EDITORIAL
First thing real quick: We're thinking about launching an editorial-style publication featuring our take on big picture developments and opportunities in the DTC space.
Our first piece focuses on Web3 and the current opportunity for DTC brands in the metaverse.
We think the space is potentially really interesting, but we would love your thoughts. After you read this piece, let us know two things on our feedback form:
Web3.
To most people, just seeing those four letters is enough to provoke a reaction.
Usually, one of the following:
And sure, some of this is earned. Web3 is confusing.
Many aspects of it feel scammy (and some of them are).
And it legitimately does have the potential to be widely disruptive.
But as for whether Web3 ends up changing the face of eCommerce as we know it, or it grows into just another sales channel for your brand, we believe it's worth dipping your toes in the water.
Because, when the time is right, the knowledge you'll gain from testing those waters could make all the difference between owning a business that dominates the transition to the next paradigm of capitalism...
Or one that misses out on a generational opportunity.
To help us wrap our heads around what Web3 could mean for eCommerce, we've partnered up with Chris Rempel (founder of The Lazy Marketer and Web3 enthusiast) to help us dissect three prevailing predictions about Web3 x DTC.
Chris is the first to acknowledge that we're at ground zero. It's early days, and the space is extremely volatile. But, despite this, Chris (along with tech’s best and brightest such as the folks at a16z, Sequoia, and many other prominent VCs) is spending a lot of time watching, studying, and working on Web3-related projects.
And if things only pan out 25% as positively as these utopians believe...
Well, let's just say the possibilities are very attractive for those in the position to benefit.
(And that could be you.)
Let's do this 🚀
Our take:
Let’s define Metaverse.
It's not Meta's (formerly Facebook's) vision of a 3D Corporate Disneyland.
It's not something out of a Black Mirror episode.
By Metaverse, we mean the connective infrastructure that will allow users to shift from one digital experience to another while retaining a persistent virtual identity.
There are a couple of pieces to this.
Firstly, digital experiences could take many forms.
They could be as full-fledged as a VR game world where you walk around, interact with other avatars, and climb ranks in the gamer hierarchy.
Although just like Elon Musk , we don’t think VR will be the primary medium. Nobody wants to live with goggles on their head all day.
It could be an AR-fuelled enrichment of the physical world, where viewing something through the lens of your smartphone camera or wearable tech lets you immerse yourself in a digital “overlay” of the real world.
And it could be a conventional 3D environment you create and manage, offering users the chance to walk around your digital storefront and purchase products and services at their leisure (kinda like Minecraft meets Shopify).
That second part, "persistent virtual identity," is really the defining characteristic of a Web3 metaverse.
Rather than existing in a walled garden, the open, decentralized future Web3 promises would give the creators of these worlds a chance to design fully interoperable systems.
In practical (DTC) terms, your customers' preferences, purchases, digital assets, and actions will transfer from one experience to another. Since it's all on the blockchain, the avatar that interacts with your brand will be one whose history and behavior you can see in full detail. Anonymous, but fully transparent.
And with that data, you'll be able to create hyper-targeted experiences that directly react to and interact with each user’s assets and transaction history.
(Yes, this raises many questions around how we’ll handle data and privacy in Web3, but that’s beyond the scope of this initial primer).
So, with that definition out of the way, let's talk about the role the Metaverse could play in eCommerce.
As discussed above, the Metaverse comes in many different forms. And we're already seeing some of them implemented to great effect in the broader market.
For instance, the integration of AR tech into eCom stores for fashion and apparel brands saw a noticeable uptick during the pandemic. With retail outlets closed and little else to do while they were trapped at home, eCommerce surged, and with that came a need to solve familiar problems in the space.
Not being able to physically see something in the flesh, hold it, pick it up, and interact with it has long been an issue for eCom brands. Return rates in the industry are 2-3x higher than B&M for a reason: it's hard to know if you'll like something until it arrives on your doorstep.
While these problems haven't yet been fully solved, the integration of AR technology in specific niches (e.g., fashion and wearables, but also household goods like furniture) has been shown to have a dramatically positive effect on conversions.
Intuitively, this makes sense. AR is the first step toward bridging the gap between physical and digital realms. For example, “Wanna try on a new pair of sunglasses? Press a couple of buttons on your phone and see for yourself!”
Is it perfect? No. But don't underestimate how quickly new technology can progress. Consider that mobile apps went from giving us $0.99 minigames (we still play Angry Birds, for the record) to world-changing disruption through startups like Uber and Airbnb in less than 24 months.
And critically... if your competitors use this stuff to offer customers a richer experience, you'll fall behind if you’re not part of the new mindshare.
As people spend more and more time in digital spaces—whether that's scrolling social media, building in-game worlds, consuming content, or doing something else we haven't even considered yet—purchasing directly in these environments will become commonplace.
Consider the following:
The more normal in-experience purchases become, the faster the Metaverse will grow by incentivizing more brand involvement and investment.
None of this is to say that Web3 will necessarily replace eCommerce as we know it today.
But could it become a massively important distribution channel for brands moving forward? Absolutely.
To be clear, the real value here is not going to be in becoming a 3D version of Amazon. True benefit will come to brands that create immersive digital experiences in partnership with other brands and experience providers.
Consider how Lego has produced Lego Movies and partnered with Forza 4. They're not just cheap marketing ploys. These are examples of genuinely valuable experiences they offer customers in different domains.
Other examples include Nike partnering with Roblox to create a 3D ‘Nikeland’ experience, and Adidas did something similar with Sandbox, a crypto-native Roblox competitor.
Even JP Morgan has dipped its toes in the water by creating a virtual HQ in Decentraland, which is more symbolic than anything… but it does signal where it sees the ecosystem going.
That's exactly the approach you want to take in the world of Web3. Consider how you can offer something radically different that pulls people further into your ecosystem.
Whether the Metaverse ends up primarily being experienced in VR, AR, conventional 3D, or some combination thereof, there are plenty of possibilities to explore.
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Alright, for starters, this prediction is somewhat of a trick statement...
Because it already is a multi-billion dollar industry.
Look no further than the uber popular video game Fortnite, where annual revenues (largely derived from the sales of character "skins," i.e., costumes) were over $2.5 billion in 2020.
That's one digital experience. And this is just the start.
Beyond Fortnite, purely digital goods have often been traded for significant sums of real-world money. World of Warcraft, Runescape, even something like Animal Crossing… players of these games exchange virtual characters, items, and accounts for physical cash.
To be clear, people playing these traditional games and buying billions worth of cosmetic upgrades are getting nothing in return apart from the joy of playing.
Now consider that a new breed of Web3-powered gaming emerges called P2E (Play to Earn). In these virtual worlds, players can truly own, earn and sell in-game assets with real-world value.
Even in its primitive forms, P2E games are already a big deal. For example, look at the Philippines, where thousands of workers quit traditional employment to grind out a better living in the crypto game Axie Infinity.
As more and more time is spent in virtual environments, the importance of status indicators in those spaces will increase.
So, much like how fashion and status goods serve an important purpose in the physical realm (ego identification, social signaling, and so on), they're likely to grow increasingly important in the digital realm as people spend more time there.
Again, this is where Web3 mechanics (NFTs) can provide something truly novel in virtual worlds: digital rarity.
We expect the ability to own your digital assets, bring them with you as you move across various worlds, apps, and experiences, and prove that they’re rare will lead to this industry dwarfing what currently exists in games like Fortnite.
All the above focuses purely on the digital domain. There's also a lot to talk about when it comes to marrying physical and virtual realms.
For instance, digital twinning (where a purchase of a physical product gives you a digital clone) is unquestionably an area that luxury/status brands should be exploring right now. Ferrari, Louis Vuitton, Hermes… they're all experimenting in this space.
Assuming digital twinning becomes widespread, it's easy to see how goods that are already "valid" status symbols in the real world could become equally valid in the digital realm.
For example, if your character is wearing an authentic Rolex (the kind that's only given to people who actually own a Rolex), that's a credible indicator of social position. In that sense, other premium brands (like Supreme, LV, etc.) could retain their dominant position in the marketplace.
Similarly, consider the potential of AR and how that fits into this dynamic. Imagine if you could verify the authenticity of a status good by seeing the equivalent of a "blue checkmark" connected to it when purchasing.
The virtual social hierarchy could be an extension of the physical one, where only those with real cash can afford the digital goods required to stand out.
For brands on the outside looking in, now is the time to consider how you could partner with other creators of immersive content/experiences to augment user enjoyment of your offering.
Maybe that's a digital-only version of your product they can flex in their game world.
Maybe it's bridging rewards you offer to your customers to help onboard them into a specific environment, and you receive a % of ongoing sales to those users via smart contracts and NFTs.
Whatever form it takes, the digital apparel industry isn't going anywhere soon. As we spend more time online, our need for social significance in those spaces will increase. And that spells significant potential gains for any brand that can make the leap.
Without a doubt, NFTs are the single most hyped-up asset in the crypto ecosystem right now.
And also the most controversial. (Care to buy my Bored Ape jpeg for $800K?)
Most people believe that the current mania is mainly speculative and that price appreciation is the only real ‘utility.’
But that sells NFTs a bit short...
If we zoom out and look past the jpeg circus, NFTs are smart contracts that basically allow someone to own a piece of the internet… kinda like a domain name.
And they have the potential to be applied in countless different ways, many of which you could put to work for your DTC brand.
There are two main types of NFTs to think about:
Think of the former as an original Picasso and the latter as buying into an exclusive merch drop from a brand you love.
And as a smart contract, you can program NFTs to do anything you can imagine.
For example, NFTs could be used to:
As NFTs are fully transferable, these rewards would be too.
Leaving everything else aside, NFTs give you a way to grant holders whatever benefits/rights/perks you want to -- essentially turning every transaction into an invoice with “superpowers.”
And that's just how it benefits consumers. There are a couple of super interesting use cases for business, too.
For instance, NFTs could be issued alongside luxury/limited-run goods as an immutable "certificate of authenticity."
People purchasing these items from an approved vendor or secondary market would be able to validate legal ownership and be assured that the product is genuine before purchasing. And on the flip side, these NFTs could be programmed to ensure that the original issuer (the company, that’s you!) gets a fixed % of any secondary sale.
While their application isn't fully clear right now, we believe it's very likely that NFTs will have a significant role in eCommerce moving forward.
If you can grant your customers rewards of any shape and size, over any length of time you choose and have those benefits as easily transferable as we expect... that's the foundation for a radically different customer lifetime experience.
All made possible with a smart contract and the ingenuity to put it to work for your brand.
We've talked a lot about what Web3 could mean for DTC. And really, that's the pivotal word: could.
None of this is set in stone. Today (Spring 2022), we're in the first act of what could be the most incredible, most market-disruptive saga we've ever seen...
Or it could be the forgettable first half of your kid's school play.
The truth? It's probably somewhere in the middle.
Whatever Web3 ends up taking away, we believe it will be a net positive for DTC brands.
And it will probably be a confusing, volatile mess for the next while as the industry finds its “killer apps.”
But if you can take this opportunity to dive in headfirst and get your bearings in these uncharted waters, you'll be well-positioned to ride those waves once things become a little clearer.
Which is precisely why we’re exploring running exactly this kind of piece on a more regular basis.
In future editorials, we’d like to continue to focus on Web3, but also cover other landscape shifting developments like live shopping, AI in marketing, TV advertising, and more…
Is this something you’d be interested in receiving?
If so, hit us up on our feedback form and let us know what you think about this format, as well as Web3 as a topic specifically.
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