The Sunday Drip #16 | Which industries will web3 and NFTs disrupt first? Who should be worried?
There's no doubt NFTs are a disruptive technology, but who should be worried about them the most?
Welcome to The Sunday Drip from the Sunday:Drip Society crew. Each
Thursday , we’ll break down a broad web3 topic and share our thoughts on what’s really happening beneath the surface.
As web3 and NFTs continue to capture headlines, businesses and industry leaders are all asking themselves the same question, “
what the hell are these and How will this disruptive technology impact my business?”
I’ll give companies more credit than I think most people in web3 would give them. I actually do not think that the vast majority of businesses are resistant to web3 or dismissing NFTs at all. I don’t. Any thriving company in 2022 is here because they have managed to embrace technological change (I mean, Domino’s is a tech leader in innovation in 2022). Most companies are either researching new technologies or intentionally waiting for their aha moment before they move fast.
I want to take a look at a few industries and assess how worried they should be about web3. But first, let’s clearly define the aspects of web3 that will drive the changes.
Digital Assets - A parent definition for NFTs and tokens. Digital assets provide the ability to purchase and resell specific digital items (videos, images, logos, websites) and marketplaces for digital assets (private and public) empower these assets to retain their value by fostering demand.
NFTs - I’ll separate NFTs from digital assets, for the reason that they are unique. NFTs allow for interesting functionality because they are unique and publicly minted on the blockchain.
Tokens - Fungible tokens act like currencies rather than unique identifiers. They still exist publicly on the blockchain, but their uses are similar to reward points you can exchange for USD.
Smart Contracts - I could dedicate an entire article on smart contract use cases (here’s a better one), but the main takeaway is that you can set them, forget them, and trust they are going to work.
Crypto Wallets - Digital wallets, that publicly hold NFTs and tokens, allow for instant validation and the information is yours to share. Plug in/out and take your information with you. Big topic again, here’s an intro article so I don’t have to butcher the most important aspects about them.
When I analyze an industry and evaluate the impact web3 will have on it, I am taking a look at these main technology disruptions. In some cases these are immediately relevant technologies, and for others, they might take a while to make an impact (if they will at all).
Let’s get into it.
Why it will disrupt? Web3 music platforms like sound.xyz and royal.io allow artists to effectively cut out the middleman and earn directly from their songs. NFTs will become an attractive avenue, especially for well established stars and artists with cult followings. Think Beyoncé and Jay-Z going to Tidal, but with less steps.
Digital contracts will be very important in the music industry, with the potential of life long returns on royalties. Royalty rights in the form of digital assets allow holders to cash out whenever they would like. That’s revolutionary. Dedicated communities can drive the success of an album. Die hard fans can fund a project before an artist steps foot in a studio…without the label’s bank roll or permission.
Why not? This might be unpopular, but distribution is still king in the music industry. It’s why Spotify can get away with paying artists less than their competitors. Major record labels and streaming platforms do not need to be as worried about their stars leaving for web3 opportunities for a while. Distribution will still drive popularity and artists need it, especially when they are early in their careers (remember when Lil’ Pump was literally everywhere?) There are reasons that stars like Taylor Swift still sign with Universal Music Group. Distribution.
Right now, there will not be a legitimate threat in the music industry until a major token based streaming service can gain traction. Until then, artists will use NFTs as a way to cash in on their popularity created on web2 platforms and NFT royalty owners will understand the struggles artists experience with streaming percentages.
Alert Level: Moderate (Yellow). There are specific roles in the music food chain that will be disrupted, but it will take time for a web3 streaming platform to take a noticeable chunk of business. It will feel like a minor disruption in the value chain, until it isn’t. If labels don’t get ahead of it, they may be completely upended.
Industry: Entertainment (Movies & TV)
Why? Unlike music, there is still a fairly high cost for producing content that goes mainstream in the entertainment industry. Access to capital and a community of cinephiles allows producers to give away less ownership of their content and bring a proof of concept to the table via the support of their biggest fans. Web3 will help independent content thrive. NFTs allow content creators to sells aspects of their content that they never had the opportunity to before. Token holders could own the rights to future sales or options on future content sold to streamers.
Disrupt is a strong word, but it does apply to the way web3 can upend all stages of content creation. Web3 models will allow innovative access to the creative process of content creation that has never been seen before. Super fans will benefit, creators will benefit, and financiers will wish they had more to offer than money.
Exclusivity is also not a thing in music. Amazon, Netflix, Apple, and Hulu all have exclusive content. This is good for content rights that can be sold forever. Can you envision a world where seasons, episodes, and movies are sold between streaming services, and every time they sell, the creator gets 5%? Smart contracts could change the way content is purchased in the future.
Why not? A lot of the content that is put in front of you today is extremely expensive to create. It’s going to be very difficult (if not impossible) to disrupt the amount of infrastructure major studios have built up over the past several decades. Content is also a talent driven business and web3 may not offer as big of advantages for big stars. Adam Sandler doesn’t need money or a thriving community to sell his movies to Netflix over and over. People already love him and will watch whatever he and David Spade star in.
Exclusivity can also be a bad thing for web3 in entertainment. Major studios can create stars through distribution and Box Office opportunities. Ongoing major network TV shows are a dream for actors. Appearing on SNL usually leads to a lifetime of success on NBC.
Finally, content is also a team game. It’s harder for stars to cash out on their success like music artists can.
Alert Level: Moderate (Yellow). Less than music, but the concern is much more fractionalized than music. Value drivers are not created equal in the entertainment biz.
Why? Fundraising companies like Republic, Indiegogo/Kickstarter, and others should be on the highest alert. While they do provide exposure, their take rate is web3’s opportunity. Web3 and NFT companies are already delivering a better product than what fundraising companies can legally offer today. Web3 offers higher financial upside (through tokens and digital asset royalties), and thus creates a stronger community of NFT holding advocates. Discord communities allow for access to customers and interest groups in ways that fundraising companies completely miss.
Why not? It’s hard to say “why not” in this situation, so I will offer advice. Fundraising companies, and anyone else in the business of lending 7 digit loans (or less), need to start bringing more to the table. Web3 opens the floodgates for crowdsourcing and access to smaller amounts capital. The only thing saving this industry is the initially slow adoption rate of web3. I doubt that will last for long. Companies that offer incubators or access to top tier talent might survive, but their web3 counterparts (like Seed Club) will begin to attract talent and businesses alike.
Alert Level: Red (Highest). First to market will be key in this space, especially for young entrepreneurs who are already embracing web3.
Why? The world is becoming more and more digital, and fashion will be first industry to require a major focus on the digital versions. It makes sense that major fashion brands like Nike, Adidas, Dolce & Gabana, Gucci, Tommy Hilfiger, and more are testing and investing in web3. Decentraland held its fashion week this week and major brands made appearances.
The “why” can be answered with more of a “how.” Fashion brands will start with selling digital/physical counterparts, but these worlds will eventually begin to diverge. This is where I see the most radical disruption happening. Brands that embrace the NFT/metaverse world will gain a reputation as early adopters who do it best. Waiting and seeing isn’t an option. Nike is already leading the way with their acquisition of RTFKT and will be known as a staple of digital fashion. Late comers to the party will be more like the bud light hard seltzers rather than the OG white claws (not a great reference, but I’m trying here).
Why not? There’s a chance that the traditional fashion world might not get disrupted at all (I know, hard to hear this coming from the founder of a web3 fashion brand 😅).
While digital fashion will most certainly emerge as a new category, there’s a scenario where the old world of traditional fashion still remains important and digital fashion invents a new category all together. Perhaps this isn’t a case of one cannibalizing the other, but instead a 2x+ bigger total market?
People care about what they look like IRL. It will take a while before people that used to spend $500/month on clothes shift that spend completely to digital goods. In the time, it’s possible digital fashion takes an entirely different path (e.g., designing dynamic garments instead of another hoodie alternative).
Early evidence of this can be seen with the lack of use cases for digital drops happening today. Even RTFKT’s sneakers are seen more as collectibles than “wearable digital apparel” at this stage.
Alert Level: Lime Green (Low-Medium). Our hypothesis is that digital fashion will eventually be a behemoth, but hybrid fashion companies (blending physical and digital) is where the immediate disruption will come from. Eventually, there’s a chance digital fashion is additive to the traditional fashion world, not cannibalizing.
Industry: Video Games
The game industry is stuck on figuring out how to embrace NFTs vs selling games and consoles. Look for this industry to embrace the metaverse and NFTs while still selling $80 games every 2 years.
Industry: Real Estate
Web3 will supercharge the transaction processes in real estate. Smart contracts will create efficiencies in the space. Check out what Propy is doing to speed up transactions. There are a lot of players in the real estate business that are value extractors and they should be worried about blockchain-based solutions driving efficiencies.
The metaverse will be the major disruptor in ecommerce rather than web3. It’s basically impossible to upend the real world warehousing and logistics systems that drive a major part of the ecommerce industry. Token gated access will drive some aspects of ecommerce and I would expect a similar impact that direct to consumer brands have on major players.
Agree? Disagree? Comments? Questions? Let me know! Possibly some typos.