentives that unlock a higher tier of loyalty/status, access to exclusive product drops, collections, and events.
Prior to Adidas's NFT drop several months ago, Adidas directed members of its CONFIRMED app to collect a POAP (read more about this here). At the time, it was unclear what holding a POAP would unlock, but eventually, Adidas POAP holders were whitelisted for an actual NFT drop. In this scenario, members of the CONFIRMED app were rewarded for their loyalty.
Several of these examples may sound like existing engagement and loyalty schemes already used by brands; that’s because they are. However, the way brands will leverage tokens in the future will undoubtedly evolve over the coming months and years as new models and applications will emerge.
As mentioned earlier, Web3 enables the distribution of governance and ownership in a more seamless and peer-to-peer manner than legacy technology. This can enable ways for customers to participate in the development of new product-lines (co-creation, distribution of governance) or to share financial upside in the brands’ economic success (ownership, new incentives). We’ll also see interesting strategies leveraging NFTs to bridge the IRL and digital worlds and incentivize IRL purchases, attendance of events, etc.
It is impossible to predict how this space will evolve. However, we believe that the forerunners will likely be brands with crypto-native communities that are already aligned with the ethos of Web3 (e.g. Poolsuite, Bored Breakfast Club, etc.). These brands tend to have a strong bias towards experimentation, and although they may not necessarily garner the level of attention that incumbents do, they will leverage this new frontier of technology and show the incumbents the way forward. As with anything new and exciting, it’s important to lean in, but it’s essential to do so thoughtfully.
If you’re building at the intersection of Web3 and commerce or if you’re an investor/operator who wants to chat then please reach out via Twitter or email (erik@interlacevc.com)