The following is a guest post contributed by Jeremy Epstein, CEO of Never Stop Marketing, a growth marketing advisory firm focused 100% on blockchain and decentralized technologies. He presented at the MarTech conference in Boston earlier this month on Blockchain and the CMO: The Next Era of Marketing.
If I may, I will offer “Epstein’s Axiom to Johnston’s Law” — everything that can be tokenized will be tokenized.
What crypto-tokens, and their parent field crypto-economics, enable entrepreneurs to do is create a system of incentives that are designed to be deployed at global scale from day one.
Like any start-up, the tokens of a new start-up (represented in an ICO — mostly, but not always) can go to zero if there is no “product-market” fit. In the case of a crypto-token, this represents a strong statement by the market that the system of incentives that was supposedly embedded in the tokens is simply not there.
Where they differ, however, is in what happens if they succeed.
For projects that have designed their monetary policy, fiscal policy, and supply and demand curves properly, the upside potential of the circular economy they have created is, at the risk of getting political, YUGE. (For a great study on the design of these systems, see Economics of Initial Coin Offerings.)
The reason for this is marketing.
How Great Marketing Can Make or Break the Value of a Crypto-Token
Peter Drucker said that “the aim of marketing is to know the customer so well that the product or service sells itself.” In most non-crypto start-ups, the product designers (usually engineers/inventors) are understandably enamored by their own ideas, build something, and only then ask “how do I market this?”
What they really mean is “how do I get people to want what I have created and what I find valuable?”
Crypto-entrepreneurs (at least those who aren’t scam artists) are forced to ask themselves a different question at the outset, one which is a marketing question. The question they ask is:
“What do people really value and how can we design a system of incentives — secured and verifiable by blockchain/distributed ledger technology — that will give them exponentially increasing amounts of the thing they value, while simultaneously encouraging them to evangelize the merits of the token to their own networks?”
The crypto-entrepreneur knows from the outset that if she doesn’t provide something of true value and utility — as deemed by others, not by herself — that the project will fail. On the other hand, if she does provide something of true value to an increasing number of people, the value of the token will rise.
It’s not a Ponzi scheme if there really is a token that benefits form a positive feedback loop with network ownership effects, as Nick Tomaino calls it, that delivers increasing amounts of value to members of the network, is it?
Tokens embedded into a product create the strongest network effect ever seen before. I call it the network ownership effect. pic.twitter.com/2siMHmAm6a
— Nick Tomaino (@NTmoney) March 14, 2017
But wait, as the saying goes, there’s more.
Not only is the potential value to the end customer embedded directly into the (properly designed) crypto-token, the creation of the incentive structure at the genesis block affords entrepreneurs and token designers with the opportunity to bake word of mouth triggers directly into the product itself.
In The Anatomy of Buzz Revisited: How to Create Word of Mouth Marketing, the godfather of the discipline Emmanuel Rosen, writes that “a good business story — a story that people will repeat and that will help your sales — should be anchored in fact.”
“Anchored in fact” is the secret sauce of the open source+blockchain world.
You don’t have to believe the claims of the creator. Heck, you don’t even have to believe your friends who tell you about it. You — or anyone — can (in theory) go look at the source code and decide for yourself if the claim is there.
Let’s look at a simple example: Bitcoin.
You don’t need to believe Satoshi’s claim that there are only ever going to be 21 million Bitcoins created. If you want, you can look at the protocol and see that for yourself.
So, when a friend tells you about Bitcoin that “supply is fixed and if demand increases, then the value of your Bitcoin should skyrocket,” he’s not making something up. He’s repeating a story to you that is, as Rosen wrote, grounded in immutable fact.
That’s great word-of-mouth marketing.
Even better, from the perspective of the token designer, is your friend is “doing” the marketing for the token by raising your awareness of it and differentiating it for you. All because the incentives to do so are baked right into the product/token itself.
Of course, there are “traditional” marketing activities that have to occur to try and get the flywheel going like Satoshi posting his whitepaper asking for feedback or Vitalik announcing the crowd sale of Ether.
But there’s a reason there is no chief marketing officer of Bitcoin or Ethereum. Once a token-based circular economy gets going, it becomes obvious to more and more people that the value is there. No one needs to be convinced.
When that happens, as Drucker said, “the product sells itself.”
I sometimes say that “we’re all in marketing, it’s just that some of us know it.” When designing a circular token economy based upon a distributed or decentralized system, a start-up founder must begin the entire effort with the end use case and work backwards. Starting with the customer’s needs is the epitome of a world-class marketer.
The tokens that will win are those designed by marketers — they just may not know it yet.