Are NFTs a sustainable business model for community creators?

Transcript

dmgm Welcome Friends back to another episode of The web3 Academy podcast where we help guide entrepreneurs creators and businesses into web 3. in this episode we are discussing are nfts a sustainable business model for creators tokenizing communities now this is a three-part series we are going deep into this now I'm Kyle reidhead the host of uh co-host of the web3 academy podcast um and we also run an agency which works with large audiences large communities and helps them monetize previously though in the web 2 world and so we have a lot of experience and understanding in this space and so watching this form in

the web 3 world which has become very very popular in terms of tokenizing audiences tokenizing communities um I've been questioning how does this actually work what is the best business model for creators and that's why I decided to do this deep dive here I wanted to brain dump everything in my mind and really figure out what is the best strategy for creators trying to tokenize a community with nfts or does that even make sense maybe we don't use nfts for this right I want to question everything we're doing uh in 2020 and 2021 and see what really makes sense here and so that's the purpose of this series okay now again this is the first article uh sorry I'm going to be reading the first article this is an episode on the podcast but we are going to have two

others over the next two weeks that are not just going to dive into the existing uh business model we're going to look into potential other business models as well as how to work alongside or with your community and how those Dynamics um kind of play out so there is a lot to unpack here we are going to go very deep I'm very excited to share this with you because I think it's one of our greatest pieces of content so far and actually our goal at Webster Academy is to create more really in-depth deep Dives where we can start to create playbooks for entrepreneurs for creators for businesses to understand how to do the stuff in their own business rather than just sort of think about or watch what's happening in the industry let's actually

figure out what works here and uh and let's create a Playbook and so that's the purpose of this episode now before I dive into it I'm just going to save a few seconds here to go and listen to our sponsors so have a listen and then I will see you back in here and we're going to go deep the future of social media is here and that future lives in web 3 on top of lens protocol web 2 social platforms are broken and right for disruption you see the epicenter of social media is the creators and yet they are the most neglected web 2 platforms like Facebook Tick Tock and Instagram are all essentially robbing creators of their worth creators are a new type of entrepreneur forming new types of businesses yet with web 2 platforms creators don't own their content to their profiles and that's their product

in business instead they are tied to the platforms they choose to create on well just like how crypto is freeing us from Banks web3 is freeing us from these centralized platforms on lens protocol creators own their content own their profile and even their social graph and followers in the form of nfts this allows you to move freely from one social application to another with your content profile and followers moving along with you lens protocol enables self-soverty for your social graph and interoperability across the internet at web3 Academy we believe this is the few future of Social and that's why we partner with lens to ensure that the path of social media is heading in the right direction visit lens.xyz to learn more today

okay friends welcome back 10 000 token holders that's the goal of most web3 communities so far right now to be clear 10 000 is an arbitrary number and it can be any number to be completely honest what I really mean here is that many creators with audiences have been experimenting with launching a collection of nfts usually ten thousand which is why I say that to form an active and exclusive Community this is a new web3 type of product which isn't possible in the web 2 world usually these nfts are in the form of a pfp or profile picture like board AP yacht club or Moon Birds right something that you can go and put as your Twitter profile picture or whatever and kind of brand yourself however it's not necessary okay

there are other creators like Zen Academy who we've had the podcast in Jump which we've also in the podcast who went without the pfp and they simply use the nft as an access token remember nfts are not about the image they're just about the interoperability standard that it creates and the ownership of the that interoperability okay so I'm actually showing if you're watching on YouTube you can see the nft of Zen Academy um is actually just a basically like a white paper or a letter to his members it is not something you would put as your Twitter profile picture anything like that there are no Apes here but regardless of the image I continue to wonder if using a collection of nfts is really a sustainable business model for creators building audiences and communities the reason for tokenizing a

community seems pretty exciting at first glance use nfts to provide ownership and to share in the community's value with your members or your customers you can also call them this turns your passive audience into active contributors rather than building a loan this new primitive enables you to build together as a community and share in the upside but I'm not sold in the fact that this is actually a good move for most creators in fact we asked zenika from Zen Academy who's you know an nft thought leader and has a big project himself um we asked him on the Webster Academy podcast about a month ago and he was unsure of how sustainable the nft model is himself and so you can listen to that podcast uh with xenica it's a few

episodes back just go scroll down you'll find it but that's why I'm going to Deep dive with this series of Articles okay I want to think through this topic and write the Playbook on a sustainable business model for tokenizing communities if that even exists now there are two main questions I want to answer here in this episode one what's the sustainable business model for creators who want to tokenize their existing audience or Community with nfts so to be clear I'm talking about content creators who establish an audience or community in a specific Niche okay there are many ways to use nfts this is not the solution for all of the different ways I'm talking specifically for Content creators with audience senses or an existing Community you can think of it like the bank list of the defy world

or Tim Ferriss of the productivity world or Tony Robbins of self-development these are content creators in a specific Niche who have an audience and what's really happening the trend we're seeing is many of these audiences are beginning or many of these creators are beginning to tokenize their communities okay and I want to talk about that Playbook specifically and then number two does tokenizing your community even make sense if your token holders don't also build something which generates Revenue in real value that's the thing that I think a lot of people are missing here so buckle up friends we're going to go deep on this one so let's talk about the current nft Community playbook in web 3. typically what we see is you launch a collection of nfts to your audience or existing Community then you provide access to a

token gated social platform I.E a Discord and then potentially attach some other forms of value along with it okay exclusive events premium content discounts merch whatever that may be now from an initial standpoint it seems that many collections over the last two years were able to generate some fairly large sums of money on launch it's an academy for example raised 1.2 million from their sold out Genesis collection and 1.5 from their second token that they launched moonbirds raised 66 million on their mint Crossing 100 eth on secondary trading volume not long after and V friends raised 51 million in the first week with an extra 40 million from secondary sales so um the numbers here are massive right

um and this is the sort of like an initial fundraise I guess or an initial um Capital raise um however it's really yet to be seen if these types of numbers will continue or if that was simply a byproduct of the nft speculative Mania of 2021 and to be honest I'm leading towards the latter because we're not seeing these kind of numbers here in 2022 and also I mean V friends Moon Birds these are massive massive celebrities who are launching these so their audiences are in the millions whereas most content creators are not there so you should not expect that you're going to earn over a million dollars uh on a mint uh of your nft okay to me those are just ridiculous

expectations and not part of the Playbook moving forward um I mean Zen Academy raised a little over a million which is pretty incredible um he has about 200 and some odd thousand I believe on Twitter now now specifically in the space so it's very um Niche but also like an ideal person for this whereas other audiences and creators they might not have web 3 native people like Zen did so regardless of the next step those deciding what creators will do with those initial funds from their energy mint right the way I see it they kind of have three options they can take those funds as profits for their past effort of building the audience or Community okay they can use the funds to build

something of value for the nft holders this is kind of the Moon bird style like building a metaverse or a game or movie be friends doing the same or they can share the profits with their token holders by funding a treasury so that the community can use it to build something together this is what Zen Academy has actually done with their token holders and this is something I really like because this at least gives your community something to uh something to use and kind of move forward with so it's also possible to choose a combination of the three but again this assumes that you earn a large sum of money at launch but more importantly I keep wondering what happens afterwards how does the business continue to generate Revenue after launch is the idea to rely on nft

royalties I did mention some pretty big numbers here with moon words and V friends on that um do you need to launch a second token I mean that's what we've seen with Zen Academy or do you incorporate the web 2 way of monetizing community via memberships and subscriptions and I will go into detail on what that looks like in just a second um or is the idea that after launch the Creator who built this audience and started the community is no longer earning additional Revenue to their business they have essentially seated their business over to their token holders to create products or Services together which in turn generates revenue and increases the value of the initial nft so as I mentioned I've spent the better part of 10 years monetizing digital

audiences and communities in web 2 so I'm struggling to see how the existing web3 Playbook provides a better business model for creators unless your community builds something of extreme value but I think people are under underestimating how difficult that actually is especially with a group of let's say 10 000 strangers from all around the world right just so we're all on the same page though let's start this deep dive looking into how we've monetized audiences and communities in web 2 then we'll break down potential monetization strategies for tokenized communities in web 3. so I really want to be able to compare from the existing or older way into what we're doing now in web 3 and see if it even actually makes sense so the Playbook to monetize digital

communities in web 2. in the web 2 world we've created sustainable scalable and extremely profitable business models around communities via memberships and subscriptions I would imagine many of you listing this are a part of some of these memberships or subscriptions already this business has been booming for years and is showing no signs of slowing down web3 may even take this industry to whole other level let's see the web 2 Playbook though is fairly simple you build an audience through social or other media platforms this could be newsletter podcasts whatever else then you convert those true fans of that audience into a paywall subscription product this could be a private Community it could be a premium newsletter it could be a paywalled application the list goes on on what you

could actually give and the ideal here is you charge a monthly or yearly reoccurring fee for customers to remain part of the product and community so long as you provide enough value in your paywall product your customers tend to stick around with a fairly High retention rate and your business will continue to grow the beautiful thing about this business model is there's little additional work or cost required for each new paying customer aside from a marginal increase in customer support and SAS fees to run your product but whether you have 100 customers or 10 000 the working costs increase much slower than revenue does so you can see why so many creators choose this route and again you're probably part of these whether they have courses they have communities they have newsletters this is a great business

model that's scalable for sort of everyone here and so creators monetizing digital communities can earn tens hundreds even millions of dollars per month with this model we've seen it many times and the key is so long as they continue to remain relevant okay so they continue to innovate they produce valuable content then this can continue to grow over time the benefit here especially to the customer is that this scalability enables subscription costs to be quite minimal with most subscriptions ranging from seven to fifty dollars a month um or you know 70 to 500 a year though it is not unusual to see some like high quality uh products uh for you know 100 a month or even the thousands of dollars a year

um but it's important to note to make a point here that this is kind of bordering the line of monetizing an audience versus an actual Community okay there is a clear difference here right so let's think an audience which is kind of a one-to-many relationship where the many listened and the one speaks this is what enables this sort of scalable product Community which is a bit different is many to many relationships where voices are heard amongst the members and the focus on helping the community and relies on member contribution so it is a different Beast I would say um but typically I think the idea here is that when we're tokenizing our audiences the goal is turning them into

a community right um so uh it is a little bit different here but this type of product so uh the web 2 model I'm talking about where it's a subscription based typically relies heavily on the Creator to continue to create and provide value right in return you can continue to reap the benefits and take 100 of the profit the problem here is that you're not truly tapping the power and potential of your community you know try getting your community to build a product or service that furthers your mission well you can continue to take 100 of the profit you'll fall flat it's not going to work there's no incentive for your community to contribute rather than simply consume that is what web3 unlocks that's what's kind of so exciting here and so using nfts or fungible tokens to provide ownership to your community immediately

converts them into an active contributor and so this is really where the magic of web3 exists but how does the Creator do this without simply giving away their existing business and all their hard-earned work to the community how can you Empower and incentivize the community while still holding on to what you've built is it possible are we trying to do as the saying goes have our cake and eat it too the thing that I think nft holders and the people part of the community to understand is let's not forget that after launching this nft the Creator still needs to move forward with business as usual continue to create content Etc just because you launch NFP doesn't mean that all of a sudden 10 000 people will know exactly what to do and how to take your business

to the next level in fact it's more likely the opposite is true right so you can't just give away your entire business to this community and just hope it works right it's hard enough to build a business as is now just go here it's put in the hands of 10 000 people let's make it work your chances are even Slimmer of this working um so that's the the main thing I need people to understand here of when we try to figure out does this web3 model actually make sense and if it doesn't creators aren't going to go this route anymore they're going to stick to the web 2 models and then that doesn't bring adoption into web 3 tokenizing communities so this is why I'm questioning because we need to figure out the model that makes sense one for the customer of course and you know

customers love this ownership aspect but if it doesn't make sense for the Creator they're never going to do it right so we need to find that winning um Playbook that allows for both to see benefit here so before we get into the advantage and disadvantages associated with working with such a large community let's start with exploring the ways in which the original Creator could tokenize their Community while continuing to earn their own Revenue right the Creator needs this to continue to live and survive and run their business and then after that we'll dive into if it's better to just give away all or share that Revenue with your community so the current business models of nft tokenized communities now the playbook for monetizing communities via nfts is fairly similar to how I just explained

it in web 2. the main difference here being that we remove the membership model and exchange it for a one-time purchase of an nft to access the community so in this model of course as I mentioned history has shown it's possible to earn a large sum of money up front at launch but if you sold all the nfts in your collection at launch the question becomes well how do you generate future revenues for the business some might say nft royalties from secondary sales but this model seems counterintuitive to the mission of building a successful Community the entire purpose of building Community is to create strong connections and relationships around a specific group of people the better the community you build the less likely your community members are going to sell their nfts and

thus less Revenue earned on royalties so this model doesn't seem to make sense that said some NFC communities have actually earned a considerable amount of Revenue on royalties over the last few years but again I questioned this is just a byproduct of speculum Mania or 2021 um of 2021 or if this will continue long term so not to mention nft royalties may not even be a viable solution regardless as they can be circumvented fairly easy you can learn more about this in our podcast episode newsletter truth of nft royalties um this was a great one that kind of breaks down if this is even something that's enforceable but for the purpose of this let's assume that secondary sales

um the nft royalties are enforceable okay um let's talk about that business model NFC Royals as royalties as a business model for tokenized communities if you have an audience of let's say a hundred thousand people and you launch a 10 000 it collection to them which sells out at let's say 0.1 eth um each okay and just for the purpose of this let's assume eth is at two thousand dollars USD it's not right now but let's hope it gets there soon but let's just do this to make our math easy here okay you would make 200 USD per nft on your mint okay if you earned a total so you earned a total of a thousand youth or 200 000 U.S at launch and now you're planning to take 7.5 percent of every nft sale moving forward now 7.5 percent

as royalty is actually quite High uh more on the higher end but again let's just use this as an example if your nft remains at 200 you earn 15 per sale so to earn a thousand dollars per month from a ten thousand person community you would need 67 sales or trades I guess per month or a what you could call a point six seven percent monthly turnover rate okay bear with me here and stick with me turnover rate means the number of members leaving your community and selling their nft versus the total community members of of course ten thousand so to earn ten thousand dollars per month you would need 667 sales a month or a 6.7 monthly turnover rate six point seven percent now in comparison

with the web 2 subscription model mentioned above we typically see a monthly turnover rate so customers canceling their membership range from like three percent for a great product to upwards of ten percent for kind of like a decent product now as mentioned the model is more monetizing an audience than a community in the web 2 world with a community though when we tokenize it we should expect a much lower turnover rate as connections should be stronger in ownership and incentives via nfts create that sort of stickiness factor it's one of the reasons why you'd want to tokenize a community as a creator so the real way to increase Revenue here is to increase the value of the nft itself right if the nft appreciates to two thousand dollars rather than 200 for

example then you're now earning 150 per nft sale rather than 15. right so at a point six seven percent monthly turnover rate you just raise your monthly revenue from a thousand to ten thousand while maintaining a low turnover rate so what this shows is that in this scenario the entrepreneur has or the creator has two levers to pull on to grow their revenues they can either provide more value to the community making the existing audience more interested in purchasing the nft increasing the nft price right you're now having more buyers than Sellers and so ideally that empty price is going to go up the other thing they can do is increase Their audience size right so AKA this is people who might be interested in purchasing an nft in their

collection so even if the value inside that Community doesn't go up there's still people who want to buy that you just need to find more of those people again that comes from building your audience so again more Demand with same Supply typically means number goes up and everyone has a price they are willing to sell at so this assumes that as the price goes up certain people will be willing to sell enough tea even if they didn't want to previously so growing your audience will just grow the amount of people who might want to purchase this nft but the next question is what happens if you reach a point where you provide so much value um and you build the strongest and most loyal community and really no one wants to sell right the result would be you likely hold extremely valuable nft similar to crypto Punk or maybe a board

at Yacht Club what happens to your royalties well let's say your NFC appreciates to I don't know 20 000 or even 200 000 you would be earning uh 1500 or 15 000 per sale to put things into context in the last 30 days board 8 Yacht Club has had 161 sales in total if we use those numbers for our example above then you'd be earning a nice 241 000 per sale or 2.41 million um uh per month so I mean those numbers seem to be quite nice of course um though there are a lot of assumptions being made here so it's unlikely this is actually how it plays out not to mention it is extremely difficult to increase the value of your nft to these levels

currently out of the millions of nft collections in web 3 to only 280 have a floor price above one eth so these numbers I'm not sure how attainable they are especially I mean the board of Yacht Club the crypto Punk numbers I'm not sure many collections or many creators are going to reach that level anytime soon um especially in the certain Market that we're in currently um so the other thing to note here is for your customers at these prices you're really limiting access to your community to a smaller subset of wealthy individuals only right for the most part for me this business model doesn't sit well here's a quick summary of sort of the pros and cons of this and actually just to dive deeper into the the

customer standpoint in the web 2 world your customers are paying what seven twenty dollars a month uh in here for you to actually earn a good Revenue people need to buy these entities for thousands of dollars a month or not a month sorry but thousands of dollars in one time purchase and so are people really going to do that uh I mean they did in 2020 and 2021 um but you're really excluding a lot of people to get access to you your content or whatever your product is now we'll talk about other ways that we can um we can fix that or we can continue to build other products around that but let's just look at the pros and cons of this model so potential to generate a large sum of money at launch uh for fundraising or to cover the opportunity

loss of the reoccurring membership right um and I think the great thing here is that your community is incentivized to help you build and generate value to the nft right in the web 2 Playbook your community is not incentivized to build with you now here's the cons your Revenue stream relies on people leaving your community the incentives between you and your community are not in line and I don't ever see that as a good idea in business so for this to be worth it your product or your nft needs to appreciate in price to a point that is going to exclude most of your community um and nft royalties can be circumvented so this is not an ideal Revenue stream for your business to rely on right um this was assuming that they can be

enforced but they can't at least right now so is this really the model you want to take your business to I personally would not so let's talk about some alternative business models for creators with nft tokenized communities NFC Royals or royalties are only one means whereby a Creator can earn additional Revenue where tokenizing uh their Community I would recommend that if you use or plan these royalties treat them as just gravy for the business rather than relying on it for sustainable business model thankfully there are other options which we'll explore in the next episode of this series and yes they are more promising as a business model for tokenizing communities than what we've covered today these additional models will allow you to earn your fair share

as a Creator but also aligning incentives with the community and enabling them to share in the upside with you in these next episodes we will also discuss the practicality and sustainability of building with your tokenized community friends thank you so much for listening here I hope that this was valuable to you I know you probably want to hear the rest of it but it's already getting quite long so we're going to split this up into a series of three uh but we have a lot more to share here a lot more to dive into but this gives you a nice foundational understanding of the current business model tokenizing nft communities um and how that compares to sort of the web 2 world and as a Creator what you should be thinking about hopefully this has kind of opened your mind into

thinking about things a little bit differently understanding how these models are actually going to play out um so very interesting topic again we're still in sort of experimentation mode and all of this that's why I'm trying to pick at it and um and kind of develop the the next steps Playbook and innovate here um but if you guys have any um comments concerns or feedback here then please uh head to Twitter and just comment on one of our posts on this or reply to the email if you've received the newsletter let us know your thoughts because again we are just exploring and we want to help um share that but we want to learn from our community learn from our audience as well so please help us um to continue to think through this but friends thank you

so much for listening and please follow And subscribe to us on Apple podcast on Spotify on YouTube wherever it is you are listening I will see you all next week where we will dive deeper thank you for listening to web3 Academy we hope this helps you along your web 3 journey and if it does please share this episode And subscribe so you don't miss the next one nothing in this podcast was Financial advice crypto and web 3 can be risky you can literally lose it all in fact if you invest on account of what we say you probably will lose it all so don't do that in all honesty the point of this podcast is to remove the noise of markets and price and focus on utility and implementation anyway so you should not take any of this as Financial advice thank you friends and see you in

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