The evolution of the internet and the rise of Web3 has transformed digital identity, with impacts for how brands attract, engage and retain their customers.
Note: A version of this article was recently published in Digital Nation Australia.
Digital identity is defined as the essence of who we are online, encompassing our online presence, relationships, and data.
Over the last 50 years, as the internet has evolved, so has our digital identity.
Web1 was a platform for sharing information through static web pages, with content creation accessible to only a few with technical skills. Brands marketed through clickable online banners and emails that navigated to their individual sites.
Web2 marked a shift in internet interaction, with platforms like Facebook democratising content creation, enabling greater self-expression and paving the way for digital identity. Email addresses acted as unique identifiers, and brands had to become more data-oriented in their marketing, adopting consumers as content creators to target end users. However, this came at the cost of centralised platforms gaining unprecedented access to user data.
Web3, underpinned by blockchain technology, is the third iteration of the internet that is focused on decentralisation, privacy, and control over personal data. It enables users to own and control their digital identities through a digital wallet, which also holds digital assets like cryptocurrency. As a result, consumer identity is becoming increasingly fragmented across offline, online and on-chain channels.
As consumers’ digital identity evolves, so does the way brands conduct business on the internet. This new era of digital identity is already starting to have impacts on how brands attract, engage and retain customers, and the focus of this article is to explore some of the considerations for brands.
With the elimination of cookies on web browsers, digital wallets offer a potential alternative to get a deep insight into who their customers are and what they value.
Companies that excel at delivering personalised customer experiences earn 40% more revenue than their counterparts.
Over the years, app tracking and third-party cookies have been a valuable tool for brands to track website visitors, enhance user experiences and gather data to support them in targeting the right audiences for their advertisements.
As Apple and Google progressively phase out cookies on their web browsers and block internet tracking on their devices, a significant number of marketers (41%) believe that their primary challenge will be the difficulty of obtaining the right data, due to the inability to track user behaviour.
One possible solution is the use of digital wallets. Like cookies, digital wallets are unique, anonymous identifiers that can be monitored to create a record of a customer’s behaviour, but on the blockchain.
By gaining permission from customers to access their digital activities, brands can acquire first-party data that can be utilised for marketing purposes. Crypto-wallets will provide a direct line to this valuable data.
Salesforce has launched NFT Management for brands to “view real-time customer blockchain activity” and connect their existing customer relationship management systems (CRMs) with “Web3 data for a holistic view of how customers interact with their brand across traditional and emerging digital environments”.
As a customer’s wallet becomes a gateway to their online identity, brands can acquire valuable insights into the other brands their customers interact with, and even gain an understanding of customers’ disposable income.
With customers holding the key to their personal information and digital identity, brands will need to create meaningful relationships based on increased data-value exchange.
Brands will need to establish new incentives that provide customers with greater value (like exclusive experiences or monetary compensation) in return for gaining access to their data.
Web3 technology offers two important blockchain features: trust-less transactions and permission-less design, eliminating the need for third-party involvement and authorisation.
With existing loyalty programs, customers need to log into multiple accounts and authorise access to gain benefits across various systems, causing a clunky user experience. Through “token-gating”, brands can streamline the user experience for customers, granting immediate access to exclusive products, communities or experiences without requiring multiple logins or authorisations.
Brands like Dolce & Gabbana have recognised the power of the digital wallet to add value to their customer through seamless and highly personalised token-gated experiences.
Last year, they airdropped their existing token holders, NFTs that could be redeemed for physical merchandise and digital wearables. The exclusive designs were specifically created for customers with digital wallets, and cannot be bought in physical stores. To date, Dolce & Gabbana has become one of the most profitable fashion brands in Web3, generating $23M in NFT revenue.
According to Salesforce, Gen Z is four times more likely than Gen X to buy a physical product if it is paired with a digital twin (i.e. a virtual replica of a real-world product). Dolce & Gabbana is tapping into younger spenders and their need for digital self expression, with 50% of Gen Z users saying that expressing themselves online is more important than expressing themselves in the physical world.
Brands retain their most valuable customers by using on-chain customer identity to find and reward them.
The Pareto principle posits that 20% of customers generate 80% of revenue, and investing equally in all customers can lead to unprofitability. When 20% of a brand’s customers have an outsized impact on their bottom line, how can brands identify and retain these customers? That’s where Web3 can help.
Proof of attendance protocols, or POAPs, are NFTs given to people to verify their attendance at an event or experience. Brands like Adidas and Estee Lauder have been using POAPs as a way to record a customer’s participation in brand-related initiatives.
Wrangler is now selling physical denim jackets embedded with POAPs, also known as “tokenised products”. The purpose of these are twofold: the first to prove authenticity via the blockchain, while the second is to establish verifiable digital connections, allowing the first 300 collectors of the POAP, to claim an exclusive NFT.
The Wrangler denim jacket has an NFC tag that allows anyone to tap their phone and receive a POAP proving they’ve met the jacket-wearer in person. As the jacket-wearer gives out more POAPs, they are building a digital network of connections with individuals they have met in the real world, all recorded on the blockchain.
Brands can use these digital connections to measure the impact of each customer and identify their most valuable ones. Every customer that owns the product and shares a single POAP could be recognised for the reach they provide, and if that reach leads to a conversion, it can be verified and they can be rewarded.
Brands can leverage the wallet as a mechanism to curate tiers of their most valuable customers who get first access to limited-edition products, or are engaged to play a role on customer advisory boards.
Luxury brands like Hermes and Rolex already curate lists of VIP customers who can gain access to trophy pieces based on a myriad of factors. With the concept of tokenised digital connections emerging, more affordable brands can also employ similar tactics to engage and retain their more valuable customers.
We stand at the cusp of a new era in digital identity where privacy, security, and user empowerment take centre stage. As brands navigate through these uncharted waters, they will face numerous challenges, but also opportunities to create more meaningful relationships with their customers. Brands that can quickly adapt and offer more value to their customers to gain deeper insights into their identities will emerge as winners in this new era.
Disclaimers:
- This article is for general information purposes only and isn’t intended to be financial advice. You should always obtain your own independent advice before making any decisions.
About me:
I’m Ashi Bhat, a senior marketer and founder of Insider, a next-gen loyalty solution that’s powered by the blockchain. Learn more about Insider here.
I’m passionate about highlighting use cases that are likely to drive scale and adoption, with a focus on the role that brands and marketing will play.
Feel free to reach out if you have any questions. You can find me on LinkedIn or Twitter!