English Version for 《打造web3品牌灵魂 3 问-Why, What, How》，Specific thanks to the translations by colleagues of @Treasureland @Christine 郡主

Foreword

Here are two very relatable news recently:

1. Starbucks just announced its first foray into building with web3 technology, the giant coffee chain is implementing blockchain technology for customer loyalty programs;

2. The top bluechip NFT project doodles has closed a $54 million Series A fundraising round at a $704 million valuation as it’s preparing to build a worldwide native web3 brand.

On one side it’s the top-level Web2 brand pivoting to the Web3 world, and on the other side is the native Web3 brand’s rapid growth, which we have come to the night before the explosion of web3 brands.

I've read a lot of articles about web3 branding, but they are more about HOW. When I talked to my web2 friends, the biggest confusion is about WHY: why do we need to do this, what does web3 branding mean, and how is it different from web2 branding? Once these questions are clarified, traditional brands will have a more comprehensive understanding and preparation before taking the step of why and exploring what and how to do it. Using the "3 Soul Questions" model from my favorite podcast "Wenliliangkaihua", I will try to answer these 3 soul questions about Building a web3 Brand: Why, What, How

1. Why: Why is web3 necessary for brands?

2. What: What kind of categories are suitable for web3 branding?

3. How: How to build a web3 brand, including mindset shift / skill tree / case studies

And in the end, I would like to give you 3 very practical questions and answers

1. What is the most important thing to build a web3 brand at the beginning

2. Why I strongly recommend the membership card to NFT

3. Final advice for traditional brands entering web3

After reading this article, I hope you will get the following takeaways

1. If you are a traditional brand, I hope this article will help you (and your boss) to be more determined to move to web3 and understand how to better meet the new needs of the GenZ generation of users, with examples and suggestions in this article.

2. If you're planning to build a web3 native brand, I hope this article will help you better choose your category, design your product, and cold start your community.

3. If you are a web3 user, great! I hope the methods in this article can help you find a better community-driven brand, and build a win-win situation for both the community and the brand.

WHY: Why is web3 necessary for brands

Let’s further break it down into 2 sub-questions

1. What are the challenges that traditional brands face?

2. What are the customer demands that can only be met by web3?

1. What are the challenges that traditional brands face?

The problem with Web2 brands is similar to the problem that centralized platforms have. How can a brand avoid conflict of interest with their customers in different periods of time?

• In the long term, brands and customers’ interests coincide, otherwise the brand wont survive

• But if we look at the short term, Web2 brands often sacrifice customers for the brand’s benefit, sometimes they even become competitors; In Web3, customers are also the owner of the brand, so it basically eliminated situations like this unless the brand choose to suicide

There are same discussions about that in Chris Dixon’s article Why decentralization matters 4 years ago

When they hit the top of the S-curve, their relationships with network participants change from positive-sum to zero-sum. The easiest way to continue growing lies in extracting data from users and competing with complements over audiences and profits. For 3rd parties, this transition from cooperation to competition feels like a bait-and-switch. Over time, the best entrepreneurs, developers, and investors have become wary of building on top of centralized platforms. We now have decades of evidence that doing so will end in disappointment. In addition, users give up privacy, control of their data, and become vulnerable to security breaches. These problems with centralized platforms will likely become even more pronounced in the future.

2. What are customer demands that can only be met by web3?

Let’s look at what changes NFT/ERC-20 Token will bring to customers/community/brand

1. Customer:

   1. Customer demands upgraded from “consume” to “consume+asset+digital identity”

   2. Customers are promoted to “self-sovereignty individuals”, brands are not only about consumer goods anymore, it’s become the customer(Token holder)’s personal asset. Customer will put more emotion and effort in it to help brand/personal asset grow, in the mean time, customers will have stronger creative motivation to help the growth keep going.

   3. Genz are more willing to build an unique digital identity to show their individuality and to have it as their mateverse PASS, things like that can only be done with Web3 technology

2. Community:

   1. Brands have always struggled with forming tight and active communities, but with Web3, customers are starting to have more practical ways to get involved, so the community members have deeper and stronger connections with each other, and it will gradually form an equal partnership with the brand. Water can carry a boat, but can also overturn it, a strong community can speed up the growth of the brand,but also can FUD(Fear,Uncertainty,Doubt) the brand.

3. Brand:

   1. Based on above discussion, a brand has to be able to fulfill new users’ new needs to avoid falling behind the times

      1. With the increase of users’ digital virtual consumption, traditional brands have to plan early to be able to provide digital products for their users, combine Web3 technology with physical products. Nike was the fastest one among them, it has created more than $185 millions revenue, ranking No.1 on the list of brands with the most NFT revenue in 2022.

   2. Brands need to create symbiotic relationships with their users to share benefits instead of the traditional relationships of consumption.

In conclusion, users changed, demands changed, market needs products and brands that can fulfill the need of “self-sovereignty individual”, Web3 is essentially rebuilding the relationship between brands and customers, it has even changed the ownership of the brand, it’s giving customers the opportunity to become the owner of the brand, the philosophy behind it is same as crypto, like user asset’s authentic right, it is the true “user first”.

Let’s elaborate on the “symbiotic relationship”

1. Genz customers need Web3 technology to build their digital identity, to own brand asset and to earn more benefits at the same time. For users, they are not being consumed and objectified by brands anymore, they share the ownership with brand to help build up the business for their own benefits. And in this process, user community will become tighter and stronger than ever.

2. For brands, they lowered costs, that includes customer acquisition cost(CAC), product definition, testing and marketing. Withe the help of a tight community that shares the same vision with the brand, business can scale up very fast.

Native Web3 brands with strong competitiveness will be born from this type of symbiotic/win-win relationship, and in a highly competitive market, traditional brands will start actively pivoting to the Web3 world, because in the end, if you don’t ride with the wave, you’ll be left out.

So here we answer the question at the beginning

Q: Why is web3 necessary for brands? A: Because only web3 brands can meet the trinity of "consumption + asset + digital identity" for "sovereign individuals". web3 brands are not only about changes in marketing and revenue structure, but also about meeting the new needs of new users, the change of mindset, and building or reconstructing brands from It is a change in mindset, building or reconstructing the brand from the user's originality.

What: What brands can leverage Web3

What brand can leverage web3? My answer is all brands that are motivated by community. Users can participate in product definition, production, testing and marketing, and a part of the revenue goes back to the community, it’s a win-win situation for both the brand and users, token is responsible for the user participation and profit distribution.

The brands should meet following conditions:

1. Low cost of production

2. Short testing period

3. With a wide range of categories of products, easy to form a brand

Theoretically speaking, categories that require mass testing usually meet all above requirements. To be more specific, clothing, F&B, and drama are all perfect categories.

How: How to build a Web3 brand?

“How to build a Web3 brand?” is a huge topic, there is no so-called “best practice”, most of companies are still exploring the field. And this section will try to answer this question in two parts, hope to give readers some insights.

1. The key differences between Web3 brands and Web2 brands, as well as the core skill tree that brands need to build

2. 4 case studies

The key differences between Web3 brands and Web2 brands, as well as the core skill tree that brands need to build

1. Win-win strategy 1: community first, “brand-community” bidirectional relationship

   1. Compare to Web2 brands’ “brand first” or “ product first”, as well as the “ brand-customer” unidirectional relationship, Web3 brands need “ community first “, and “ brand-community “ bidirectional relationship, so why “community first”?

   2. Chronologically, community first brand later : There are not only consumer goods behind the brand, it is also Token holders’ personal asset, consumers are also investors, so much so that customers are investors first and then customers, because building consumer goods needs time ( 3 months - a year ), and initial fund is needed, so we need to establish “investors community” first.

   3. Ownership, community first brand later: Since users have investor/customer double identity, as owner of the brand, users have the right to participate in brand identification and construction.

   4. Importance , community first brand later: brands have established bidirectional relationship with communities, it’s not just using communities to grow and scale, community members are also investing more emotions and energies to help brand/personal asset grow. And this process created strong community consensus, and brand’s long-term prospective is depended on this consensus. Communities are the foundation of the brand, a brand with communities is like a tree without roots, water without source.

2. Win-win strategy 2: derive community and brand grow organically, expand brand’s Eco-system

   1. This is one thing very different about Web3 brands, the derive community and brand Eco-system can give back to the origin brand and help it grow bigger

   2. Unlike Web2 brands most Web3 brands authorize their IP to NFT holders, CCO brands even authorize their IP to everyone. Community members can use their holding IP or CCP IP to create derive communities. on one hand users can start their derive brand business, and on the other hand brand can grow their influence and life cycle, creating a win-win situation

So we have talked about the different mindset when brands start pivoting to Web3, let’s take a look at the different skill trees between Web2 and Web3 brands, we can tell from the following chart, the foundation of Web3 brands is community, the biggest challenge in building a Web3 brand is combing business with “community”, in conclusion, building a Web3 brand is building a community.

Case Study

1. Web3 community incubated brand: FWB X Taika

Taika is a coffee start-up brand, and they were trying to come up with a new sub-brand with a new product - Yerba Mate, but instead of working in on their own this time , they choose to partner with FWB(Friends With Benefits).

• FWB is considered the most creative DAO so far

• FWB has a very strict application system: a certain amount of $FWB token is needed for the application which is reviewed on a rolling basis by a committee of current members. All the members can bring their unique perspectives to the community and hold $FWB token together.

Partnership:

1. Partnership scope: Brand investment, Flavor design, Testing, Marketing and Revenue distribution.

2. Brand Investment: FWB use their own Tokens to invest in the Yerba Mate brand

3. Flavor design, testing and marketing

   1. FWB member can apply to join a paid working group to work with Taika’s colleagues on product development, flavor and package design, and marketing materials.

   2. After the product development, the brand decided on two flavors, blue can and red can. FWB community issued 500 NFT and buyers can redeem for a box of beverage, base on the taste of the flavor, buyers can vote for the flavor to go on the market. Note that this series of NFT is open to public to purchase as well, so it actually created a derive community for the new brand.

4. Revenue distribution: Revenues from selling the new product are split between Taika and FWB, FWB gets 18%.

Now let’s take a look at some of the benefits Taika gets from working FWB

1. The NFT issued by FWB actually created a derive community for the new brand, it solved the problem with Cold Start and guaranteed the quality of community members.

2. Through investing with FWB Token and sharing the revenue, FWB members actually became the owner of the brand, it gives them stronger motivations to help with the brand to create and sell more products. Isn’t cool to tell you friends that you helped with designing the beverage?

Some people will argue that a lot of F&B brands have a/b testings for their flavor and package design as well, some even have internal staff testing, how is that different from FWB X Taika?

1. the biggest difference is the relationship between the brand and customers, in Web2, customers are often forced to accept the decisions made by the brand, it’s hard for them to have a sense of identity and initiative, even for most employees, their work is jus a job; but for Web3, the true owner of the brand is the community members, and that gives them totally different perspectives on the brand, and it is the difference that makes the brand grow.

2. please repeat after me, the key difference between web2 and web 3 is: community, community, community :)

BTW, after the partnership with Taika, FWB made the decision to work with Hennessy and Reebok, successfully went from a start-up company to a top international brand.

Thanks Chao for sharing this case study on Web101 Podcast

2.Derive brand created by NFT holders : Yuga Labs/BAYC derive brand

Even though most people’s first impression about BAYC is celebrity’s profile picture, it did  bring an innovation that has huge impact on the whole NFT Eco-system - IP commercial licensing

• after the purchase, the NFT IP will be licensed to the holder to use including commercial use

• CryptoPunks was issued without any content license until the acquisition, and it has made them pretty controversial, what did users actually buy?

• BAYC’s commercial IP licensing is groundbreaking, it added more benefits for granting IP, what buyers get is more than just a pic, it’s the IP value.

A great deal of BAYC holders use their IP licenses built close to 80 derivative brands in different fields, including fashion, music, food, beverage, skateboard, basketball, club, podcast, games, etc. BAYC IP and the community helped these derivative brands with cold start, the derivative brands also enhanced the original IP’s effectiveness, expanded the Eco-system, attracted more users.  In the end it’s the win-win situation for both the original brand and the derivative brands.

Forj CEO Harry liu gave very detailed information about the 80 IP in the twitter thread

3. CC0 enthusiasts to establish derivative brands: Mfers derivative brands

First, let me quote a paragraph from a previous article on CC0 to quickly understand it

CC0 stands for Creative Commons Zero Copyright Agreement. The adoption of this agreement means that the author renounces all copyright in the creation and the creation enters the public domain, becoming the common intellectual property of humanity. In plain words, this means that everyone can use CC0 creations, including commercial and secondary creations. The BAYC (not CC0) mentioned in the previous subsection opens up IP Rights to the owner. Li Ning bought BAYC #4102, so Li Ning can put this monkey on posters and T-shirts (other monkeys that are not held cannot) mfers Since it is a CC0 agreement, whether you have mfers or not, you can freely use 10000 mfers, including your own use (printing T-shirts to wear), commercial use (printing T-shirts to sell), secondary creation...

According to incomplete statistics, there are more than 50 mfers derivative NFTs and countless offline cafes using mfers, which is no less than the top brand BAYC in terms of quantity, although the price is less than 1/50 of BAYC. How did this happen and why did these spin-off brands choose to base on mfers?

My own summary down to 2 reasons

1. The mfers meme "Are you winning son?" is already a household name in European and American culture, plus the creator Sartoshi's unique operation, which makes the mfers IP have a certain popularity and community base

2. Due to the CC0 protocol, mfers has become the first choice of many brands to attract web3 users or GenZ users, as it is available to everyone at no cost or even commercially. For example, Meta Space in Beijing, OFFF in Shanghai, and social beast in Hangzhou, all three web3-themed cafes coincidentally use mfers as decoration, further enhancing the influence of the original IP.

4. Co-creation of animated episodes: Shibuya

The previous examples are all about physical consumer goods, but finally we introduce another cultural and creative category - the animated series.

Below is directly quoted from Shibuya official website

Shibuya is a web3 video platform allowing users to engage, fund, decide outcome and become owners of long form video content.

White Rabbit is the first piece of media that will be launched on Shibuya, in which every episode will present alternative endings. User voting/staking will decide which direction story will progress.

How does co-creation work? If you have their Producer Pass NFT, you have the opportunity to decide alternative endings in every episode. And after you win, you can get more ERC20 tokens

Further more, White Rabbit collaborates with Top animation NFT Azuki, if you’re an Azuki holder, you can join a vote to decide whether your PFP appear in the first season of the anime, wow! BTW, the whale dingaling won this vote

Isn't that interesting? Animated episodes are great for community co-creation, compared to novels, the holders themselves are emotionally invested in the PFPs, and if they can appear in the screen episodes, it will greatly motivate the holders to participate, contribute to the content and promote the episodes. At the same time, this is also a win-win strategy, through community participation, the animation series itself gains more attention and commercial value, driving the corresponding Producer Pass NFT to add value; at the same time, the holder's PFP also adds value through exposure, imagine your PFP becoming a movie star!

3 other important Q&As

1. What is the most important thing to do initially when building a web3 brand?

Bringing in the right community members and defining the right OKR and North Star metrics.

Because the community is so important to the web3 brand, and the initial community members will have a very large impact on the consensus, there needs to be a very strict membership selection at the beginning of the community, as well as setting a reasonable NFT launch price. In today's market environment, most NFT launches bring in "traders" and focus on short-term benefits; however, brands want users who are "creators" and "consumers" who bring value in the long term ". But even traders can't be ignored, this gap will let the brand's energy in the wrong place, delay the construction of the brand and target user acquisition, or even be kidnapped and backfired.

As a brand side, you need to define the right OKR and North Star indicators to avoid being led by vanity indicators such as transaction volume. These are the basics of building a brand, a product, or even a company. You can also tell how strong a brand is by the metrics it focuses on. For example, the most important metric for the founder of Yuga Labs is the number of NFT holders and the number of active people in the community. He doesn't want NFTs to be hoarded by holders for profit, but rather to attract more community members, so the founding team only holds one BAYC each.

In a nutshell, do what is valuable in the long term, set and manage short-term expectations.

2. My model is a membership club, do I have to switch to web3? It doesn't seem to make much difference.

There are 3 user-side and 1 brand-side benefit of converting membership cards to NFT

• User perspective 1: Enhanced benefits

  • In a traditional membership club, once a user bought a card, he or she is often at odds with the club's interests. Because the club can increase its own profit by reducing the user's rights, which is not a win-win strategy

  • But as a web3 brand, users are the investors, and the membership club must guarantee high-quality rights and interests, which is in line with users' interests; active participation of users also enhances brand value, forming a win-win strategy.

• User Perspective 2: Enhance transaction liquidity and value

  • Traditional membership cards are difficult to trade second-hand. After becoming NFT, it brings a natural trading market and liquidity, thus enhancing the asset value of the membership card itself.

• User Perspective 3: Gain a personalized identity

  • A unique digital identity to express your personality and serve as a pass to the metaverse

  • The membership card does not have to be static; well-designed traits can grow with the user and have special effects, increasing user stickiness

• Brand perspective: expand the depth and breadth of users

  • Based on on-chain data and behavior, on the one hand, it is easier to understand the stock of users (user A has 5 Apes) and on the other hand to reach incremental users (users of a certain community are particularly suitable for this brand).

So, transferring membership card to NFT are both good for users and brands, so why not do it?

3. Any other suggestions for traditional brands to enter web3?

In the beginning, it is recommended to try lightly to understand the user feedback, do not come up to build a heavy project. Li Ning buying BAYC is a good attempt, and there are a lot of CC0 projects you can use, such as mfers and Black Cat.

The article has been analyzed at the beginning, the brand to web3 is essentially to meet the new needs of new users, to rebuild the brand and user relations, and the need for a holistic and comprehensive program, don't move until you have thought it through. Do not take the NFT project as low-cost marketing, once the community is established, it needs a long-term sustainable operation, otherwise, the community may fud the brand at any time, and the loss is not worth it.

In addition, traditional brands going into the web3 also need to upgrade the brand mind (mindset) and organizational capabilities, refer to the third part of this article.

End

As I said at the beginning, there are a lot of brands that want to enter web3 but are not able to do so, and most of them regard NFT as a marketing initiative. But as mentioned in this article, the essence of the brand to web3 is to meet the new needs of new users and rebuild the relationship between the brand and users, there is a lot of room for opportunity, but also needs to have an overall comprehensive plan. I hope that after reading this article, the answer could be clearer.

At the same time, as a web3 surfer, I also welcome massive web2 brands to enter web3 and make the NFT ecosystem bigger together. On the one hand, there is a need for more narrative and utility outside of PFP, which is the battlefield where experienced web2 veterans can play; on the other hand, the web3ization of traditional brands is also a process of introducing new web3 users. In the news that Nike has generated over $185 million in revenue, there is a very interesting statistic in the Dune Analytics cited, that on average 40% of the mint users of these brands NFT are first-time mint users, which can be considered as new users of NFT. 100 million users of NFT wouldn't be reached without the help of a steady stream of web2 brands. WAGMI!

Coffee Time!

Welcome to own my NFT and buy me a cup of coffee lol. btw, I made this cup of coffee and latte art by myself : )

Also welcome to have more discussion with me twitter @starzqeth

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