Web3 Loyalty: Buzzword or Breakthrough?

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Web3 Loyalty: Buzzword or Breakthrough?

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During the froth of the latest crypto hype cycle, brands globally thought to do one thing: sell

The main goal was to make money and the easiest route to that from a Web3 perspective was by simply selling digital content in the form of NFTs.

One of the most covered stories on the brand side of Web3 at the backend of 2022 was “NFT revenue driven by brands in 2022”. 

To date, this is still broadly the reference point for a lot of execs inside big organisations. Which is a worry. It was simply one dashboard one individual put together, and everyone ran with it.

The crypto markets crashed, however, and NFT volumes have dried up.

Brands have therefore pivoted to something else.

Something a bit more sustainable, with more staying power than simply selling digital content: Web3 Loyalty.

Every brand I’ve spoken to over the last 3-6 months is fairly convinced loyalty is the future of their Web3 strategy.

But is this a breakthrough in crypto-based consumer applications, or just another buzzword?

This newsletter covers:

🌐 Context & market opportunity🏁 The first movers in Web3 loyalty🧠 My thoughts on the future of Web3 Loyalty

Ps. I’ve written about loyalty in Web3 in these previous editions of Sporting Crypto:

• Starbucks launches Web3 Loyalty program

• The State of the Sports Web3 Market

• Adidas Launch Web3 Loyalty Program, ALTS

🌐 Context & market opportunity

Loyalty has become the thing that every brand is talking about right now when it comes to Web3.

Every consultancy, agency and tech vendor that used to provide NFT support for brands has started to pivot to loyalty.

But what does it actually mean? What do we actually mean by Web3 loyalty?

Let’s start with a crypto-native tale.

18-24 months ago, many native crypto communities started taking some of their membership products on-chain during the hype cycle.

Instead of selling subscriptions to become a member of something — these were NFT passes.

The only issues were:

1. Where does the recurring revenue come from?

2. What happens when the price of those passes drops dramatically below the actual value being provided?

3. What happens when you can’t control secondary market royalties?

Suffice it to say — having a ‘pure’ Web3 model for memberships didn’t quite work as well as most had hoped.

I know this isn’t ‘loyalty’ in the conventional Web2 way, but it showcased something that the new breed of Web3 propositions just didn’t do as well as their Web2 counterparts.

Again, whilst there’s no real direct comparison, the way Web3 projects often ‘surprise and delight’ their NFT holders or members is to either:

1. ‘Airdrop’ rewards or digital content (Airdrop simply means distributing something to crypto wallets)

2. Grant ‘access’ to other projects or digital content via partnerships 

Web3 projects began to essentially pull apart a traditional membership or loyalty scheme, fragment it, and supercharge via crypto rails.

This worked really well when markets were up.

Not so much, when markets are down…

Loyalty schemes traditionally reward engagement and… well… loyalty.

The fragmentation by Web3 models, focusing more on ownership, speculation and transactions allowed it to fall prey to volatile markets.

In December 2022 I wrote:

What I meant by the incentive systems is that — every loyalty program wants to do one thing: incentivise you to stay ‘loyal’ to that brand.

It wants to wall you off, especially from competitors.

This therefore waters down the permissionless and portable nature of Web3 technology.

That’s not all bad, though, because those are not the only thing that makes this tech special.

I can definitely understand why a loyalty program that incorporates digital content, airdrops, and virtual engagement — makes a lot of sense for a brand when it comes to activating its users who are getting younger and more digitally native.

And for some of these brands… they already have loyalty apps.

It’s not alien to them and it’s a lot easier to convince your stakeholders to invest money and resources into building an application or platform than it is a digital version of the physical products you sell that may or may not make some money.

One of the things that I found incredibly strange about sports Web3 propositions in particular, either from sports teams or otherwise — is that there was nowhere to kind of aggregate this stuff. The digital products were standalone.

Before Nike launched .Swoosh — there was a lot of Nike or Nike branded (via RTFKT) NFT content that was created, but there wasn’t much to do with it. This makes sense in hindsight — the products or the primitives of future propositions were being built without the frameworks or housing.

I’ve said this before but ➡️ NFTs were furniture without a house to furnish.

Sports teams still have this issue.

Many have licensed digital collectables, a fan token, Web3 gaming partners and so on — but there’s no aggregated dashboard that fans can use to interact with all these things.

Perhaps, this could be a loyalty program…?

But then again, point me in the direction of a sports team with a good loyalty app… and I’m not talking about match-going fans, I’m talking about every fan globally interacting with a team or league.

The NFTs as furniture analogy is a bit like starting with the product and not the platform.

Many brands are now starting with the ‘house’. They’re creating loyalty apps or platforms and any NFT drops are done within this hub. This makes life easier for a brand because there’s more control, but also — and crucially — you’re creating something that has a longer lifespan than one NFT project. The NFT drops are no longer the product, they’re now features.

The inspiration from this has come from Web3 native projects, that reverse-engineered this.

Web3 native propositions launched the digital product (NFTs) and sold the content — without much utility. But, they generated cash in abundance (if it’s sold well and there are further drops) — and started building the infrastructure around the digital content they’ve created, with their community strongly influencing said infrastructure.

For a brand, this makes no sense.

Because you already have a brand. And you have the capital.

Yuga Labs, for example, creators of Bored Ape Yacht Club (BAYC), had neither of these things. Therefore selling ‘monkey JPEGs’ fulfilled their needs; revenue, brand and community. They’re now building the infrastructure around that decentralised IP thesis.

Because there was no playbook 18 months ago for a brand doing an NFT drop well — the inspiration came from these Web3 native brands.

But it really is apples and oranges when you’re coming from the ‘Web2’ side of things.

This copycat strategy was not fit for purpose.

🏁 The first movers in Web3 loyalty

Let’s start with sportswear brands like Nike and Adidas, trailblazers in their own right, have both launched NFT loyalty programs/platforms in the last 12 months. 

Adidas launched ALTS, their loyalty program, or platform to house all of their Web3 creations.

The ‘ALTs’ are ‘unique interoperable avatars’. They dynamically evolve, based on the decisions users make and the engagements they have. To some extent, the NFT itself is the ‘loyalty program’ if that makes sense - with Adidas distributing upgradeable/customisable traits to users in a variety of interesting ways for them to evolve their ALT.

Nike have gone for the slightly more ‘orthodox’ route with a platform called .Swoosh ; Home for Nike’s Virtual Collections

Nike already have a membership scheme, as well as four different apps; Nike Run Club, Nike Training Club, SNKRS, or the Nike app.

Clearly, they view Web3 as a strong enough ‘channel’ to dedicate another ‘home’ to, this time with .Swoosh.

The platform is very much in MVP mode, with just under ~400k .Swoosh memberships minted to this date for the beta mode.

Nike have already partnered with Fortnite as well as EA Games to give .Swoosh members access to unique digital content, which is pretty exciting. Their first digital drop was the OF1 sneaker drop, which had just under 100k sales, generating just under $2m in volume. It’s fair to say, it’s been a good start by Nike.

Starbucks are another huge brand playing in this space. 

They have arguably one of the most successful loyalty schemes/mobile apps out there, so it’s no surprise they’re going after the Web3 market hard with Odyssey, their Web3 loyalty app, in collaboration with Polygon.

Starbucks trying their hand at Web3 loyalty is a big deal.

In 2016, they held more cash on their app and Starbucks cards than some banks. That comes from well over 10 million registered users.

One of the first steps of onboarding is to connect your Odyssey account to access your Starbucks account, allowing existing members to seamlessly be onboarded into their new Web3 loyalty app.

The user journey focuses funnily enough on ‘journeys’ within the app which each have several activities, allowing users to earn points upon completion. Completing enough of these can give the user a ‘stamp’ NFT.

Odyssey have focused on interactivity and pushing users to specific behaviours.

For example, they launched a journey that was called ‘Going Places’. One of the challenges was for Starbucks enthusiasts in the USA to visit 8,000 unique stores in the country, of which there are just over 16,000 in total…

This was finished in 5 days… even though the journey was expected to stay open until the end of 2023.

The Odyssey community even created community maps to ensure all bases were covered… and this was all for a drinks coupon.

Maybe it really is about the journey and not the reward. (See what I did there)

Another giant to step into the Web3 loyalty ring of late is Lufthansa, launching Uptrip.

Someone once said to me: Airlines are basically reward programs with some planes attached to them.

So much so that airlines can actually use their loyalty programs as collateral for loans.

They are integral parts of an airline’s business model, and we should therefore be paying attention to the what and the why here.

Uptrip is fairly simple — passengers scan their boarding pass to receive digital collectible cards, and receive rewards upon completing a set — including access to airport lounges and such.

Lufthansa is Europe’s second biggest airline with 100m yearly passengers, with 36 million members in its existing airline loyalty program.

Their soft launch of Uptrip in April 2023 has already seen 20k+ sign-ups, and it’s now publicly available.

The world’s biggest brands are taking Web3 loyalty seriously and the first movers are doing things properly and at scale.

🧠 My thoughts on the future of Web3 Loyalty

I love this quote from Erica Wykes-Sneyd, a VP at Adidas:

Focusing on this part specifically… “Instead of diluting the market or short-term fixes”.

Big brands have started to default to Web3 loyalty programs.

The soft pivot, from selling one-off NFT collections to a more all-encompassing digital loyalty program makes sense.

The idea here is to create a platform that engages millions, all the while monetising super fans in more traditional Web3 means through collectibles, exclusive digital experiences and so on.

But why create an on-chain loyalty rewards program when you have an incredibly successful one, off-chain?

Seriously, why are Starbucks, Nike, Adidas and Lufthansa all going hard at the loyalty route in Web3?

Let’s start with NFTs.

They’re important because they provide us with characteristics we are used to seeing only in physical goods, but with some awesome plus points:

• Digital Ownership ➡️ Blockchains enable us to own digital content in the same way we own physical goods

• Transferability & Portability ➡️ We can move this stuff around

• Provenance ➡️ Everyone can see this ledger, so we can see

Being able to own things online, and transport them whilst retaining the elements of permanence (from a data perspective) and provenance - is pretty cool, it turns out.

Blockchains are the best technology we have available to allow people to own things online right now.

The question remains though: Are blockchains in general the best use case for loyalty programs?

Clearly, there is something here.

The ability to reward your customers based on experiences and community engagement rather than just transactional elements of the user journey is important. And if you can do that in a frictionless, low-overhead way with digital content — it’s an easy win, to some extent.

On one hand, the flexibility, and composability of loyalty points as digital assets is really interesting.

But on the other, I just don’t quite know whether or not the incentivisation mechanisms are there for any brand to essentially ‘open up’ their loyalty points system because it’s on a blockchain.

My broader question actually is; how many people truly want a relationship with their coffee shop, airline or such beyond the transactional nature we’re used to?

There is something very interesting about on-chain loyalty, but I don’t quite know if we’re there yet.

And ironically, sports brands and teams have a superpower here; they have captive audiences that love them no matter what.I consume, read and think about Arsenal or England the soccer teams I follow often. Even when I’m not watching games on TV or at the stadium. My relationship with them as a fan, rather than a consumer, means my interactions are far-reaching.

The issue is that most sports brands are so far behind in terms of their digital transformation, a Web3 loyalty scheme feels far-fetched.

I mean, if you don’t even have digital ticketing up and running, a Web2 loyalty program that isn’t specific to game-going fans… I struggle to see sports brands making that leap.

The Web3 Loyalty unlock has only just begun at scale and it’s going to be fascinating to see where we land 3 years from now. Sports brands and leagues are best placed to create something along this path, but many of them simply aren’t up to date with digital as a whole, let alone Web3.

The bottom line is that the era of short-term cash grabs is gone for everyone at brands when it comes to Web3.

Platforms, loyalty programs and engagement — instead of simply selling digital content — is where brands are placing their bets.

💡 Sporting Crypto Spotlight - Ep. 3 of the Podcast!

🔌 We Launched Ep 3. of the Sporting Crypto Podcast! In this one we were joined by Preeti Shetty, CEO of Upshot System! Listen here or watch below! 👇

More Sports & Web3 Stories

• How Web3 Is Transforming Sports, Music And Fashion - by Binance Academy (Read more here)

• Burnley FC announces a new collaboration with Web3 financial platform Uphold (Read more here)

• SailGP And NEAR Empower Blockchain-Powered Fan Ownership - piece by Forbes (Read more here)

• Veloce To Deploy Vext On Polygon - Evolving To Become The First Decentralised Global Sporting Group (Read more here)

• Crypto sports betting firm, Sportsbet.io, has renewed its contract with audiovisual content producer Sports Broadcast Media (Read more here)

• Bit Fry Game Studios and Immutable Games Unveil Infinite Victory Playable Demo at Gamescom (Read more here)

• NFL Rivals Announce New Partnership With the Miami Dolphins (Read more here)

• Florida's Trevor Etienne signs NIL deal with Gataverse, releases collectible (Read more here)

General ‘Stuff’ that Could Impact You

• The world’s first 3D location based service game is incorporating NFTs (Read more here)

• SWIFT conducted an experiment with banks using Chainlink’s Cross-Chain Interoperability Protocol (Read more here)

• Lufthansa is integrating NFTs into its loyalty program (Read more here)

• The Relentless Rise of Stablecoins (Read more here)

• The SEC has sued Impact Theory LLC over the sale of unregistered securities in the form of NFTs, that has led to a settlement (Read more here)

• Snoop Dogg Drops New NFTs That Evolve With His Tour (Read more here)

• Creator League Features NFTs And Top Stars Are Already Pulling Out (Read more here)

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