For NFT projects to succeed, they must build a sustainable and growable source of income.
Written by: starzq, Ruby Wang
TL;DR
- For NFT projects to succeed, they must build a sustainable and growable revenue stream
- Fat Penguin's playbook: ToB cooperation first, ToC to enhance brand influence, and ultimately increase the proportion of direct sales.
- The highlight of the operation: establish a "social media → authorized realization" channel, and share the success and commercial value of the brand with NFT holders
- I firmly believe that NFT will gain mass adoption because of users' love for IP
1. Background introduction
Project Introduction
Luca Netz, as the CEO of pudgy penguins (hereinafter collectively referred to as "fat penguins"), is not the founder of pudgy penguins. In April 22, he bought the PFP project at a price of 2.5 million US dollars (750ETH at the time). Over the past year, the trading volume and floor price of Fat Penguin have grown steadily. Especially in the last month, the floor price of Fat Penguin once flipped several blue-chip projects, occupying Blur's home page recommendation.
What did Luca lead the team to do right? Have those unique thoughts?
Out of curiosity about its project operation, I carefully studied his recent interviews, sorted out his thinking on building an IP business model, and also shared my views.
* Disclaimer: The author of this article has never owned Pudgy Penguins/Lil Penguins series NFT
The floor price data performance of fat penguins in the past year
About Luca Netz
Although very young, 24-year-old Luca is already a serial entrepreneur.
Growing up in a poor family, he and his mother were homeless for nearly 10 years as a child, often needing to move across the country and live in friends' living rooms. He had to start a business in Los Angeles after dropping out of high school at the age of 16. He first made money running parties in a warehouse, then joined Ring Doorbell, a startup that sells doorbells, and from there found his niche: selling merchandise through social media and influencers (KOLs). Luca has become a typical drop shipper, that is, an e-commerce seller who cooperates with Internet celebrities to handle the commodity supply chain behind and sell directly from brands to consumers. He has created many explosive models, including the gel blaster toy gun, which not only achieved tens of millions of dollars in online sales, but also entered Wal-Mart across the United States (if you are interested, you can watch the evaluation video on YouTube).
Sales chart of Gel Blaster Internet celebrity hits on Amazon in the United States
2. Business model
Specificity of Yuga Labs: Continuous AirDrop won't work in a bear market
Luca believes that the success of Yuga Labs, launched in a bull market, is a factor that cannot be ignored. Can other projects be released in waves and continue to be AirDrop to holders? If the floor price of the project does not reach 20ETH, the price of the sub-series may only be around 0.5E. Not only does it not make much sense, but it also dilutes the supply of the entire project. And in a bear market, this method of issuing new series will not work.
What many web3 holders want today is mainly transactional utility. They hope that the price will rise, free money, and the joy of getting AirDrop. Of course I also want to give this to my community; but at the same time we have to be soberly aware that this is creating things out of thin air or what we call "Ponzi".
NFT projects need to have long-term sustainable income
To be successful, you need to build a sustainable, growing revenue stream. NFT_GOD also shared before that companies need to be built on things beyond NFT .
On the one hand, Luca is soberly aware that it is difficult to work in a bear market by relying on royalties and new hair.
Royalty on Ethereum is a variable out of my control - Fat Penguin might make $500,000 in royalties one month and $50,000 the next month. But this is not my fault, but because of the impact of certain macroeconomic conditions on Liquidity.
On the other hand, the end result of PFP is IP. According to the income sources of the 25 most profitable IPs in the world in 2020, in fact, the main income methods of IP are Derivatives sales, games, and film and television box office. Among them, Derivatives and games can be It is said that they are the two major engines for the realization of IP.
It can be seen that Pokémon has earned nearly 100 billion US dollars in the 24 years since 1996, which shows that the ceiling of IP is very high
The World's 25 Most Successful Media Franchises
In the top NFT project, Yuga Labs mainly chose the game direction, and the 10KTF acquired at the same time will also be combined with the brand entity to realize the commodity; Azuki launched the PBT agreement and the joint name of Ambush last year, and is also exploring the combination of physical goods and digital experience. path of.
Luca chose IP Derivatives. Since he took over Fat Penguin, he has started to operate IP licensing and product planning related matters, and at the same time create emotional connections with users.
At the current stage, digital collectibles (digital collectibles) are not something that mass users participate in and interact with emotionally every day. We will one day break through to the general public, but obviously not yet. From a marketing and consumer behavior perspective, it is important for brands to create as many high-frequency user touch points as possible. How can I reach out to you as much as possible, leave you with memories, create emotional connections? For example, if you learn about our brand through animations on the Internet, or penguin toys given to you by friends, or penguin images in retail stores, then you are more likely to become a member of us.
4. Playbook of Fat Penguin
So what is the fat penguin going to do? I summarize the general realization ideas:
ToB cooperates and authorizes first, and ToC enhances brand influence and ultimately increases the proportion of direct sales.
First use the initial social media influence and exposure of the entire network, use ToB's authorization to open up the situation, and sell fat penguin IP products on offline retail stores and cooperative websites. The advantage is that you can get part of the income first, and also reduce the initial supply chain, channel laying and other input costs, and at the same time expand the contact points of branded products. In terms of ToC, the team focuses on enhancing brand influence and increasing the favorability of the entire network for IP. When relying on self-owned channels and community influence for long-term DTC sales, it can effectively reduce marketing costs and improve conversion.
Specifically in terms of operation, Fat Penguin has some good ingenuity, and summarizes the following three brilliant points:
- Good at using social media and excellent meme communication ability
- Short, flat and fast content first, and use influence to realize authorization
- The success and business value of the brand is shared with NFT holders
Social Media and Meme Communication
Fat Penguin's presence on social media is remarkable. In addition to the 100,000 followers on Twitter, it is worth noting that the team has put a lot of effort into the web2 platform.
There are 360,000 fans on Instagram, and the cute content of the little penguin is updated daily to get a lot of comments, and some small animations even have 400,000 likes. Interactions like this can easily connect with a wide range of young users.
Fat Penguin Official Instagram Account
In addition, on Giphy, a platform that supports all social media to share Gifs, Fat Penguin should be the only NFT project that has officially established a brand account and obtained 2K gif animation uploads and 2 billion cross-platform views. I checked that there are not many official web3 projects on Giphy, except for Boring Ape and BEANZ, many of them are uploaded by the community. Nike and Starbucks brands also have their own Giphy accounts, and the number of views is currently on the same order of magnitude as Penguin.
Giphy
Since I am not familiar with Giphy enough, I also asked ChatGPT:
Short, flat and fast content first, and use influence to realize authorization
Luca said that he agrees with the evaluation of a post on Twitter, "The fat penguin can be regarded as the Doge of the NFT class." He thinks that this similarity is meme-oriented, and what he wants to do is to let people spread these memes everywhere. For example, the advantage of choosing Giphy is that it has integrated many large web2 platforms, especially Twitter, memes are everywhere, and the power of user UGC can easily penetrate IP into every corner of the Internet.
The role of social media is more like background information on the top layer of the conversion funnel, so that everyone is familiar with the brand and planted grass. For example, in the United States, among the users who use Giphy, the highest proportion is between the ages of 18 and 29, reaching 37%. At the same time, if he is a person in the web3 circle, and now he receives a gif with a penguin image from his mother or girlfriend, they will know (the project party is working! 😂) Luca believes that the Gif meme is especially useful for these Human Appetite, increasing their favorability towards the item and possibly turning them into Penguin advocates.
Of course, in the end, social media is mainly for brand communication rather than direct monetization channels. The current exposure data and the active interactive behavior of young people are the bargaining chip for the team to negotiate with licensees and content production studios. This is similar to the start-up strategy of domestic fashion IP, relying on some cute images and short and quick content to let everyone have a good impression of this image and some characters. Instead of spending huge sums of money on long-term content, and then relying on the content of animated series with stories to extend the vitality of characters to realize the long-term realization of IP.
It is reported that Fat Penguin has recently promoted trademark registration, involving candy, snacks, comic books, online social media and other vertical categories in North America, in preparation for the long-term development of the brand.
The following tweet can be referred to: https://twitter.com/NeerMcD/status/1638152037299810306?s=20
The success and business value of the brand is shared with NFT holders
After reading this, you may ask: This is the traditional IP monetization method of web2, so what does it have to do with web3 and the NFT community?
Luca believes that web3 projects should make good use of a unique advantage of NFT that cannot be ignored-grab the attention of 5,000-10,000 people and let them become supporters of your brand. When he initially researched various NFT head projects, he found that BAYC did the best, because they made the initial holders rich, which would build the trust foundation of the community, and make community members become advocates of the project, spontaneously Promote the growth of the project. 5,000 people is not a small number, maybe you can build a business of hundreds of millions (if you have a strong 5,000 communicators) it is enough. People will support you because it is associated with holding NFT interests.
Therefore, returning to the business of Fat Penguin, no matter what form the IP grows in: a game, a TV show or a physical toy, it is very important to be able to give back the value accumulated in the business to NFT and maintain the strength of the core community.
In terms of specific business arrangements, Fat Penguin is currently exploring two authorization models:
Option 1: A small number of holders' images are authorized for physical production, and commercial revenue is shared
Luca said that Fat Penguin is the first project party to collect images from the community for physical authorization. Doodles and BAYC have also made figures and trendy toys before, but they completely use the project party's own image. Ideally, he hopes that the image will be used by community holders, and then the income will be distributed with them. However, it was discovered after real practice that the main reason why there was no such project before was that the legal affairs were really difficult. For example, how to solve the problem of transactions after the holder authorizes NFT, permanent authorization (perpetuity) is very difficult, because the Liquidity of this NFT needs to be locked.
Later, the team tried to solve this problem in another way. Use the holder's NFT assets to settle with prepayment + non-exclusive contract terms:
Suppose we build a toy business line that can sell 1 billion US dollars a year, we can arrange the licensing agreement to return the value to the owner. First sign some penguin images by prepayment, and then share the sales revenue of each toy with the licensor, and make an annual settlement.
In this model, the Fat Penguin team is responsible for media promotion, product design and channel cooperation. The only problem is that this kind of operation is difficult to scale, and there is currently no public information to check the holder's income and prepayment information (looking forward to an on-chain solution in the future).
Fat Penguin announced in September last year and February this year that it has reached cooperation with toy sales and licensing companies PMI and Retail Monster, and will launch different series of toy products, some of which include digital experiences. At present, these products have not yet come out, so there is no data on prices and sales for the time being.
There's a long tweet summarizing all the toy collaborations with physical samples.
Option 2: Most of the images are authorized to be exposed on social media to jointly create brand awareness
It is impossible to take care of all 8,000+ NFT penguin images with the authorization method of Option 1, and it will not be possible within at least 5 years. Therefore, Luca's thinking is that most penguin images mainly authorize the team to do social media exposure. The official Instagram account posts a picture of a different penguin every day. On Giphy, 100 Gifs are posted every week, and 107 penguins are exposed on social media every week, which is 6000+ per year.
Will different exposure data affect the trading behavior of NFT? Or, in the end, is it possible to give each penguin a share of exposure? The team hopes to explore such a form by operating on a large scale.
5. Fat Penguin’s long-term goals vs industry observations
Fat Penguin's Long-Term Goals
Luca's long-term goals for Fat Penguin:
Create the world's first great web3 IP company; become one of the first globally recognized brands and IPs.
He believes that the necessary condition for the success of NFT is that an IP can make a fortune through originating from NFT. I strongly agree with this point:
If it's not me, someone needs to win the battle and conquer this vertical, and it seems to me that our circle will really be taken seriously. Hopefully by the end of this year we will undoubtedly be a Top3 project.
How to think about the big production studio
Luca believes that the people who will really shape web3 and NFT are young people in their 20s.
The younger generation like me, who grew up in the era of mobile Internet, will have an advantage over those who are experienced in the content industry in terms of social media growth and user connection. Our core competency is not storytelling and the construction of a large world view, which is where large production studios are good at.
My thinking is, let's do what we're good at, let's create a huge gap. Then they come to us to do what they do best, and we can combine what we do best with each other to form a partnership.
It's like the founders of BAYC didn't make games, they played games and didn't know how to make games; but they built such a big brand and so much influence that game developers came to them and said, hey, We'll build your game for you, and BAYC can get great deals too.
At the same time, he also mentioned that he has talked with some big studios about story and character development. But the terms of the current deal are not quite balanced, and it is clear that these studios have not made satisfactory offers. He does not want to make concessions with a very low amount in order to reach a cooperation in a very important revenue vertical category (film and television production) for a long time.
Luca wants to show Warner and Disney and all these major studios that web3 IP can take market share from them:
If we can take market share from them, they will send their best soldiers in this field, because now it is just testing the waters, and the people they send and the resources they put in are obviously not the best and core. I expect them to put the best IP and production ability into web3.
A very combative young CEO.
6. Where will the next tens of millions of NFT users come from?
So, where will the tens and hundreds of millions of users who will enter web3 come from?
Luca does not believe that web3 can gain large-scale application by sponsoring a certain competition, and the logo can be displayed on the big screen of the advertisement;
The belief that NFT will gain mass adoption comes from users' love for IP.
Because if these NFTs are not characters, they are just generated pictures on the blockchain, and only a very small number of NFTs will succeed. Users will come to web3 by wanting to support a brand whose vision they believe in and have incentives aligned with that brand's values;
They really become champions of the brand because they like a character and the message behind that character. I firmly believe that what we have to do is to open the floodgates for IPs such as "Star Wars" and "Harry Potter".
Attachment: reference materials
Interview video Luca Netz: Can Pudgy Penguins Onboard The Masses? l Overpriced JPEGs #142
Luca Netz: The fat penguin's new owner
Luca Netz Biography
Gel Blaster Amazon sales store
Fat Penguin is recently advancing trademark registration
The 25 Most Profitable IPs in the World (2020 Edition)
When PMI toys cooperate in 2022, the fat penguin allows the holder to submit the authorization notice
Fat Penguin Official Website
A long push summary of a series of toy cooperation samples
