7 Advantages of Tokenizing Access to Your Product

If you’re selling a digital product, you have two options: sell subscription access or sell ads.

Selling a one-time license fee is an option, but most startups avoid this for good reason. For one, they don’t provide a good experience for customers–it’s a higher entry cost and forces the customer to commit to using a long-term product.

As a result, it’s most logical to opt for “renting” as the primary business model, either renting access directly to the customer or renting advertising space to other businesses.

There haven’t been many alternatives to date. But have no fear, the growing adoption of Non-Fungible Tokens (NFTs) is opening up new and exciting possibilities for the way we build, launch, and sell digital products.

One way, in particular, is the business model innovations that come along with token-gating access. In other words, a user can only use your product if they own your specific NFT.

Using tokens as a go-to-market strategy has the potential to be a far superior alternative to the traditional subscription-based models we’re used to.

1. Incentivize Your Customers to Help You Grow

Token ownership changes the relationship that you have with your customer. It invites the customer to participate in the growth of a product or service, especially if there’s a fixed or limited supply.

A token allows you to share upside with your early users. As the demand for the product or service increases, so will the value of the token. This creates a social incentivize to advocate for it and refer their friends and family.

There are already a few examples of products that use token incentives to referral marketing engines, like Helium and Arweave.

Granted, this only works if the supply for the access tokens is capped which, in turn, limits revenue generated from the initial sale. But the potential to increase long-term brand loyalty and decrease marketing costs may make the tradeoff worthwhile.

2. Bypass the Cold Start Problem

If your product is network-based (ie social media, marketplace, reviews, or other user-generated content) it becomes more valuable when more people use it, also known as the cold start problem. This is something that any platform struggles with one way or another.

A simple example: you wouldn’t use Yelp or Twitter if you were the only user on the platform.

Similar to evangelizing your early users, tokens can kickstart the network effect, creating a dynamic similar to the referral programs (“Refer a friend and get $10 when they join”).

You still have to aggressively market the token the same way you would market a referral program. The difference is a potentially higher upside than a standard referral reward as the demand for the product increases.

3. Earn Passive Income from Resale Royalties

Revenue is generated every time your token is bought and sold.

With NFTs, you can program royalties that kick back a percentage every time the original token is resold (the industry standard being around 5-10 percent).

So in addition to the initial sale of the token, you can also earn perpetually as customers opt in or out of using your product.

Enabling a secondary market for your token significantly improves the customer experience for reasons I’ll mention in the next point.

However, one caveat is it’s probably not wise to incentivize resale or rely on it as a primary source of revenue.

You want to ensure that value is derived from the product, not the token, to ensure you have a long-term user base. Otherwise, you’ll attract the wrong type of customers and have difficulty sustaining demand over the long run.

4. Improve Customer Experience: Own Without Being Locked In

On the other end of the secondary market experience is the core benefit to your customers: the ability to opt-out.

Up until now, it’s been nearly impossible to sell full ownership to a copy of a product that isn’t a total sunk cost for the customer. For example, if you bought the license to Microsoft Office in the early 2000s and decided you no longer needed it, you had to swallow the fee.

Let’s put aside the shared upside argument for a moment. If there is a sustained demand and your token price is stable, a customer could presumably buy access, consume what they need, and resell after a month and get most, if not all, their money back.

I know sustaining demand and stabilizing token prices is easier said than done, but this is arguably a much better experience for you and the customer in the long run.

5. Validate New Features Faster Before Launching

As a product designer myself, few things make me cringe more than hearing “substitute for user research.” It’s one of the most essential ingredients of any product’s success.

With tokens, an added perk is offering token-gated voting mechanics for users to collectively decide what features to prioritize on your roadmap. You don’t have to leave every design decision to your users, but it’s a good way to get feature validation before investing time and money into it.

And the thing is, you’re not just capturing participation from any user. Tokens, especially when they’re limited, attract your most enthusiastic customers. It’s a built-in funnel for gathering feedback from your most meaningful users.

But how is this different from recruiting subscription-paying users to participate in a survey? It all comes back to aligned incentives; the sense of ownership created with tokens arguably increases motivation to participate. When the product wins, your users win.

6. Strengthen Brand Partnerships Through Token Integrations

The beautiful thing about the blockchain is it’s a database that anyone can view and access. Meaning, if you’ve built token-gating capabilities, you can incorporate tokens other than your own (commonly referred to as “interoperability”).

This could give new meaning to a sponsored partner. Say another business that has aligned brand values ​​wants to partner up, they can subsidize access to your product for their own token holders.

For example, say you’ve built a popular fitness tracking app. You could partner with Nike to give premium access to all Nike token holders for a limited time or permanently.

The same applies to your token. What exclusive partnership perks can you offer to your customers if they hold your token?

7. Increase Organic Impressions with “Wallet Share”

NFTs aren’t just for buying and selling but displaying, among other things. So when your customers own your token, it occupies space in their wallet–essentially functioning as a digital billboard for anyone viewing your customer’s wallet.

When a potential customer encounters your token organically, it lends credibility and legitimacy through social proof.

Final Thought: When to Avoid Using Access Tokens

There are a few scenarios where tokenizing access to your product could be counterproductive.

First, and most obvious, it’s not a good idea to introduce tokens if your target market is uncomfortable or unfamiliar with crypto or basic wallet management. It’s certainly possible to build a native custodial experience that lets a user resell their token without ever knowing it’s crypto. But the downside is that exponentially increases the cost of development.

Another scenario where this might be counterproductive is if you’ve already built an established brand and subscription business around your product. Many of the benefits are based on go-to-market advantages, and there may be less of an advantage if you already have traction.

Lastly, the benefits and scenarios I’ve described are purely hypothetical. As part of any token strategy, you must consider the legal implications of integrating tokens into your business model. None of this is financial or legal advice, and you should consult a legal and financial professional if you choose to gate your product with tokens.

As a general rule of thumb, a token can be categorized as an investment security if it’s merely an investment with the expectation of profit. You should be extremely diligent about only using the token to unlock access to your product, and nothing else.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.

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