As the NFT Frenzy Fades, Brands Recalibrate Their Strategy

Crypto companies billed their digital ownership model as a basis for a new iteration of the internet. And they worked diligently to create a sense of technological inevitability and fear of missing out around that idea.

But a little more than a year later, after months of slumping NFT sales, this vision for the future seems far from certain. Sales volumes of digital tokens plummeted to $3.4 billion this past financial quarter, down 60% from the previous three months and 72% from their peak in the first quarter of this year, according to NFT market tracking firm DappRadar.

And while NFTs may not be going away entirely, the market is not likely to rebound to those peaks, according to Pedro Herrera, senior blockchain analyst at DappRadar. “The bubble, or the euphoria that we saw over NFTs in general, it’s not going to happen again,” he said.

Brands generally see NFTs and other technologies under the banner of Web3 as a way to reach a younger generation that is averse to many forms of traditional advertising. They worry about failing to act and falling behind a wave of technological disruption in the same way some companies did with the beginnings of social media and mobile apps. Some brands, like PepsiCo and PacSun, are also looking to reframe NFTs as a loyalty tool, distributing tokens to customers at low or no cost and drawing less attention to the sometimes-alienating crypto terminology. These brands are hoping to dispel the technology’s widespread reputation as a vehicle for high-flying investments.  

But now that the NFT frenzy is beginning to fade, the spell has been broken to some extent, according to Jack Smyth, partner at Brandtech Media Group, which works with brands on tech solutions and invests in brand tech startups. “Overall, there’s absolutely been a drop-off in interest,” Smyth said. “And I think in some cases there’s been relief, even. The pressure is off.”

Dickon Laws, global head of innovation at Ogilvy, said that while some brands have managed to find success with certain use cases around NFTs, others have run the course of their experimentation with the tech. “You’ve got a lot of CMOs and brand leaders who are looking at [NFTs] going: ‘We tried that six months ago. We spent a couple of a hundred thousand dollars or more developing it and taking all the risk on board, and we’re nowhere now, apart from a few people who’ve got them in their wallets,’” Laws said.

Larger economic forces

To be sure, various forces in the economy—such as inflation, a tech industry downturn and rising federal interest rates—are partly responsible for the doldrums in which NFTs and the cryptocurrency world at large find themselves. Tech investors have reined in venture capital funding as borrowing costs rise, and the cryptocurrency market is currently facing a crisis of confidence that has spooked would-be NFT buyers. 

Many marketers have also curtailed their budgets somewhat, meaning brands have less money to spend on experimentation with new tech that might not necessarily yield any concrete results.

“When [marketers] are cutting back on spend anyway,” Gartner analyst Matt Moorut said, “NFTs are a very easy one for them to cut back on.”

While certain brands that still manage to command high values for intellectual property might continue to see revenue opportunities—like the NFL’s NFT platform All Day, which seems to be bucking the market’s downward trend—many may not dive into the market the same way they would have a year ago, according to Moorut. “The likes of some of the consumer goods brands that released NFTs just to see if they can, I think that kind of approach doesn’t ring true in the economic environment that we’re living in today,” he said.

When [marketers] are cutting back on spending … NFTs are a very easy one for them to cut back on.

Matt Moorut, analyst at Gartner

Last month, CNN shuttered its NFT program, the Vault, which had sold archival moments from the cable network’s programming as digital tokens. The network said in its announcement that the project started in June 2021 as a six-month experiment but had continued beyond that time frame because of its popularity. 

A CNN spokesperson declined to comment on why the news organization made the decision to cut the cord. “We learned a lot from our first foray into Web3, and we are excited to carry Vault’s concepts around community storytelling into future projects,” the company said in a statement.

NFTs behind the scenes

Rather than subjecting brand assets to heady market forces, many experts argue the best use case for branded NFTs going forward is to serve as loyalty tokens traded within customer communities and tied to live experiences or other brand rewards. Some experts advise against even calling attention to the term “NFT” in these schemes to avoid its inherent association with speculative investments.

“Yoking them to loyalty helps stabilize their perceived value, adding tangible value that isn’t subject to market fluctuations, in the form of brand rewards and access,” said Emily Safian-Demers, editor at Wunderman Thompson Intelligence.

Avery Akkineni, president of VaynerMedia’s Web3 practice, Vayner3, said she’s worked with brands like Bud Light and Behr on NFT campaigns that attempt to make digital tokens more accessible and enticing to customers who aren’t necessarily cryptocurrency die-hards, a workaround she calls Web2.5.

“What I’ve seen a lot of companies doing—including a lot of our partners—is making it available for both crypto-native users who have a wallet and also people who just want to use a login password,” Akkineni said.

Many of Vayner3’s current clients are now focused less on short-term headline-grabbing and more interested in building out a long-term loyalty program or digital ownership-based community, she added.

“In the past six to 12 months, specifically, we’ve seen a big shift away from brands activating and having urgency around launching something to being more strategic and thoughtful and considerate of their approach,” Akkineni said.

Integrating NFT token technology behind the scenes into existing marketing apps and loyalty programs avoids the problem of having to explain the complexities of cryptocurrency software and tools to laypeople customers, said Teddy Zee, co-founder and chief business officer at MintNFT, which has managed NFT campaigns for Mattel and retailer Balmain. 

“Our thesis was always that was never the way to reach a mainstream audience, that mass adoption was not going to happen through MetaMask and through crypto sales,” Zee said. “We felt [the speculation] was always a game of musical chairs.”

But these types of efforts, which attempt to strike a balance between decentralized cryptocurrency ethos and something more palatable to a mainstream audience, also raise the question of whether token technology is actually needed in every case, according to Brandtech Media Group’s Smyth. “Is loyalty necessarily broken?” Smyth said. “Is this a solution to a problem that we aren’t necessarily facing?”

Brands still see utility

Many brands see their NFT offerings as standing apart from the more speculative side of the cryptocurrency market and, therefore, less vulnerable to its volatile swings. Several nonluxury brands prefer to offer digital goods for free or at cheaper fixed prices in order to make them more accessible to consumers and avoid scaring away those who see crypto’s reputation as akin to gambling.

Dolly Ahluwalia, svp of licensing and innovation at the collectible figurine brand Funko, said her brand is a natural fit for NFTs. Several releases from the company have sold out in short order, creating a new line of digital business to complement its action figures. But Funko has also made sure to insulate itself from the market at large with low set prices and options for purchase with credit cards.

“What we’re doing is totally different,” Ahluwalia said. “We’re not relying on what the value of Ethereum is today—we’re $10 or $30, no matter what. The quality of what we’re providing, the amount of packs, all that stuff, it doesn’t change; it’s very consistent.”

Some brands are still measuring success in earned media around the projects they release.

Holly Wheeler, vp of global brand marketing at Wrangler jeans, said the brand was generally pleased with the buzz it received from NFT projects released around an existing collection called Deadfellaz and musician Leon Bridges earlier this year, which featured digital collectible clothing items and animations of Bridges’ signature dance moves. According to Wheeler, the brand generated around 75 pieces of coverage and 939 million impressions from the projects.

Wheeler said the brand plans to continue to experiment with digital tokens in conjunction with other related trends, such as virtual fashion designed for avatars and product launches in the metaverse. “The blending of the physical and digital is very real, so we will continue to test and learn in the space,” Wheeler said. “It will be important to look at projects focused on community or unique utility only Wrangler can provide.”

CRYPTO CRASH

Prices of bitcoin and other major digital tokens have plunged in recent weeks after FTX, one of the biggest cryptocurrency exchanges, filed for bankruptcy on Nov. 11. FTX CEO Sam Bankman-Fried, previously seen as one of the most prominent luminaries in the crypto community, also announced his resignation that same day.

The implosion came after the company faced a liquidity crisis as users attempted to withdraw their funds en masse and a proposed merger with rival exchange Binance fell through.

Given FTX and its star CEO’s place at the heart of the crypto world, the collapse has shaken the digital token market to its core and called into question many of the underlying assumptions around how cryptocurrencies operate. The crisis follows another similar collapse of the TerraUSD coin and its sister token, Luna, in May, which triggered its own market meltdown from which prices never fully recovered. It remains to be seen what cumulative effect these crashes will have on the future of crypto-related technologies.

“You can’t have an event like the FTX crash occur and not have brands naturally become more skeptical of all Web3 activations,” said Jason Carmel, global lead of the Creative Data Group at Wunderman Thompson. “No one reads reports of billions of dollars of assets disappearing and thinks to themselves, ‘OK! Where should my brand play here?'”

Hoping for a comeback

Many brands still see NFTs as playing a role in larger trends in consumer marketing, like a shift to the metaverse and partnerships with the creator economy, even if their draw for investment purposes fades.

Todd Kaplan, CMO of Pepsi, told Adweek in September that he remains bullish about the future of NFTs as a way to give consumers a participatory stake in the company’s marketing. Pepsi has tied many of its NFT projects to music artists in a continuation of its long-standing association with the recording industry.

“Just because there has been a boom—and a splat—around the application of NFTs as digital collectibles, that doesn’t have anything to do with the disruptive role this technology will play in shaping our future,” Kaplan wrote in a recent LinkedIn post.

And other brands and startups in the space are holding out hope that NFTs are just entering another phase of what often ends up being a roller-coaster arc in adoption of new consumer technologies. 

Jenn van Dijk, svp at Dapper Labs, which manages NFT sales for sports leagues like the NBA and the NFL as well as brands like Anheuser-Busch, said she believes that NFTs are still at the early stage of a long evolution, at least when it comes to the areas on which the startup focuses: the sports industry’s built-in collectible market and intellectual property that already holds value.

“Looking at it right now, it’s fair to wonder,” van Dijk said, “but we see a lot of signals that the future is really strong.”