Effective marketing in the crypto era
How blockchain companies fuel explosive growth through novel incentive mechanisms
“This isn’t natural, it’s certainly fraud!” some people say when debating the uprise of massive crypto projects over the past few years. Indeed, blockchain technology has attracted people who come for a quick buck. But aside from some nasty examples, there is a long list of projects that have been surging to unbelievable size for all the right reasons: A good product created by a good team – and distributed with tools that will have a lasting impact on how marketing is done.
What is good growth?
You might have already asked yourself how the massive growth rates of crypto projects are even possible. Paul Graham from Y Combinator famously put a number on what growth rates should be at a startup: "A good growth rate during YC is 5-7% a week. If you can hit 10% a week you're doing exceptionally well."
That's an anchor for the metric a company will choose, such as revenue, users, units, visits, clicks, or API requests. Even though 5-10% per week is already a lot when compared to conventional businesses, crypto companies have regularly hit growth rates well beyond that and reached staggering size within short timespans. And while the product itself may still remain the driving force behind any lasting success, we will examine what distribution tools are supercharging these developments.
Before we go deeper into the rabbit hole, we first need to set a baseline for the current state of online marketing.
How conventional online marketing works
“Half the money I spend on advertising is wasted; the trouble is I don't know which half.” John Wanamaker (1838-1922)
Meet Adrian, a crafty online marketer. On a good day, he's pouring a few thousand dollars into Instagram ads. He can set a few parameters but has no idea who ends up seeing his craft until a new user reveals herself in the form of a signup.
The channel is considered profitable as long as the money spent per acquired customer is below its lifetime value. Adrian knows that the marginal cost for acquiring the next user through the same platform steadily increases, eventually making the tactic unprofitable. Hence, he is flipping through new combinations of text, images, and landing pages while carefully watching his metrics turn against him.
Ad platforms taking a huge cut of the product sale, nebulous algorithms making decisions on whom to present something, paying in advance for a mere chance to make the sale – all these are widely accepted norms nowadays. It’s how it’s always been and despite any critisizm, this method of monetizing people’s attention was lightyears ahead of what was possible with newspapers, fax ads, callcenters, TV, or billboards.
While we are still at the beginning of the crypto era, the next marketing revolution is well underway.
Crypto marketing 101
Every company's dream is word-of-mouth distribution (WOM) or at least some sustainable source of users that doesn’t dry out the moment the budget is reduced. The main problem with that is that WOM is relatively hard to get based on a first version and somewhat slow. Yes, there are counter examples but broadly speaking, the majority of companies would like to grow at a faster than their current rate – otherwise they wouldn’t be spending huge amounts on marketing campaigns left and right to “help spread the word”.
The interesting thing about crypto projects is that most of them come with very effective, built-in financial and non-financial incentives.
Imagine you could design a system that predictably sends a certain number of users through your product funnel, from start to finish. This is how growth is usually thought of in the conventional startup world but the crypto world has a few special twists. Before we go into the mechanics, we need some vocabulary:
Token: In the crypto world, a token is usually something of worth (e.g. Ether).
Wallet: An electronic safe for tokens. It has a unique address that usually starts with something like "0x504..."
Airdrop: The act of sending "free" tokens to wallets.
The Airdrop is commonly used to incentivize early users to get on a platform. In the early days, airdrops were given to users who merely showed up. Today, platforms distribute rewards after certain key actions have been performed or liquidity has been provided to the system – whatever the objective for the user is will get incentivized.
As you are reading this, you might think that incentive design itself is everything but strange to product makers and marketers. The main difference is that, in the crypto world, value transfers are often a key component of the job-to-be-done. On top of that, rewards one one platform are portable to another, which is generally not true for platform-specific rewards like InMail credits on LinkedIn.
Of course, you will get a slight bias in your user base in the form of people trying to make a quick buck. But as I laid out above, the days of free money are counted and the chances that someone with a genuine interest ends up becoming a regular user manifest themselves in high retention rates of many crypto companies. The airdrop and other financial incentives helps users do the right thing earlier.
The second method can ultimately lead to financial rewards but it tickles users in a different way. Non-financial rewards are designed such that users experience joy through collecting and/or creating "their own" version of something.
Let's take a look at an example: Zapper is a dashboard that lets users display their wallet data and do a few other convenient things. Beyond the core functionality, users can claim rewards for a variety of things like building a daily habit (blue) and performing key actions (green).
... which can be turned into a reward on the same platform ⏬
Whether you personally care about such items or not hopefully will not affect your view on the technique itself. It is highly effective for two reasons: Value flows only to those who care and the team can adjust parameters over multiple rounds of iteration.
Can this also be done with conventional software? Of course! If you have ever used habit-building products such as Duolingo, fitness apps or Khan Academy, you will know their streaks and badges for achieving certain milestones. But the problem with these is that rewards are generally locked in a particular ecosystem; I would love to give another running app a spin but I'm on the purple level on Nike Run Club and I'm really determined to get the Volt level in about nine years. Swoosh, locked-in for life!
The power from these non-financial rewards is that they can often be turned into financial compensation if the holder so decides – provided that the issuer allows it: My wallet, my choice.
The alert reader might now think “Busted! Lock-in is good for companies!” From a company standpoint, there is some truth to it. But as a user, wouldn’t you rather engage with a platform that lets you pack your things overnight? Freedom to switch helps to keep the company’s interests aligned and selects for better companies in the long-term. A monopoly on my running stats gradually turns the app into a billboard.
Cui bono et quando?
In the likely event that my latin is no longer sufficient for an intelligent headline, it is supposed to say “Who benefits and when?” and should lead into something that I already hinted at before: In the conventional system, giving users an incentive to do things is additional cost for the company after having paid for the acquisition already. In the crypto system, it’s the only cost. The crypto model lets users – rather than ad platforms – obtain the majority of marketing spend.
Although ad platforms are improving their machine learning models consistently, the conventional system consumes the vast majority of funds for people who will never convert into the funnel, thus driving up the average cost for acquiring someone who is at least considering to take the next step.
Apart from the user getting paid rather than an ad platform, the company can even decide and communicate what actions are to be performed: Do you want your users to send a tweet (= referral) from an account with at least 500 followers? No problem. Or do you want them to trade some asset and spend fees on their platform? You got it.
True loyalty and sustainable growth
Are habits and rewards-driven user behavior the same as loyalty? Of course not. But they are helpful to get things off the ground and understand which users come and what they stay for.
Regardless of what method you choose, incentive programs come at a cost, either directly through financial compensation or the cost of creating something desirable. To get the most out of the incentives, it is a good idea to split programs into different tranches and decide what insights each should generate. Such programs are often announced in public – anticipation helps spread the word all on its own.
Another point people might argue is that acquired growth isn't sustainable. Most successful companies have a different idea and fuel their organic growth with paid user acquisition. And just because a user was acquired through spending money does not mean she will never show up again when the faucet goes dry.
Conversely, I would argue that the opposite is true: It is relatively easy to figure out which users just come for the prize and then design incentives that will feel like second nature to those using the product on the regular already. This way, you can over-serve your most engaged users and let them enjoy that little bit of extra from what they already are: A loyal user of your product.
How to use crypto marketing for conventional products
The above must be regarded as a light appetizer for what is becoming possible with crypto-native incentive mechanisms. But it should be enough to take the story around the question you might have already asked yourself while reading the above: “How do I benefit from all this?” The short summary: Crypto marketing can work for non-crypto products.
You might have noticed that large brands have jumped on the NFT train recently. My current favorite:
You might think that all of it is just pure publicity and brand building. In some cases, that is probably true. But the smart companies don't let people claim their tokens on random websites and by simply connecting their wallets. They will turn this claim into a journey that leads users past other offerings and stimulates desired behavior.
The above techniques can be applied to any product with an online customer base. Design a journey, decide what rewards will be emitted, and pull the trigger. There isn't any reliable data on the effectiveness outside of the crypto space but as long as we are still in the early days, you can book these expenses under branding and publicity.
Alignment of interests & what the future holds
This new style of marketing has a major impact on marketers, builders, and users alike: As a marketer and builder, the major difference between conventional marketing and crypto-style marketing is that money only gets spent when a desired action has been completed instead of blindly pouring thousands into Facebook et al. And as a user? Well, users can finally earn the fruits of their labor right from the start and can be more confident that the platform will remain on their toes to keep their users happy in the long-term.
I admit that meme coins and NFT art changing hands for millions aren’t helping to build confidence in new-ish technology. However, those who dig deeper will quickly discover ideas and projects that have a lasting impact on how an increasingly digital world is being stitched together. Decentralized finance, digital property rights of real objects, enhanced voting and high-speed governance, proof of membership, open world gaming, and everything metaverse – for all this and more, blockchain technology will become the invisible layer underneath that makes new things possible in the first place.
With that in mind, adding crypto tools to conventional products hopefully feels less like a fraud but rather as a viable extension. It certainly proved worthy for a number of projects that are now in prime position to build the future of all the above and it will continue to get refined as these new strategies are becoming the norm.
Much like the Internet in the late 90s, crypto and blockchain are entirely opt-in. But any business who embraces these new paradigms today will be able to reap outsized rewards for years to come and be in a prime position once it becomes inevitable.
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Thank you Tim Wagner for providing feedback on early drafts of this.