The old NFT business model is outdated, says Luca Netz.
The formula? “Create hype, tell a story, hope people believe that story, collect a collection, earn an exorbitant amount of money for little to no royalties,” said the CEO of Pudgy Penguins.
Speaking to Blockworks on the Empire podcast (Spotify/Apple), Netz adds, “Pray for your reserve price to increase so you can release a secondary collection and make even more money.”
“And then you can do a third collection. And hopefully, if God is on your side and the market is on your side, you can come out of there with a hundred million dollars. Essentially, that’s been the business model.
Netz notes that NFT-focused companies need to change tactics in a challenging environment. The bear market has “humiliated that business model,” he says. He explains that entrepreneurs need to make “real money in the real world,” where they can control their own destiny.
“If you create a business that depends on outside variables that you can’t control,” like royalties or volatility, “then you don’t control your own destiny and you don’t really have a business.”
transcend Web3
Netz explains that he felt Pudgy Penguins should make “real products” that “transcend” the NFT ecosystem.
Coming from success in the toy industry with Nerf competitor Gel Blaster, Netz says he saw plush collectibles and high-end figurines as the best way for Pudgy Penguin’s (IP) intellectual property to enter the real world.
Likely referring to the recent Azuki Elemental fiasco, Netz says, “The biggest blue chip killer in the NFT space has diluted supply when there isn’t enough demand.”
This “reliance on minting and creating new collections,” he says, stems from greed and an inability to make money elsewhere. “They keep doing it, which ends up crushing the entire company.”
In contrast, real-world toys give Netz the “safety net to build a long-term digital collectible that will deliver real value.”
“I’m not selling them on NFTs now,” he says. “I don’t sell them on Web3. I’m really selling them on a cute, iconic, prolific, Pudgy Penguin character.
“The problem with NFTs today,” says Netz, “is everyone is trying to force them into a crypto-blockchain Web3 NFT story.”
NFTs should be the back-end
“It is the biggest mistake of all these big Web3 crypto blockchain-oriented brands,” says Netz. “It’s really just a back-end. It’s not a front end.”
Rather than expecting consumers to start in the terrifying digital space, real-world Pudgy Penguin toys act as the front-end, introducing the IP and then guiding users to Web3. Each toy comes with a birth certificate, Netz explains. “There is a QR code on that birth certificate,” he says.
The code allows the buyer to sign up via email and password to create a Pudgy World account, a custodial wallet solution, which unlocks four free NFTs through a gasless experience.
“That’s how I onboard people.”
“I onboard people by selling a $10 toy with a QR code and a birth certificate directing you to create a blockchain wallet without you even knowing,” he says, “giving you your first NFT and digital collectible at no cost to you.”
“We cover the gas and – all of a sudden – you’re having fun, you’re collecting digitally, but you don’t even know it’s an NFT.”