Maximilian Friedrichs: Senior Strategist
Phillip Kortlang: Creative Director

The solution to extending physical products into the digital world? How scarcity for digital goods can become a global future opportunity for brands.

The digital revolution

It’s hardly news when we tell you that the digital revolution is in full stride. Accelerated by COVID-19, more and more activities are shifting to the digital space and brands are looking for new ways to stay in touch with their target audiences. In the midst of this new digital chaos, a potential that feels like science fiction is emerging.

With the booming of cryptocurrencies, an exciting topic is gaining prominence that could open up a whole new market for brands with the technology of blockchain — and this may provide the answer to the age old question of the digital extension of physical products and exclusive brand experiences: Digital Collectibles.

What are Digital Collectibles?

Digital Collectibles are digital goods that can be collected and traded, secured by the Blockchain. One example of a blockchain that enables the creation and marketability of such goods via so-called »smart contracts« (programmable contracts) is Ethereum.

The goods are stored in so-called »Non-Fungible Tokens (NFT)« that are unique and cannot be replicated or destroyed, because each NFT acts as a kind of unique certificate of authenticity. Actual ownership of the respective good is thus made possible and the principle of scarcity enters the digital space as an economic factor.

Though this may sound abstract at first, it is easy to imagine if you consider the principle of trading cards. Certain trading cards have a special value because they have a corresponding rarity and can be clearly authenticated as »original« by certain characteristics.

The demand for these trading cards among collectors in the physical space is known to be immense, depending on the game. The NBA is currently taking advantage of this principle by selling so-called »top shots« (short video clips) connected to NFTs. Highlights of Lebron James have already been traded for around $200,000. A true digital video trading card game of a worldwide known brand.

Lets think beyond trading cards for a minute : we live in times of social media, virtual reality and gaming. What if there was a whole new ecosystem for brands to add digital tokens to their physical products?

Some examples: How brands can use Digital Collectibles

Let’s envision a luxury brand selling a unique digital token (the NFT) with each of its physical products. This token enables the owner to wear the product in the digital space. Taking a luxury sneaker for example, the owner could also wear it in gaming worlds, in virtual reality or on social media (e.g. via avatars). Cross-application, everywhere—and certified in its authenticity. The concept doesn’t appear outlandish anymore. Surely you’ve noticed the sneakers Travis Scott wore in his famous digital concert in Fortnite?

Besides the transfer of the physical product to the digital realm, one can also imagine other extensions through NFTs: These range from the right to use a certain feature acquired with each sneaker sold, e.g. a face filter on Instagram, to the owner’s right to access exclusive content, experiences or services. This would create a new access management that binds customers closely to the brand by linking such extensions closely to the physical product.

Nowadays, one’s own identity is an important social currency on the Internet. Users could use these kinds of digital goods to further expand their digital identity and bring self-image and external image closer together online as well.

Other use cases include collectibles such as artwork (Christies auctioning off NFT art by Beeple, Hashmasks, Cryptopunks) or even generative music (EulerBeats) including copyright. Some of these current examples serve more as illustrative purposes than for adding relevant value on a mass scale—but they definitely show the potential of the underlying technology.

What does it mean for brands?

With tokens like these, brands can finally create digital experiences that are truly linked to their physical product. Physical and digital brand experiences are thus moving closer together and ultimately merge into a single entity that was not feasible beforehand. This allows brands to not only secure extreme reach through the digital visibility of their products, but also provide additional value to the customer by fostering excitement and customer loyalty through exclusive experiences and product-related features and services.

The marketability of NFTs could even trigger veritable new hypes driven by brands. Physical sneakers are already traded as rarities—what would a marketplace for sneaker-related NFTs look like? The owner would suddenly have kind of digital a scurity account connected to his shoe rack.

Until now, NFT users have perhaps been a narrow target group of first movers and some occasional nerd – but that will definitely change in the future: The trend is gaining momentum and the system is on its way to mass acceptance.

Conclusion

The prospective market for digital collectibles appears huge and arguably holds enormous opportunities for brands to help shape the new digital world. Established brands and new players could gain a foothold with interesting new forms of digital experiences and possible links to physical products, as could a number of new types of platform providers such as exchanges and retailers.

As of yet, the technology behind this opportunity seems difficult to understand and maybe still lacks widespread acceptance. But as the barriers to entry the market lower and the opportunities become more visible, anything seems possible.

Of course, no one can predict the future – but back then, people wouldn’t even want to pay with their credit cards on the Internet. What do you think the world will look like tomorrow?

By the way: Nike has already applied for a patent for a kind of crypto-sneaker – We can’t wait.

KEY TAKE AWAYS

  • Many brands don’t yet consider blockchain relevant, associating it primarily with digital currencies like bitcoin. Yet there is much more potential behind it with NFTs: Digital Collectibles.
  • NFTs make it possible to link digital assets to physical products and make authentic »ownership« of these assets possible.
  • Brands can use them to extend their physical products exclusively into the buyer’s digital space: by transferring the product, such as a sneaker, for the virtual closet, or by supplementing the product with, for example, access to new content or the unlocking of certain features.
  • There is still a lack of widespread adoption of the technology by established brands, but the trend is extremely fueled by the new crypto hype. Nike has already filed a patent for a type of crypto sneaker.
  • Once the barriers to entry fall, a whole new ecosystem could open up for brands and their customers, blurring the digital and physical worlds even more.