What is the attention economy? What role does NFT play in it?

We are all just looking for our tribe, and commercial tools like NFTs just make the process of finding and transmitting intra-tribal signals easier.

We used to operate in a transactional economy. We transfer wealth, culture and ideas in exchange for goods or services. If you explore in the Indian state of Kerala (my hometown), you will find traces of ancient gold and Roman culture. With the advent of the Internet, we moved from a transactional economy to an attention-driven economy. It’s not a quick turnaround. According to Tim Wu’s The Attention Merchant, the attention economy emerges through newspapers. Publishers started using advertising as a way to reduce printing costs. Television and radio have further accelerated the emergence of the attention economy. They capture the public psyche, change culture, and unify narratives on a massive scale. But none are as significant as the internet and now — AR and VR. Why? People earn their money back over time in the transactional economy. In the attention economy, lost time is irreversible.

Why does all this matter? Because I think — NFTs represent your attention and behave as a financial commodity. Unlike text messages or spam, if an NFT has a financial price associated with it, you pay attention to it and double-check it. As more and more brands release NFTs, the cost per NFT may be trending towards zero, but at the moment, we are in the experimental phase of NFTs – which means brands are trying everything. Hoodies linked to NFTs? Adidas is doing this for Bored Ape Yacht Club members. Lifetime pass for concerts as NFT? FTX is helping Coachella do just that. What about NFTs as proof of attendance? POAP has been helping event organizers with proof of attendance, and the possibilities are endless. But to understand where we are going, we need to know how we got here.

What is the attention economy? What role does NFT play in it?

Four stages mark the evolution of our economy, and they can be broken down by resource spending and ownership. Early human economies were resource-intensive with little respect for ownership. Class hierarchies ensure that only a subset of people rarely own the jobs they do. Over time, giving ownership of what a person spends time on becomes the norm. Think about how we have grown steadily from daily salary to profit distribution to employee stock options now. Below is a brief review of how things have unfolded.

Transactional economies – These economies are marked by the exchange of money for goods or services. Most of human history has operated in a transactional economy. Barter, the Silk Road or eventual colonization. The transactional economy is the backbone of all of this. Before the arrival of technologies such as ships and trade routes, the focus was on local markets. It continued until the advent of printing.

The Attention Economy – Printing reduces the cost of copying information. But it wasn’t until the 18th century that literacy rates exploded that there was a dedicated market for books. As mentioned earlier, newspapers were early pioneers of the platforms we have today. An attention economy is one where you sell attention (to a third party) instead of a commodity. A&T brought the model online in 1995 with its first banner ad on HotWired. Last year alone, YouTube made $29 billion selling ads. They have virtually no production costs and high customer stickiness. You can scale it to the size of a country like Facebook can, without worrying about the cost scaling up.

Platform Economy – The platform economy connects sellers and service providers with potential buyers. Amazon did so with nearly $489 billion in revenue. Uber followed the same pattern, expanding its revenue from $100 million in 2013 to $13 billion in 2020. The value of the platform arises as a result of discovering and trusting suppliers on the platform. Today, most of the mobile apps we use every day have a platform game going on, and the cost lies in vendor curation and trust in a sufficiently large user base.

Community Economy – The Community Economy is the evolution of the cooperative. We are not talking about the macroeconomic context of the DAO. The Internet has given us access to global markets (2010). Smart contracts allow us to trust each other without a middleman (2020). This pandemic reminds us that our time is short and that one should work for what one has. It tells us that one can do all the right things and still get screwed by life. So we have been at the stage of exploring alternative economic models. That’s what DAOs do (you could say DAOs are the Gen Z equivalent of “Occupy Wall Street”), they connect individual autonomy to economic opportunities that didn’t exist earlier. A community economy is an instance of users managing what they use. These economic models leave behind on-chain evidence of economic interactions, leading to the openness of data on these economic actors. The community economy differs from the platform economy and attention economy in that data about participants is not typically segregated on company-owned servers. Anyone can inquire and build on this basis. NFT-based DAOs such as Gitcoin, ENS, Covalent, Biconomy, and LobsterDAO are all examples of this. Are shareholder-driven companies a community economy?

Where are we now?

Now that we have a historical context, let’s look at the current situation. In 2011, Ribbonfarm’s Venkatesh Rao divided the modern economy into two quadrants, connected and refined. We’ve modified it a bit (below) to suit the needs of today’s brands. The x-axis looks at associativity. Associativity here refers to the relationship of the parties in the exchange. The closer the relationship, the harder it is to make a highly quantified and thoroughly negotiated deal. On the Y-axis, we break down economic interactions according to granularity. It refers to the degree to which sellers can define a value proposition before a transaction, and how quickly customers can accept it. Think about Amazon’s one-day delivery, you know what you’re buying and when it’s going to arrive at your door.

What is the attention economy? What role does NFT play in it?

The brand that represents capitalism in all its glory is probably in the upper left of the spectrum above. Buyers often know the value of a Rolls-Royce or GUCCI product and how much it costs. I don’t think you can negotiate the price of a Louis Vuitton product. They rarely need a spokesperson because trust is established and the value proposition is clear. Trust in attention economy platforms tends to be low. We rarely buy directly from the brands above. Attention economy platforms have been optimized for influencers because they strike the right balance between personal content and commerce. Influencers with sufficient reach (and trust) sell items directly in the form of subscriptions, which can be repeated. Substack and Patreon fill this pattern. The challenge is that creators can be biased, burned out, or simply wrong. This is why a community is important in modern business.

Communities like Product Hunt change the relationship between participants, transforming them from random strangers on the internet to collaborators driven by a shared vision. At Product Hunt, it’s about finding new app releases. For token and NFT-based communities, price is often the glue that binds people together. The community reduces the friction of making transactions. Price discovery usually occurs in an open competitive bidding model because information asymmetry is rare. Web3 native companies take this to the extreme.

This breaks the typical employee<>employer dynamic that has existed throughout history. Contributors work with multiple teams, and teams can pick from a larger talent pool. There is also the fact that since bounties are usually paid in the original assets of the network – contributors can choose to sell the stablecoin, or simply hold the token in the hope of further gains as the network or risk grows. Owning a token also gives contributors a sense of belonging to the network, both spiritually and financially — thereby increasing retention. Think of it as ESOPs given in smaller amounts but with a higher frequency.

What is our goal?

NFTs take this dynamic to the extreme. Since the average cost of NFTs is higher than that of homogenized tokens. (This assumes that an average retail participant does not have enough spare funds to buy multiple NFTs at extreme prices). Going forward, brands will use NFTs as a way to motivate their consumer base to motivate users. Running a health tech app? How about airdropping NFTs to the 1000 most active users? What about consumer apps like Deliveroo or Grubhub? Use NFTs to encourage healthy behaviors, or to signal the most active users of a product. Think of NFTs as participatory certifications that have entered the chain. But why? Because it unlocks new customer benefits. Historically, brands held all data related to their users, and independent third-party developers couldn’t directly incentivize those users, which is possible with NFTs.

What is the attention economy? What role does NFT play in it?

You don’t need NFTs to unlock customer benefits, what they can achieve in the future is a permissionless positioning of the community in a value-added way. So let me break it down for those visiting us from the Web2 realm. Suppose you make it your life mission to keep everyone in your area healthy. You can set up a gym across from your local McDonald’s and do targeted banner ads. But people visiting McDonald’s probably won’t care how much they can lift at the gym. But if you airdrop them an NFT — and that NFT can be exchanged for a free workout, access to other McDonald’s fans who want to work out, and discounts on future gym access, you might have built a new dynamic market. The presence of community reduces the cognitive load of the commitment required to start going to the gym. If they don’t want it, they can sell it to someone else on the free market in exchange for another NFT, and you’ve turned what was once an ad into a financial product.

Naturally, anyone can target a user base in this way. So you have an open economy where any business can target users and create subsets of communities. Why is this important? Because it allows for human ingenuity at scale. In 2019, when I first wrote about DeFi, I mentioned that the most powerful element about the ecosystem is that it took the power to create financial instruments from bankers and democratized them. This has resulted in $249 billion locked in DeFi applications. Now think about what would happen if we democratized the ability to create physical or digital experiences based on transaction history.

Charlie Munger famously said, “Show me the motivation and I’ll show you the results”. The Web2 platform makes the platforms addicting to our screens because their incentives are based on selling ads. The more time you spend on interesting videos, the more likely the platform will show you ads. That’s why they are built on variable rewards. NFTs may be our way of changing this dynamic in the new internet. Rather than slowly encouraging users to make purchases they don’t need, brands may benefit from leveraging on-chain data to provide users with perks and access to communities. Why let users sit around on your platform when they can see all the offers at once the next day. This means that we as users have to re-choose how we spend our time. I’m not saying NFTs can solve the loneliness epidemic plaguing society today, but if on-chain transactions take off massively, they do provide the tools to make it happen. Of course, there are also privacy concerns here. For example, can a person attending a specific geographic location in real life be tracked on-chain? This is where solutions like zero-knowledge proofs become increasingly meaningful.

NFTs lead growth

You might think I’m crazy to suggest that we’ll go from running the economy with advertising to users owning the data. But several factors could contribute to this shift. Hardware or operating system changes, like those released since iOS 14, can reduce advertising. The focus on disrupting big tech, taken to the extreme, can lead brands to look for alternatives. In fact, some platforms have experimented with NFTs. Time Magazine has launched TIMEPieces – a collection of over 4,600 NFTs that gives holders access to the magazine. Well-known WWE star John Cena released a series of 500 NFTs to his 16.2 million Instagram followers, and only about 37 people bought them. Melania – Trump tried to issue NFTs but bought them back. Maybe Donald Trump managed to build a wall around them. One of Ubisoft’s games tested publishing NFTs, but only amassed $400 in sales. You know what I’m talking about. It’s not that we don’t have enough people tinkering with this emerging asset class. Rather, the vast majority of them did not bring good results. We examined some celebrity-related NFTs, and the vast majority have shown a downward trend since launch.

What is the attention economy? What role does NFT play in it?

So, what’s the problem here? I think effective NFT-based community building requires a lot of thought on how to target users. When LooksRare launched, they had around 22,000 wallets holding the tokens, and around 18,000 wallets still hold these tokens. About 80% of them have held these assets for more than a month. As I mentioned before, this happens because LooksRare is targeting users who have historically been active on the NFT platform. I see this extended on LobsterDAO. The DAO was launched by giving NFTs in community chat proportional to user activity over a three-year period. NFTs are used to verify the identity of users and reward tokens in exchange for performing certain actions, such as staking or adding liquidity.

Startups should see NFTs provide social capital to their key users. If you look at what Twitter does, it’s exactly that. An update to Twitter blue allows users to verify that they own an NFT. Twitter likely understands that advertising models could face the same fate as newspapers as user preferences evolve. By letting users display the NFTs they hold as a profile picture, Twitter has effectively made everyone’s personal identity a billboard, merging with the existing social graph. Startups will soon be able to airdrop NFTs with predefined benefits to powerful users, contributors, and product ambassadors, effectively generating interest and curiosity among third-party users. Another way this situation manifests is education. Today, platforms like LinkedIn already allow users to claim that they graduated from a certain university. As learning models evolve from universities to digital media, we will see on-chain NFT-based authentication becoming more common. Finally, if a platform is digital, it can be given access simply by checking the user’s assets on-chain. Two prominent research platforms – Water & Music and Global Coin Research – have already done so, and Bankless is another publishing platform that operates as a DAO using on-chain assets.

Come for NFT, stay for the community

Remember how I defined NFTs at the beginning of this post as economic representations of your attention? I think this is the most neglected aspect of today’s ecosystem. Most NFTs have subcultures and meme jokes, and they also give holders a way to discover and collaborate with each other in a given context. This is when a brand becomes an identity. Deep down, we’re all looking for the same thing — a tribe that belongs to us. At times, users will do whatever it takes to establish their dominance in the tribe. Sometimes, we pay to enter the tribe. Whether it’s NFTs, or the merchants lining up to buy spices on the coast of Kerala nearly a thousand years ago – we’re all just looking for our tribe, and commercial tools like NFTs just make the process of discovering and transmitting intra-tribal signals easier.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/what-is-the-attention-economy-what-role-does-nft-play-in-it/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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