How Does Marketing Work In Cryptoworld?
I am bullish crypto, but don't understand the operations
Crypto is starting to go more mainstream. Of course, there are still a lot of detractors. I thought Albert Wegner’s post was good at explaining “why crypto” or “why web 3.0”, but it left a lot to imagine.
Most people need a path. They don’t want to hack one out of the jungle.
But, at least if you understand what Albert wrote about you get the “why” and the general structure of cryptoland.
As first elucidated by Adam Smith, time is indeed money. The distribution of labor is ingrained in human existence and we all know that we get gains from trading with our neighbors. They grow crops and we grow animals and we get to benefit from it.
When you look at Web 2.0, it was 100% based on advertising models. Competition for eyeballs and data happened and the companies that were successful were able to sell ads to corporates. Google and Facebook won. Old media like television, magazines, and newspapers lost. Look at their valuations, and you will see how valuable being able to market to customers is.
Also, look at the content of the news these days and they aren’t built to inform you. They are built for clicks. It’s but one reason why media is so terrible.
I believe that Web 3.0 will revolutionize a lot of things. Reading Packy McCormick’s post on non-fungible tokens will open some eyes. The thing he postulated that jumped out at me was this:
Marketing will switch from an expense item to an intangible asset.
From an accounting and investment perspective, that is a major change. When you think about how to value companies currently, you can look at marketing budgets and ascertain what their customer acquisition costs are. You sort of know the inventory turns of items and you can figure out long-term value. When it comes to software of course, the cost structure changes and MC=MR leans heavily in favor of the company producing just one more on to infinity.
One thing I have observed when new technology or a new process takes hold of the industry is this; layers of distribution get totally wiped out as creators get put closer to end-users.
The other thing that has happened with the advent of technology is that there are clear winners and losers. The winners get huge and grab more of the market share than they could before. For example, in trading there used to be a lot of consumer surplus that got divided over thousands of traders. Once trading went electronic, a few electronic trading companies grabbed all that consumer surplus from the thousands of traders. Giants emerged, and the traders who couldn’t compete were out of business. We saw that in retail with Amazon too. Sometimes, like in banking, the concentration is helped along by government regulation and policy. It repeats over and over again.
If we take that thesis into marketing, corporations ought to be able to avoid or spend less on platforms like Google and Facebook and go direct to consumer.
Crypto is also supposed to have another benefit that we haven’t seen yet. It’s supposed to democratize the consumer surplus again, allowing a large distribution of people to get value rather than one big monolithic corporation.
In cryptoland, the iron laws of economics that you learn in Microeconomics 101 will still apply. They don’t go away. However, if how you account for crypto changes from something run through the income statement to something that can be capitalized and recognized as an asset that can grow in value, we will see very different strategies employed at the top of every major company in the world.
If web 2.0 marketing was about brands and ad platforms working together to generate value from consumers, web3 marketing can be about brands working to generate value with consumers.
Okay fine. How do you do it? What’s the path?
If I am the Chief Marketing Officer of a major consumer corporation, I know how the game is played in Web 2.0. I get budget. I allocate that budget across different platforms to acquire customers, and to keep my brand top of mind with current customers. I know that the bulk of my spending is going to Google and Facebook. I track data to see where I am getting the most traction, and I adjust. I do this every year, lather, rinse, repeat. It’s not that different than Web 1.0 and prehistoric advertising except I have really really great data sets and I know my customer a lot better. I receive more traction out of each dollar I spend.
Web 2.0 allowed me to get closer to customers, but I took a different path. I am forced to use Google and Facebook. Before that, I was beholden to traditional media.
Now, Web 3.0 happens. I am the CMO. I get budget. How do I allocate it to lower my customer acquisition costs and increase my sales? I don’t think it is hiring a bunch of artists to do NFTs. I do think that is working with early adopters to the market. I don’t know that it works for broad markets. People just don’t have enough time to interact.
I think it will take longer for CMO’s to become conversant in how to use Web 3.0 than it was for them to become comfortable using Web 2.0. It will take longer to explain to the CEO and CFO too, which will slow adoption.
I think Packy’s examples of different companies messing with NFTs are good. It’s a good sign. But, I think the learning curve will be steeper. In some conversations I have had with executives at both for-profit and non-for-profit entities, they haven’t latched on to marketing with NFTs and the commonality is they are all very aggressive thinkers that embrace new technology.
Here is one small example. It’s obviously an anecdote so not a true random sample and not great data to be used to extrapolate across the entire spectrum of the internet. I use Brave’s browser. I get paid in “basic attention tokens” to use the browser and get served ads. I have been doing this for a long long time now. I just checked my Uphold wallet where my BAT is deposited and I have $304 worth of BAT. It’s nice, nicer than nothing. But, it’s still not very much money. Plus, I have to pay to convert it to cash, and pay income taxes when I convert it.
I understand it is early days in crypto, but unless the cost to acquire customers is far lower than Web 2.0, it’s going to be a long slog to get adoption. Right now, getting the $3-$5 per month I receive to use Brave isn’t enough of an economic incentive to keep me loyal to Brave. My switching costs are next to nothing if another browser where to offer me more.
I do think in back-end applications, crypto has an easier path. Back-end operations can be more easily automated. Payment systems are a prime example. You still have currency risk, and you still have some costs to convert. But, crypto should disintermediate a lot of the “distribution” as it pertains to payments.
If we look at Helium as an example, some things become a bit clearer. I can passively mine Helium and earn tokens. I don’t care who uses Helium, as long as my tokens are valuable. Helium offers a competitive network to traditional telecoms when it comes to moving information around the world. But, what’s the third leg of the stool? How do “creators” enter the Helium market and gain value?
For large-scale adoption, the path will have to be cut through the jungle. It’s going to have to be relatively easy to walk down it. We aren’t close to there yet. I think we are still on the beach hacking away at the first bushes with machetes.