Alexis Ohanian- Will Web3 Disrupt Marketing | Upwave Speaker Series

I do. And let's not forget, obviously, also founder of Initialized, which is a proud, proud investor of y'all.

Sure. I mean, in short, you know, doing venture, but doing it a little differently. I'm a product guy first and foremost, so the north star is a technology company that deploys venture capital. And you know, we've only been around the last, call it, year and a half, but seen some good success. And I think we're on to something really unique because venture is still one of the last industries standing that has little to no software, which means little to no efficiency, little to no accountability, little to no, etc., etc. And it's already given us quite an edge just to be building literally an operating system that runs the firm, runs our relationship to our founders and our LPs. And I'm going to spend the rest of my life doing it. There's also a sister foundation, very creatively named 776 Foundation. And you know, those two are going to be my focus for the rest of my years. So whether deploying capital for for-profit or deploying capital for not-for-profit, that's what I seem to be pretty good at and I have a lot of fun doing so. We're just trying to do it a little differently with software. And I think you all have seen firsthand the difference that software is making. And I don't think any industry is safe.

Okay, well, so Reddit was one of the pillars of Web2. And I know it's just jargon, I even back when that was a thing would make fun of the Web2 framing. And it is silly, but it does help simplify. And I do think it is apt because I do think this is a big shift. And the simplest way to explain it would be, so you know, going from Web1 to Web2, the start of social media was marked by a change of an internet that went from just being read-only to read and write. So that is, anyone who visited a website wasn't just reading content from it, you're able to create content on it. And more often than not, the content you were creating was actually more valuable than any content the platform itself was creating. So whether it's uploading a link on Reddit, submitting a photo to Instagram, yada yada yada, social media is about read and write. That's Web2. Web3 adds a third component. So you have read, you have write, and then you have own. The technology of the blockchain allows for ownership, a proof of ownership digitally that historically we only really have like a physical analog for. Like this is a one-of-one card, it is in my possession. You can replicate this image all over the internet, but no one's gonna pay you, you know, a few hundred thousand dollars for it unless it's the actual one. And what we now have thanks to this technology is a proof of ownership. And right now the use cases are pretty simple and pretty basic, but we're starting to see more and more value and utility. And I think for brands in particular, we're gonna see a huge shift really in just the next few years because it's gonna change the relationship that individuals have with their communities or their audiences, whether that individual is a celebrity or a brand. I know brands aren't human, but there's a relationship there that's going to take on a very different dynamic thanks to this tech. And happy to take questions from folks about this, but the high level, it's going to affect a lot of things, the same way Web2 did.

I think very few are excited. I think it shouldn't surprise you that the first adopters have been brands that deeply understand culture and community. So you look at Nike acquiring RTFKT, which is an NFT company. You look at the NBA partnering with Top Shot really to kick off a lot of the NFT stuff a couple years ago. You look at Adidas partnering with the Bored Apes for a limited drop, right? I just named three very sophisticated marketing companies that are actually fairly tech-savvy, you know, in a sea of incumbents that set a low bar for tech-savviness. And I think you probably 10 or 15 years ago would have seen those same companies leaning in early to social media because they realized as disruptive as this was, it's inevitable, like a lot of technologies that solve problems and have sort of bottom-up interest. But I do think the learning curve here is a lot steeper because there is a technological learning curve from the tech side of it. And then frankly, there's just a lot of noise. There's, you know, probably one of the best things, I've lived through like three crypto cycles now. I first seed invested in Coinbase in 2012 and I was in the Ethereum pre-sale personally a few years later. I've been in this space for a while, I've seen multiple winters now. And the nice thing is during these crypto winters, you see a scattering of the charlatans, you see a scattering of the grifters, and the folks who stick around and are building are oftentimes the ones actually creating the real technology that's going to hold up and do great stuff. So I actually, in many ways, I've been looking forward to, is too strong of a word, but I've been relishing another crypto winter like we just had and are in right now, because it just means better stuff is gonna get built with more focus on actually solving problems. And that's great.

And I do think we're in the simplest manifestation of it right now. I think we're gonna start to see more and more examples, and probably one of the most applicable ones to brands, and I've been having a lot of these conversations with, let's say, incumbent IP holders. So folks who are sitting on a lot of valuable IP that historically have had a pretty good relationship to fan bases and communities but don't really know how to orient themselves now, even though they know community is more important than ever. And the opportunity if you're an IP holder is tremendous. Because you know, every time one of those silly apes resells, Yuga Labs makes money. And we're big investors and early investors in Yuga Labs, the company that holds Bored Apes and a few of these other projects. This company is going to make a few hundred million dollars in revenue this year, almost all margin, just from the secondary sales of those NFTs. Just from as long as everyone just wakes up every morning and people are still buying and selling these things, they make a percentage. And there's no fee paid to Visa. That transaction is being handled on the blockchain. So there's this component to it that we've just literally never seen before. Like, that flow of secondary sales never would have existed. And not only does it exist now, it'll exist for all time. It can exist in perpetuity as long as the technology is relevant to folks, it'll keep paying out. So that opens up really interesting opportunities.

And probably one of the simplest things that we can now prove is, you know, if you think about even when I think of just NFTs as a technology, I try to equate it to like paper. Where, you know, as an analog thing, paper has clearly done some amazing stuff. But if you were to go back in time to the earliest days of paper and you were explaining to some dude in Egypt messing around with some papyrus that one day this could be used for a constitution that would be priceless and help be a founding document for a country, and also be a business card that people would use to introduce themselves, and also be a trading card that could be worth hundreds of thousands of dollars just because of the person that's printed on it, or it could be a ticket stub that if it's to the right event could be worth two dollars the day you bought it or it could be worth five hundred thousand dollars when it's sold at auction like the Michael Jordan debut ticket was just a few months ago. And like trying to explain all the layers of that, and this paper can also be used for toilet paper. And it's utterly basic. I mean, it's really valuable, but no one's paying for it after use, right? Like, think about that and all the ways the paper is used. And the vast majority of what gets produced is actually pretty worthless, right? It's not priceless. And that doesn't make the technology bad. It just means it serves a different utility. And we don't discard paper as a technology simply because there are lots of frivolous use cases for it. So we're still at the stage where we've really just now given up basically a canvas to artists to create art. Maybe it's a one-of-one photo that they can now prove that they made, it's one-of-one, and every time it sells for all time they make some money. And so, you know, I have friends who are photographers whose lives have been changed now because they make a living on their art and they never did ever before. That's powerful.

But now, you know, you talk about it like a marketer. Let's talk about brand marketers. You know, a company like, I don't know, Disney is trying really hard to get me to, I mean, they'll never have to worry about me unsubscribing from Disney+ as long as I have a child in my house. But you know, they want to get more and more people signed up for it, they want to get more and more people in theaters. Historically, you've never had a way to segment your audience really intelligently. You could do all the things Facebook and others could offer you, but you didn't actually know who were your real biggest fans. You could come up with proxies and say, okay, well, this person's been, you know, they created the blah blah Beyonce fan group and they were the first one, right? But it was all kind of made up. If you think of NFTs as a way to create a proxy for fandom, right, there will come a time when you'll be able to get a ticket, and again, you won't as a user know or care that it's an NFT, but it will be, you'll get a ticket for an early screening of a trailer to a new show on Disney+. You'll get to watch that trailer 48 hours before it drops on YouTube, maybe 24 hours, whatever, it doesn't matter, just some amount of time before. And you know, you can imagine a scenario where one, Disney is not only able to now charge money for a thing they normally wouldn't have been able to charge money for, because now they can say the only way you can view this thing is if you're logging into an NFT-gated website. So you have to have that NFT, you have to be able to log in and use it. But then you can imagine a scenario where you create a market where, let's say you sell a hundred of those tickets or a thousand of those tickets, and you do it a month in advance, and for the next month you now have the market forces let people who can wait a couple extra days sell that ticket again digitally to anyone in the world and maybe make a few bucks. But remember, Disney or the publisher also makes money on every one of those secondary transactions. And so now you've created value where there's always been value in your community, because you're actually able to have supply meet demand. And then over time, you now have a relationship with people who hold that ticket stub digitally. And so, you know, and again, this is basically each one of those ticket stubs sits in an, it's tied to an Ethereum address or you could think of it as like a mailbox. And so then a marketer could say, let me send a message. This technology doesn't quite exist, XMTP is one company that I think is going to probably get there first. But let me send a message to everyone who holds, everyone who has one of these ticket stubs, or has held this ticket stub for more than three weeks, or who got this ticket stub in the original drop, or who got this ticket stub and paid more than ten dollars for it. Like, you can message through all of those criteria because all of that data is on a public ledger. And now you can start targeting your messaging in a way that actually really hits. It hits at a communal level, it hits at a fandom level you've never really been able to properly measure before. And that's like, that is literally the dumbest first idea that I could have come up with, right? We're still, no one has actually had the moment where they're like, hey, we could write something down and it's a constitution, or we could write this down, we could claim that this is a currency. Like, the use cases for it are still so almost prehistoric right now. Creativity is going to spur so much more interesting stuff.

Exactly, yeah, exactly. But think, I mean, okay, what else? Just think about explaining that, right? Like, I thought that all of the infrastructure, let's just use tickets as an example. All of the infrastructure that exists, imagine you're in pre, like, what is it, 3000 BCE, I don't know, Egypt, and you're like, look, we're going to have one, you're explaining organized sport and then professional sports, and then you're like, look, and everyone's going to have a piece of paper that just has written on it, here is your seat and the date and the time, and everyone is just going to agree to show up at that place to sit in the seat they're supposed to sit in. And naturally someone's reaction back then, I assume, would have been like, well, that's never going to work because how are people going to agree? Like, I could just make my own fake ticket and show up and say, oh, I'm in seat six, right? And it's like, yes, that happened, it still happens, it's getting harder and harder as the technology improves. But it would seem borderline preposterous to someone at the birth time of paper that this could even just work, let alone that that ticket 30 years later, because of how special that moment was, ends up being worth a hundred thousand times more, right? And so we are at that stage where it is gonna take, there's so much more creativity to come and so much more building that needs to come to actually prove this stuff out. But I feel pretty confident it's going in that direction.

Yeah, it really depends on the brand. And so that, look, it's gonna limit, you know, I'll just rattle off some examples, right? There are, if your business relies on the sort of like in-store proof of purchase, like every time you buy a burrito I'll stamp the card for you and until you get a free burrito, like, that is a clear and pretty obvious and being built Web3 use case. If you are sophisticated with culture and community, and you probably should be self-aware enough to know if you are or aren't one of those brands, right? No one's going to be like, Adidas, you don't know anything about culture and community, right? If you are one of those brands, I would say look for partnerships with some of the blue-chip projects. There was one that just launched with, it was Invisible Friends, which is the NFT project designed, I forget the artist's name, but they just announced a partnership with Kith. So, you know, top streetwear brand, right? It makes sense within the culture and it's like one plus one equals three type of partnership. And you know, you've seen others with like some of the luxury brands doing things in these spaces. It just has to make sense, it has to vibe, I don't know how to describe it, with folks who are actively spending their time with Web3. And then look, if it's a business where maybe none of those things apply, it is okay to not have a strategy for it, or at least not have a thing to do right now with it. Because a lot of the tools to make it obvious don't exist yet, right? There's no Instagram yet, there's no Twitter yet where I can say like, oh yeah, look, there's billions of people here who want to get to know your brand, want to be a part of it. It is not worth trying to make fetch happen here if it's not obvious. But there's some low-hanging fruit for different types of businesses right now for sure.

All right, I'm sure some attendees will take you up on that. So if you're a marketer, I may need to get a quick DM exchange going on how your brand can take advantage of Web3 technology. So yeah, hit me up or email Chris and I'll filter out the spam for you.

Gosh, this one's gonna be hard. It is evolving so quickly, I don't know if you could institutionalize it. There are a lot of great bottom-up resources. I mean, at the end of the day, all the things I know and I've learned about the space have come from, well, so talking to builders in it, which I sort of have an unfair advantage there, but a lot of it is just from the zeitgeist. It's from Twitter, it's from Discord. It's from spending time. And the other really interesting thing about this is culturally, so much about all of Web3 is about building in public, in part because it's more often than not on-chain, like literally in public in a public database. But culturally, that's also the vibe. And so for a lot of folks, it's really up to you. Like, if you want to seek out this information, if you want to make time for it, it is actually there and available in a bottom-up manner. Now, would it benefit to have some more kind of top-down produced content? Yeah, maybe. That's actually, it could be a good thing for us, for 776, to be doing. But it's wild because some of the best sort of experts I know in the space are folks who are earlier in their careers and they also just have more bandwidth and more time and more hunger. And they're thriving because they can find these resources, they can connect with one another and win, because that's really the greatest barrier more often than not.

Yeah, okay, well, on the latter, you bring up baseball cards, as I'm still looking, I'm deep in the collectible space. As far as I can see, even right now, trading cards are still pretty uncorrelated with anything, like stock market, gold, Bitcoin, like trading cards just don't care. Like, it's insane to see. But points still taken on NFTs, which obviously I think even the blue chips have held up their value pretty well, but the rest of the market absolutely tanked as it should have. A lot of us were saying that for quite some time, it was inevitable. I would say for a brand, in most cases, again, it depends on the brand, but I think in 90 percent of brand cases, NFTs are not a way to create a speculative asset for your fans. You know, if you're Kith, like, yeah, that's already implicit in streetwear culture, that's why people line up to get drops because they know they can resell it for more in the secondary market. Like, okay, yeah, there's some brands where, and again, this is where this is a sort of self-awareness test. If you're not one of those brands, then the goal should not be create a speculative asset. The goal should be for utility. And so, you know, again, this is gonna vary based on the different companies, but it's not about creating something that someone is going to flip or hold on to to retire one day. And that goes into the messaging, that goes into the pricing, that goes into everything. It's about the utility of, right, like here is that ticket that helps you get into the private access live stream. There's a company called Antic that's building this tech, and so I've watched it, I've been like, oh holy, like that's actually useful, there's some useful utility there. Or if it's for the punch cards, you know, for the free burrito again, it's not, you know, it is not about creating something you're gonna retire from. It's just creating a delightful user experience. And one where, like, you know, I don't know, if it works one day and you have a ton of burritos but you're really in the mood for a free falafel, you can imagine trading it with some stranger on the internet to get that free falafel for a burrito that you don't want, you know? Like, it's, that, again, this stuff seems kind of silly, but liquidity, yeah, in the second part. But if you're creating a user experience and like, yeah, why the hell not? Like, sure. I mean, again, there's an offline version of that where you're at the cubicle, you're at the office, and your buddy is like, oh man, I've got a free falafel today, and you're like, oh, I've got a free burrito, actually, let's just trade, let me give you mine, you give me yours because I want a falafel today. Like, that, it seems so moot, but when you create the user experience of a delightful app and a seamless, like, oh cool, like I get the benefit of all the free burritos I want and then the day I want a falafel I actually get a free falafel too, and neither of those companies need to, you don't need to be one big monolith to make that happen, it could just be two totally different businesses.

And then with regard to the environment, so different blockchains have different environmental impacts. Sort of in the same way that, like, I don't know, different, the environmental impact of a Tesla is very different from the environmental impact of like a semi-truck. And so, you know, Ethereum is the most prominent platform right now for NFTs. It is still pretty inefficient. A few of the projects, like, let's see, Kevin Rose's Proof project, they offset all of the fees, excuse me, all the sort of environmental costs of the minting process. That's what the most forward-thinking projects are doing. But there's a big technological improvement that everyone's been looking forward to that's going to shift Ethereum from a proof of work to proof of stake. And so it would basically, it'll significantly cut the environmental impact of making the Ethereum blockchain work. Hasn't happened yet, we're optimistic it's going to happen this year. And then there are other chains like layer two, so without getting too draggy, there are a couple of other options for NFTs right now, like Polygon or Solana. Both of those have little to no environmental impact whatsoever just because the way they were built was sort of more like building a Tesla than building a semi. They knew from the start that was one of the goals they wanted to achieve and so that's, they were solving for that.

Yeah, the thing that, okay, the thing that gets the headlines right now is the like the record sales of these PFP projects, profile picture projects like Bored Apes, Punks, you've probably seen a few headlines. I think that is misplaced. And even looking at, you know, folks have reported on the decline in transactions of NFTs. I've seen NFTs reported dead a lot over the last six months, but especially again even the last month. And that is a much less interesting statistic. That is a reflection of the thing I was talking about earlier that I'm excited about, which is an exodus of the charlatans and the folks who just want to make some money, you know, flipping some JPEGs. What's really interesting is the developer activity. And I think Alex from OpenSea tweeted this earlier today about if you look at the smart contract deployers per day around NFTs, it has continued, especially in Ethereum, but also in Matic, which is Polygon, it's just continued to grow, especially in the last week. And so what does that say? That says developers, that is like people smarter than me who are deciding where they want to spend their very valuable time not just for the next week but for years to come, are shipping even more right now to improve upon this technology. And so I always follow the builders. I've found a lot of success in my career as a founder, CEO, as well as just an early investor, looking to where really smart builders are willing to put their time where they see opportunity. Because with technology, that tends to be a leading indicator of where dope things are going. Because those builders focusing their time and their energy tend to build dope things. Those dope things tend to attract the rest of us who are like, oh, that's dope, I'm glad this exists now. And you know, you could think about, you know, just think of the glut of iPhone apps on the App Store when it first launched that just made everyone so offended, right? Like the 'I Am Rich' app, that one really expensive app that you showed you were rich, or like, I don't know, the whoopee cushion app, or these apps that would make people, they would get headlines and everyone would be so pissed and they'd be like, god, this is so pathetic, like wasting all their time doing blah blah. And it's like, fine. But what was happening there? The bigger, more interesting thing was this brand new technology, smartphones, was actually attracting a pool of developers who saw opportunities to build what are now world-changing technologies that we take for granted, right? Because we created an environment that made it really easy for some jerk to make an 'I Am Rich' app, it also allowed us to now summon a car literally anywhere in the world. Like, I like that those are the same, that's the same technology, it's the same App Store. And yes, that opened the floodgates to a bunch of, but look at 10 years out, 15 years out, with that perspective, like, oh my god, this just changed our world in so many different ways. And that's just one example. And so I feel similarly here. And if I would be, I would be so much more concerned if there weren't so many smart, earnest builders just shipping and building and saying they're gonna devote a ton of time to this space. And it's not the only one, don't get me wrong. I still invest in rocket companies, we invest in marketing companies and advertising companies, we're looking at a lot of different places. But what's very clear is this underlying tech of Web3 is going to be a part of a lot of things.

Any time, Chris. We'll talk to you soon.

Thanks everybody.