I agree with the authors that NFTs hold a ton of potential. However, this book utterly fails to make that case. Most of the examples they give are around sports, entertainment, restaurants, and related memorabilia (physical and virtual) and event access. They barely give a nod to other use cases.
NFTs can give loyalty programs more capabilities. This is no doubt of value to fans and to brands alike. But for something the authors characterize as the third phase of the consumer internet – in other words, world changing – their discussions and examples are rather uninspiring. The use cases they outline are evolutionary steps, not a revolutionary transformation. Example on page 46: “Think how cool—and beneficial for everyone—it could be for a restaurant chain’s most loyal customers to help design the next incarnation of its menu.” Really? This is how you showcase what you are calling a game-changing technology? How will NFTs make the economy work better? I’d like to see a deeper dive on that.
They also seem to lack an understanding of some basic economic principles. One of the authors is an expert in loyalty programs works in the Economics department at Harvard, so perhaps they have this right and I’m missing something. But if that’s the case, they failed to explain their case adequately, which is a major blemish for this book.
First, in Chapter 3 they talk a lot about the community and business built around the Bored Ape Yacht Club. They claim the company and community are both incentivized to increase the value of the tokens by giving token holders access to things like concerts, etc. The authors never explain how this will sustain itself.
Decentralized communities are unlikely to organize big events. Or to raise enough funds through a grassroots effort to organize them. It all still relies on the company that issued the tokens. At some point there will be diminishing returns where the benefit of events and other benefits will not drive up the value of the tokens enough to justify the cost. Then what? Presumably the value of the tokens will plumet. Maybe they then get cheap enough to make events cost effective again. But by then the weakness in the whole model will have been exposed and thus will have limited upside.
Then, in Chapter 5 they talk about making airline loyalty programs more flexible, which comes down to making airline miles fungible. This has a lot of value for customers, but the whole reason companies roll out loyalty programs is because the rewards are not fungible. If I can spend my airline points on local restaurants, for example, I no longer need to book a trip with that airline to use my points. Part of the loyalty incentive has disappeared (though the airline status benefits may still exist).
Businesses want to lock customers into their ecosystem, not to let customers spend rewards anywhere. Otherwise, rewards become no different than money and it would be cheaper for airlines to just give discounts rather than manage complicated loyalty programs. The more loyalty points act like money (spendable anywhere on anything) the less valuable they are to the airline in driving customer loyalty.
On page 64 they say, “When Forum3, the agency consulting on Starbucks’s NFT-based loyalty program, spoke in Scott’s Harvard Business School class in January 2023, one student asked whether it was a problem that Dunkin’ Donuts could potentially offer coupons to people holding Starbucks NFTs. The Forum3 team responded that in their view, this could actually increase the value of the Starbucks NFTs—and hence, the value of engaging in the Starbucks ecosystem—because Dunkin’ would in effect be providing utility to members of Starbucks’s loyalty program.”
Again, that makes the loyalty program more valuable to customers. But it makes it less valuable to Starbucks. The example above is exactly the _opposite_ of loyalty. Dunkin’ Donuts wouldn’t issue those coupons unless they had value to Dunkin’ Donuts. That value is coming at Starbucks’ expense. Starbucks wants their customer to search for a Starbucks to earn and use more points with them, not walk into Dunkin’ Donuts. If the rewards programs no longer reward the merchant, the merchant will stop issuing them.
On page 68 the authors say, “Utility features of NFTs—like whether they do in fact guarantee special product access—are platform-provided services and may be subject to change. But on a blockchain, ownership of the underlying NFT asset isn’t. Just like Amazon can’t claw back a physical book, The Hundreds can’t recall or erase holders’ Adam Bomb Squad NFTs. And it can’t stop people from giving or lending them to others.”
Yes, but the _value_ is in the utility features that are still centrally controlled, not the token on the decentralized blockchain. While the retailer can’t claw back the actual token, they can change or take away any of the benefits it bestows. If you have a physical gift card for a company that went out of business, for example, no one can take that card away from you. And sure, you could try to sell it to someone else. But no one will buy it. The value is connected to the issuer of the token, and if that issuer changes the terms (voluntarily, or involuntarily by going out of business) they can debase the value of the token and even make it worthless. In the case of the NFT, the token may exist on an immutable blockchain, but its value is still determined by a centralized organization.
Finally, on page 174 they say, “$100 per year per fan sounds like a large number at first, but that’s really just $8 to $9 per month—roughly the same price as a Netflix subscription, or what you might pay in a couple trips to a favorite coffee shop.” This is embarrassingly wrong. The $100 they refer to is a profit number. When they talk about customers paying $8-9 per month, that is revenue. They are conflating top-line revenue with bottom-line profit.
In short, the authors failed to showcase the potential of this technology. I did learn something from this book, so I can’t give it just one star. But I do recommend finding something else to read on the subject.
Laura L
Sam Holmes