Note: I became curious about the Metaverse in 2020 and am now quite obsessed with Web3. The intersection of the creators ex[anding the Metaverse and the opportunities for brands to support that expansion is what I want to spend the next part of my career developing. This year I’m focusing my articles less on streaming, digital media and social platforms and more on DAOs, Metaverse platforms and NFTs. If you know others interested please share!
The concept of Web3 can be quite a confusing one as it is so broad. For a Web3 primer there are some good articles here, here and here. In essence, Web3 describes an evolution of the internet where platform ownership is not centralized (like Google, Facebook, Twitter) but rather decentralized and owned by the participants and contributors of platforms. Imagine if you were rewarded in Facebook stock for every post you made, and those who made Facebook more valuable to users were rewarded for their contribution, that’s how people envision Web3.
There was furious debate on Twitter a few weeks ago over who 'owns' Web3. On one side VCs were tweeting about 'creator ownership' like they were labor union heads and on the other you had twitter founder Jack Dorsey pointing out the enduring ambitions of venture capitalists:
One VC's tweet thread stood out because it claimed that Web3 doesn't need advertising and that tokens, the currency of Web3, are “self-marketing”:
I felt deja-vu reading his thread. When I started my career in 2009, social media had just gained steam and the dominant discourse was around how organic connection to loyal fans will kill the need for advertising. The theory at the time challenged the need for brands to spend money advertising to a random selection of the public as social platforms allow you to directly engage with the people who love your product most.
That theory lasted a moment. Then, as audiences on social platforms grew, brands wanted to grow their audiences too and demanded opportunities to reach wider groups of people. Platforms responded with advertising opportunities and social media turned into the biggest marketing money machine in history: $44B was spent on social media ads in the US in 2021.
A huge driver of this spend came from VCs. VCs seek to invest in companies that will quickly prove they can grow at huge multiples. They want to see the businesses they invest in draw huge customer acquisition numbers fast. This pressure to acquire customers means startups spend huge proportions of VC investment in social media advertising - almost 50% of VC investment in startups goes straight into Facebook and Google advertising
So it was curious to me that the VC in the twitter thread - whose investments pressured his portfolio companies like Warby Parker to plunge money into social advertising, is claiming that the Web3 businesses he invests in won’t rely on advertising to grow.
Today I'm going to look at why advertising is crucial to web3 growth and how advertising's value goes far beyond the VC definition of advertising as a means to customer acquisition.
Web3 will need light buyers to grow
When I see Web3 enthusiasts talk about the value of Web3 for brands, organisations and creators, it's usually framed as bringing them closer to their communities. This value is often in the form of tokens distributed, or NFT's sold, to loyal fans and supporters.
This is a fine strategy to get a short-term revenue boost, but long term this strategy won't allow for growth, and we have the data to prove it.
When we look at how a brand grows there are two factors behind it: frequency and penetration.
Frequency is how often someone makes a purchase (this is the primary measure of brand loyalty).
Penetration is how many people make a purchase (this is the primary measure of brand reach).
Kantar, a 30,000 person brand data analytics group, releases a yearly report that digs into the performance of brands globally.
They broke down the sources of brand growth and showed that frequency was the least likely driver of growth among the 23,000 brands they analyzed.
The reason penetration (brand reach) works better than frequency (brand loyalty) is because the slice of people frequently buying a brand's product is so small that it is insignificant.
Whether it's Coke
or Dove Soap
Or any category you can think of:
People simply aren't loyal to brands. The light-buying masses are the ones able to increase the brand penetration necessary for growth. This applies beyond brands and to creators, artists and musicians too.
NFTs do allow musicians to make money directly from their fans. But eventually they'll need to find new fans. Fans change taste and spending habits; the only way to sustain growth is to reach new people. The Rolling Stones aren't the biggest band on earth because of the life-long committed fans who attend every concert, buy every record, and collect all of their merchandise. They are the biggest band on earth because everyone on the planet knows 4-5 of their hits.
The reason advertising is so important to Web3 is because it drives penetration, it allows brands and creators alike to reach new people and grow.
However, acquiring customers is just one aspect of the value of advertising for Web3.
Advertising helps people understand brands and what they stand for. It builds comfort, familiarity and trust. Advertising spreads compelling messages to the people who need to hear it.
I see four crucial roles for advertising within the web3 world:
Communications
For Web3 to have a huge impact it can't just resonate with internet fluent coastal elites. The universe of crypto, DeFi, DAOs and NFTs is a confusing, complex and alien one for mass audiences. Simple communications, compelling education and distinct branding is crucial to bring in the diverse audience necessary for the Metaverse to impact the world.
Platform growers
Once you have comprehensible communications, you need to reach the right people. Currently a lot of the Metaverse platforms I track only market themselves to Web3 insiders on twitter, this is the marketing equivalent of preaching to a choir. For platforms to have true impact they need to reach people outside of online worlds. Advertising can help establish the link between the masses who live in the ‘real’ world and the Metaverse.
Launch orchestrators
A lot of the NFT launches I see have a very similar launch program. There’s a tease on twitter, an insiders drop on Discord and then a public launch on OpenSea. Eventually, as more NFT projects compete with each other, this pattern will struggle to get attention. Advertisers are experts at crafting the minutiae of launches, we know how to reach people in unexpected ways that demand attention.
Brand mediators
Wherever audiences exist brands will follow. The danger of brands entering Web3 is that they could degrade the experience with ads that pollute Metaverse environments. There is an exciting, blank canvas opportunity to create brand partnerships that add layers of experience and value to Metaverse platforms. Vans has pulled it off with their Vans World Roblox experience, the Australian Open did it with their NFT integration. A Metaverse with billboards everywhere you look is a very Web2 outcome no-one wants, advertisers can act as a mediator between platform and brand, ensuring a win-win outcome for both parties.
Last year I joined Matthew Ball’s Open Metaverse DAO and have witnessed first hand the demand for simple communications around the DAO’s purpose and vision. DAOs are decentralized by design, which can lead to inefficiencies in creating output. Having a strong vision, communicated simply and with effective techniques to both participants and supporters is critical to the success of a DAO.
One of my favourite quotes on the importance of advertising is from David Droga: "Everyone hates advertising until they lose their cat". In the short term some might not see a need for advertising on Web3; but as competition increases, fan value erodes and the Metaverse expands, advertising will play a crucial role to support the growth of a massive, and massively diverse, Web3 space.
For my next post I am going to dive deeper into that crucial role, exploring the marketing strategies, tactics and opportunities that exist within Web3.