By now, we’ve probably all at least heard of NFTs and virtual goods. But, what is the actual market like right now? How should interested companies get involved? Where is the market likely heading and what could drive these changes?
Scalefast sifted through survey data from YouGov to come up with some answers and shared an early version of the report, titled “Revealing the Metaverse”, with ARPost.
Understanding NFTs and Virtual Goods
Before we get started, let’s spell out “NFTs” and “virtual goods.” The former is a pretty set-in-stone idea, but the latter is a little more ambiguous – so even if you have an understanding of virtual goods, stick around so that you understand how the term was applied within the context of this survey and report.
“NFT” is short for “non-fungible tokens” – units of cryptocurrency that have specific alterations made such that they can’t be used like other units of cryptocurrency. The alterations made to these tokens are usually digital identifiers of a virtual good and can prove ownership, provenance, and scarcity.
“Virtual goods” are anything that you spend money on that you can’t put your hands on. This survey and report specifically entail avatars, avatar accessories and abilities, digital gifts, and digital gifts that can be sent to other users of a game or platform. The survey and report also included in-game currencies and tickets to virtual events as “virtual goods.”
A final note on numbers and nomenclature, the analysis in the report was written by Scalefast using figures collected by YouGov during a December 2021 survey with a respondent pool of 1,257 adults. If the name sounds familiar to readers of ARPost, it could be because YouGov was involved in a recent report on VR and AR retail released in November by Zakeke.
One More Thing: Why Care?
This is ARPost, not “NFTPost.” So, why do we care about NFTs and virtual goods?
Virtual reality entails entirely virtual worlds. Augmented reality entails virtual elements in our physical world. Both of these ideas require “virtual goods.”
Right now, most of the virtual elements in AR and in VR are created by large studios or part of open source repositories. This makes it difficult for creators to access virtual assets for their projects and it means that the people that make those virtual assets in the first place don’t always receive the compensation that they deserve.
NFTs allow the transferable ownership of virtual goods. Creators that “mint” virtual goods as NFTs can start to make profits from their creations. Those creations can then appear in more independent projects. Because NFTs are on blockchain, they also allow platforms on the same blockchains to let users take NFTs cross-world (see Ready Player Me, MetaMask, etc.).
However, if you’ve been on the internet in the last few months you know that a lot of NFTs are… stupid. This is largely because the technology is relatively new and people are still playing around with it. Not everyone has the time and resources to play around with NFTs, so research by companies like ScaleFast and YouGove help understand which NFTs work (or not) and why.
We’re in the Early Days
An unstated thesis of the report is that NFTs are going to stick around and companies shouldn’t be asking “if” so much as “how.” The answer is to watch the industry now because it’s still early.
“NFTs and virtual goods present both a challenge and opportunity for brands,” reads the report. “Opportunity lies in predicting tomorrow’s NFT and virtual goods buyer by understanding today’s early adopters.”
So, who are these early adopters? According to the survey responses, both NFTs and virtual goods are most popular among males between the ages of 18 and 34.
The survey also notes that more educated people are less likely to purchase these assets, and paints the picture of “risk-takers following less-traditional paths to wealth.” While that’s certainly a part of it, the correlation may also have to do with the respondents’ age and less to do with their actual level of education or intelligence.
Further, the report identifies that “those purchasing NFTs lean toward more sentimental product categories while gaming remains a major focus for virtual goods,” and almost half of NFT purchasers reported making $80k/year or more. These are the trends of a youthful market, not a market blindly reaching for financial advancement.
Another interesting trend identified in the report is that members of “China-based social media apps” are far more likely to have purchased NFTs and virtual goods than users of “legacy social media sites” like Twitter, LinkedIn, and Facebook.
So a portrait of the market today:
“The market for NFTs and virtual goods is largely untapped as most active participants so far have been young and highly in-tune with overseas tech trends.”
Who Hasn’t Bought in? And, Why Not?
So, who is left to tap? What kinds of people aren’t buying NFTs and virtual goods? First off, 44% of respondents said that they had “no clue” what NFTs were – 36% said the same of virtual assets.
“Market expansion begins with educating the consumer and identifying what factors could increase the chance of a successful transaction,” read the report. Fortunately, the survey also identified some of those factors.
Almost half of the respondents said that they would buy an NFT if they had a better understanding of the underlying technology. A similar fraction said that they would be more likely to buy if they knew that the asset was going to appreciate.
A third said that they would be more likely to buy if it came from a brand that they already trusted. A quarter each said that they would be more likely to buy if the process to purchase was easy and if the virtual asset came along with a physical good.
How to Grow the Market
So, you know the current market, and you know what potential buyers want to see. Now, how do you, as a company or independent producer of these assets get into the space?
First, build your existing brand. Potential buyers and active buyers alike want to buy from entities that they trust. If your first action as a virtual asset producer is to produce a virtual asset, you’re going to have a hard time. Per the report:
“Familiar retail brands and interactions are key to earning consumer confidence to transact in a new world on the brink of massive growth.”
Second, be an active educator. As mentioned above, a lot of potential buyers of these assets aren’t buying because they simply aren’t aware of or don’t understand the technologies. If you want to sell something, you might have to be the one telling your customer what they’re buying.
Third, give the people what they want. If that’s a virtual good, that’s something that they can use today in the games and platforms that they already value. If that’s an NFT, that’s something that represents something that already means a lot to the buyer as part of their cultural interest. And, in either case, that’s something that’s going to be worth as much or more tomorrow.
Finally, be patient. You can’t be the only one spreading the word. These are new technologies and word is going to get out – particularly as it spreads through the tech space into social media platforms that are going to do the evangelization for you. Per the report:
“As older-skewing media platforms invest in these products, they will bring awareness and demand from a much broader segment of U.S. consumers and brands should take steps now to avoid being left behind.”
The Landscape of Tomorrow
Readers of the report have time to act as they have arrived early. The report itself is arguably early. Many promoters of NFTs and virtual goods – particularly those also interested in XR – believe that these two asset classes will one day merge to allow purchasable, ownable, tradeable aspects of our digital identities.
While that day has not yet come, there are more use cases for these exciting technologies all the time. Yours could be next.