A few weeks ago, Collins Dictionary chose "NFT" as its word of the year, a choice that sums up 2021 well.
In March, a digital artwork by Beeple sold at Christie's for $69.3 million. It was a JPEG file, or more precisely a token recorded on a blockchain pointing to a JPEG, a distinction that has been debated ever since. In October, Facebook renamed itself Meta and announced it was staking the company's future on the metaverse. The term "Web3" now appears in every second technology headline.
Many small business owners are wondering whether they should act on these trends. The short answer is: probably not. Here is the detailed answer.
What are NFTs and Web3, really?
An NFT, or non-fungible token, is a unique record on a blockchain certifying that a person owns a specific item: often a piece of digital art, a collectible, sometimes a membership. The Wikipedia article on non-fungible tokens explains the mechanics well, including one aspect many buyers seem unaware of: the token usually does not contain the artwork. It points to it, often hosted on an ordinary server whose costs someone must continue to pay.
Web3 refers to a broader concept: a new version of the internet built on blockchains, where users own their data and digital assets, and where the major platforms lose their grip. Crypto wallets replace logins, tokens replace loyalty points, and communities become owners of the projects they use.
The metaverse is a third concept, loosely related to the other two: persistent 3D worlds where people would work, shop, meet friends and attend concerts. Meta has attached its name to it, and several brands are buying virtual land there with real money.
Some of the underlying ideas are interesting. Owning your own data is a sound principle, as is paying artists directly. Our experience building community sites in the 2000s, at a time when platforms took over spaces that had been open, makes this appeal easy to understand.
However, almost none of these technologies is currently useful to a restaurant, a dive centre or a plumber.
What problem do these technologies solve for your customers?
This is the test we apply to any new technology before recommending that a small business invest a single dollar in it: what problem does it solve for your customer? Not for the technology company or the investors, but for the person who walks through your door.
Put to this test, NFTs do not hold up. A guest booking a dive course does not need a token. Someone ordering tacos from a food truck does not want to open a crypto wallet. Loyalty programs already work, on a punch card or in an app, with no transaction fees and no need to learn what a seed phrase is.
The pitch commonly offered goes something like this: "Launch an NFT collection for your brand, build community, let your fans own a piece of you." It must then be explained three times, followed by how to set up a wallet, then why the price in dollars fluctuates constantly. An offer that requires three explanations does not sell: customers will not follow through.
Can speculation sustain a business model?
No. The other concern is where the money comes from.
Many of these projects only make sense if the price keeps rising. Buyers purchase expecting to resell to someone else for more. This is very different from customers using a product: it is a market relying on the hope that a less informed buyer will always come along. Businesses built on this kind of demand do well until the trend reverses, with no warning.
Crypto prices have already fallen significantly from their November highs. They may recover or they may not. Either way, it is not prudent to tie a small business's marketing plan to such a volatile indicator.
As for the metaverse, its adoption will only be demonstrated when the general public uses a headset for something other than games. For now, that audience remains small.
Our recommendations to small business owners this month
- Do not buy virtual land. Invest instead in a better photo of your real establishment.
- Do not launch a token. Build an email list.
- If the subject interests you, read up, and possibly buy a small amount with a sum equivalent to a nice dinner out. Do not commit the business to it.
- Reassess in two or three years to see which technologies are still attracting interest.
Where should you actually focus your attention?
On tools that meet existing needs. One subject receives far less media attention: GPT-3, OpenAI's language model, which we are currently testing and which is of an entirely different nature. The tool is still rough. It invents information with complete confidence, and there is no user-friendly app for the general public: it is used through a developer playground. However, OpenAI removed the waitlist last month, and anyone can now try it.
Even at this stage, its usefulness for everyday work is evident: drafting a reply to a customer, translating a menu, summarizing a long document. These are tasks every small business performs every week. There is no need to explain to a restaurant owner the value of help with writing in a second language.
This is where the whole difference lies. One technology requires you to invent a reason to use it; the other performs a task that already exists. In our analysis, language models will ultimately matter far more to small businesses than NFTs. The timing remains uncertain, but the direction is clear.
When the next major trend appears, ask the same questions: what problem does it solve for my customer? Do people use it without being paid or hoping to get rich? Would I still want it if its price never rose? If the answers are favourable, take a closer look. Practical AI consulting for a small business should start from the work to be done, then assess whether the tool contributes to it.
If the answers are not favourable, waiting is a legitimate option. For most small businesses, waiting is the best technology decision this year, even if it does not feel like one.