The Sunday Drip #8 | Digital goods and services are about to explode
If you thought NFTs were a gold rush, just wait. Why sell real furniture when you can sell digital furniture?
Welcome to The Sunday Drip from the Sunday:Drip Society crew. Each Wednesday, we’ll breakdown a broad web3 topic and share our thoughts on what’s really happening beneath the surface.
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Let me put some simple numbers out there to provide some context to my headline. Recently, the Fortnite video game maker Epic revealed that it made more than $9B in revenue in its first two years (2018-2019) of operation, and made an additional $5.1B in 2020. Epic also revealed that it made over $50M in revenue selling its NFL partnered skins in the game. Skins being an outfit your player can wear in the game, typically selling for around $15. Even more shocking, the NFL themed skins were only its 3rd most popular skins, behind the Star Wars and Marvel themed skins. Wow, that’s a lot of skins.
Making some very rough assumptions using the graph above, and of course accounting for any changes in inflation, I can confidently project that Fortnite is making a sh*t load of money selling digital clothing. And this isn’t exactly a secret. Disney, the NFL, multiple musicians, Nike, and literally every company featured above knows that Fortnite is making a sh*tload of money selling digital clothing. This is probably why Nike pulled the trigger on the first major acquisition in the NFT space, when they acquired digital shoemaker RTFKT.
More background numbers for context.
Epic, a single game studio, made $5.5B in revenue in 2018. Epic makes a ton of money. For comparison, ecommerce behemoth, Amazon, made $233B in revenue in 2018 ($141B for North America, $66B for International, and $26B for AWS) and $11.2B in profit. Let’s just ignore the way cash flows are managed for today. I want to highlight that, when compared to Amazon, Epic still makes a ton of money.
What should stand out in the above sections is two things, 1) Epic is making way more money selling digital skins than most of you likely imagined, and 2) since they are making hundreds (if not billions) of dollars selling skins, people are much more comfortable buying digital clothing than most of you likely imagined.
There is a lot of money being made in video games, so what?
Think of the margins!!
No seriously, think of the margins. I brought up Amazon’s revenue and profit above to give context to their margins. Amazon and Epic are both paying similar salaries to white collar workers, but epic has nowhere near the costs that Amazon absorbs. Epic made $3B in profit in 2018. Whoa.
Now if you can get behind the idea that we are moving toward the metaverse (we are) hopefully the wheels are turning and you’re starting to realize that there is a massive, high margin, opportunity in digital goods and digital design services on the horizon.
I’m not just talking
clothing skins. We’re already on that. I’m talking way bigger. I’m talking digital shoes, furniture, architecture, cars, and more. If we’re going to start meeting in the metaverse, we all probably want to look our best, right? What about the meeting room you are sitting in? What about your digital storefront? What about your digital home décor? Football stadiums? Someone needs to design those. And that someone is going to make a ton of money. And if there is money to be made, the talent and the jobs will follow.
You’re going to care about having your own space in the metaverse.
You will. I bet my life on it. The entire home décor industry is built on people wanting the space they hangout in to look nice. People spend hours and hours making their Instagram pages look cool, I guarantee you’ll want to make your virtual house or your space look cool. We will undoubtedly start following each others leads too.
I can already imagine a virtual “Cribs” walk through of Paris Hilton’s house in Decentraland, showing all of her unique 1:1 digital art pieces and her closet full of designer digital clothing. Clothing that could even map to physical goods she has in her physical closet. That could be an incredible opportunity for luxury brands. But they know this already.
NFTs are going to make this all possible.
Because NFTs prove the authenticity of a digital good, you can already imagine a tool that checks the authenticity of a person’s digital goods. Kim Kardashian wouldn’t be caught dead with a fake digital handbag. You might. But she, and many others won’t.
You see where I am going with this? Digital goods aren’t the only ones with a massive opportunity on the horizon. Services, games, and experiences have that same opportunity in the metaverse.
What if Fortnight sells a virtual pinball-looking machine for your virtual room, that you and your friends can play wearing your NFL skins? A game console can look like anything, Fortnight just wants you and your friends to want to play their game and shop in their game.
Architects will be in high demand too. A person could buy prime real estate in Decentraland or Sandbox, hire an architect (who is already great at 3D modeling btw), and build an amazing house that is not constrained by physical restrictions. Architects would love this opportunity to design in the metaverse. It could help their real world businesses too.
Everything in the metaverse will be complimentary to the physical world. Everything.
This applies especially to virtual and digital storefronts. Web design is an incredibly important and expensive service for many brands. You can bet that companies will be paying top dollar for digital storefront design.
The NBA already streams some of their games with courtside seats on Oculus. You can imagine every sports team will want digital stadiums with elevated viewing experiences. I’ll stop. You get it.
It’s going to happen. It’s already happening. The tech will catch up.
Nike and RTFKT are leading the charge.
After RTFKT dropped their Clone X NFT project and was acquired by Nike, the project airdropped RTFKT Space Pods to all of the Clone X holders as a Christmas gift. The Space Pods were created by a company, Cyber (Check out the RTFKT pods here and Cyber here). Cyber specializes in creating “3D experiences to show your NFTs.”
The Space Pods themselves look like futuristic dorm rooms modeled after the movie Zenon: Girl of the 21st Century (I couldn’t resist a Zenon reference). They are extremely customizable, allowing owners to display any of their NFTs or 3D models in any spot inside their pods. On the description of the OpenSea page, RTFKT writes, “these base pods are the beginning of the future development of the Clone multiverse civilization. Treat with care, make it your home.” And users did just that.
Seriously, what people were able to create in a couple days was amazing to see. Companies with more resources were able to create even cooler experiences for the pods.
Clone holders immediately started decking out their homes with all kinds of customizations. Not only did they display their existing NFTs from their wallets, but they also created new and unique items for their pods, sharing the 3D files with other users for their pods. The creating and sharing of goods for pods is an extremely significant moment and a sign of things to come in the metaverse.
Almost immediately Twitter users popped up selling items to each other for low costs. Online businesses were created overnight and— oh wait I already talked about this. Well, maybe you’re asking yourself the same question I did.
Who is going to be the Amazon of digital products?
The RTFKT Space Pods are a blip on the metaverse adoption radar, but the response the Clone X holders had was a clear signal of what’s to come. So who’s going to win? OpenSea? Maybe. They have a nice head start. But honestly, Amazon is likely thinking about this same question right now. Or maybe even earlier. I would bet they are prepared for virtual experiences.
Let’s dig into an example.
Here’s what the future of shopping for furniture could look like: you go to the furniture district of Decentraland, look in the showroom windows, maybe even chat with a designer on the look you are going for in your space. It could like like this (but in 3D):
Wait a minute, that looks good. Too good…
Damnit it already exists?! Yes, Amazon is already thinking about virtual showrooms. This showroom, and every single piece of furniture, wall color, floor color, and everything, is already made. And the 3D models are already there. Amazon also has AR models to display the furniture in your room. Wayfair does too.
The mass adoption of the metaverse isn’t waiting on people. It’s waiting on the tech.
Amazon, Nike, and every other major company isn’t waiting for Dave to finally admit to you that he thinks NFTs aren’t just jpegs. No one cares if you get NFTs Dave. The Staples Center is already the Crypto.com Arena. Facebook already changed it’s name to Meta. The train is leaving the station without you Dave. (Sincere apologies to Daves out there who have accepted NFTs and the metaverse)
We’re waiting on the tech.
But the tech isn’t far behind. Now I want to wrap this up because I am likely rambling, but I just wanted to provide some examples of how close we really are to having the tools necessary for the metaverse. I already showed the NBA and Oculus, but have you heard of Magic Leap before? Magic Leap, right now is an enterprise AR headset being used by doctors for surgeries. Okay, they have struggled recently, but what about the recent Snap and Nike partnership? More AR, but metaverse doesn’t need to be fully VR. The Void is another very cool VR experience, and here’s some more.
My point is, when Apple drops the Apple Glasses, the metaverse is coming a million miles an hour. Suck it Dave. Let’s wrap it up.
My whole point.
I usually try to wrap these up and remind you (and myself) why I wrote this in the first place. The point today is that a tidal wave of new businesses and opportunities are coming. There is significant money to be made too. NFTs feel like a gold rush right now, but most of the people in the NFT space realize that NFTs, as they are right now, are just the tip of the iceberg.
NFTs started with profile pictures, and quickly moved toward utility, gaming, and specialized DAOs. As society gets more comfortable with virtual spaces, there will be endless opportunities for businesses, and many that we cannot even imagine right now (boo skeuomorphic, tomato tomato tomato). 3D design and modeling will be an incredible skill to have moving forward, but keeping up with the trends in the NFT space and understanding the different utilities of NFTs will help you thrive in the future. Reading super high quality Substacks like this one. Also, be open minded. Don’t get caught resisting technology.
So help your friend Dave out, even if he keeps screenshotting your Twitter profile picture. He needs help.
Agree? Disagree? Comments? Questions? Let me know! Possibly some typos.