Memo: OpenSea v. Coinbase

 

One venture capital firm, two investments: when Coinbase decided to invest in the development of an NFT marketplace for its estimated 70 million users, Andreessen-Horowitz’s competing investment was probably surprised. It’s rare for two portfolio companies to go head-to-head in such a manner. The numbers are in Coinbase’s favor, but the NFT trade is synonymous with OpenSea.

Just 12 months ago, monthly trade volume was around $1 million; in August, that number reached $3.4 billion. Coinbase surely felt that it was missing out on trade volume and an opportunity to democratize the NFT trade. Its relative size provides a few opportunities that OpenSea cannot yet account for. Imagine what would happen to the NFT trade if Coinbase temporarily covered gas fees of new traders, for instance. Gas is the limiting factor for many interested in acquiring NFTs.

Gas is the fee, paid in ethereum cryptocurrency, that is required to finalize a transaction on the blockchain. For NFT buyers on OpenSea, the extra fees can add up. In this way, Coinbase’s volume of new buyers could negatively impact OpenSea if the cost of doing business is cheaper. It can also benefit OpenSea. With increased trading volume, certain projects would become more marketable on the OpenSea. But this isn’t just a platform play: Coinbase seems to be serious about its interests in arts and entertainment.

Last week, Coinbase announced a partnership with Steve Stoute and UnitedMasters, signaling its growing investment in the arts and entertainment space. Another signal was just announced. Coinbase is planning an NFT marketplace that will launch by the end of the year. The waitlist is open.

Details are scarce, but as TechCrunch reports, the platform will include social elements including opportunities for “conversations and discovery”, according to the Coinbase press release. The goal is to make it easier to mint, purchase and find NFTs. Right now, competitors in addition to OpenSea include Binance and FTX. Shopify is also wading into NFT territory by making it possible for all Shopify merchants to mint and sell their own NFTs. Coinbase now wants to stake its claim to a space that has thus far been the story of OpenSea.

Coinbase’s launch into NFTs makes sense for the company, which facilitates buying and trading of crypto. Crypto and NFTs are closely tied together and Coinbase, now public, needs to explore ways to make new revenue. It’s also the natural progression of the onset of Web3, the next era of the internet that exists within digital worlds with digital currencies. Online dealings can start and end entirely online – it’s no longer a means to an offline end. As a result, new cultural norms and consumer habits are forming, as 2PM explained in “The Digital Country Club”, online groups are forming around NFTs and crypto and you’re either in or you’re out.

Country clubs have always been places where members can flaunt status and mingle among a select group. NFTs are making that possible for an internet-bound generation. That’s playing out across platforms in a number of ways. CryptoPunks, a collection of unique character avatars on the Ethereum blockchain, is now allowing users to rent out their avatars, essentially opening up a revenue stream while granting access for a limited time to newcomers. The idea that NFTs were crashing as an asset class is beyond laughable at this point.

Coinbase’s launch will normalize this new reality for more people. As a crypto platform, it will initially cater to the already initiated. But if its social component is thriving enough, that and reduced trading fees could be a powerful way to pull in newcomers to the NFT trade, of which OpenSea could position itself the Saks Fifth Avenue to Coinbase’s Macy’s. The two portfolio companies could benefit one another after all.

By Web Smith | Editor: Hilary Milnes | Art: Christina Williams

Memo: Squid Game Effect

Netflix’s Squid Game is the platform’s newest hit: the show, which premiered mid-September, is on track to outpace Bridgerton and The Witcher to become its most-sampled original series. The show debuted on Netflix on September 17 and by October 1, it was parodied on Black Twitter with an hilarious rendition: If Black People were in Squid Game. And, well, that meant that I finally had to watch it. Those are the rules.

The South Korean drama about a group of indebted citizens subjected to playing life-threatening games in order to win money, has also become a cultural phenomenon, showing just how much Netflix’s bets on original series with no pre-existed IP or fanbase can pay off. The Netflix phenomenon has moved on to its retail phase.

First, there’s the official merch. Netflix’s online store is now selling T-shirts and sweatshirts inspired by the show, in an attempt to wrangle some of the enthusiasm around the series like it’s done with Stranger Things in the past. But Netflix is only capturing a small portion of the excitement. Pop-ups in Paris and Seoul that are hosting games inspired by the show have drawn fans willing to line up, and in some cases fight each other, to get in. Lacy Maguire of Vogue Business quantified more of the fashion interest:

Squid Game’s influence is already taking hold, according to data from Lyst, as seen by Vogue Business. While the show’s style is more muted than Bridgerton, consumers are already buying into signature costumes. Within days of its release, global searches for retro-inspired tracksuits (+97 per cent), white slip-on sneakers (+145 per cent), red boiler suits (+62 per cent) and white numbered T-shirts (+35 per cent) have all spiked. Vans are the most viewed slip-on sneakers over the past week, while demand for the color teal is up 130 per cent week-on-week.

Additionally, Squid Game is expected to be one of the most popular Halloween costumes this season, with sales of white Vans slip-on sneakers and red boilersuits, worn by players and guards in the show, spiking. According to data from Sole Supplier, Vans sales were up 7,800% while searches were up 92%, according to Lyst.

The lasting impact of Squid Game is still up in the air. Can this become a franchise? Or will it stay contained to one season? With season two yet to be confirmed, the biggest takeaway is that foreign shows with subtitles have legs in markets, even those thought to be averse to subtitles. The K-drama has landed in the US, meaning the gate is open to explore a vast library of content. The stars are going to rise with it. Already, Louis Vuitton has signed Ho Yeon Jung as one of its ambassadors following her time on the show. Whether there’s a season two or not is almost beside the point. Netflix has shown that even up against Disney+ and its rights to many franchises, an original show can land and there’s money to be made when it does.

By Web Smith | Editor: Hilary Milnes | About 2PM

Memo: Two Sides of The Algorithm

That 15 minute delivery of shampoo and kombucha may come with a deepening divide between the classes. You are happy with your service and the service person may be happy with the opportunity but what does it mean for the role of algorithms in society? The digital has long overflowed into the physical world (your Uber ride is algorithmically chosen). But this seems different.

Convenience doesn’t come without a cost. When people are willing to pay for a fast and easy service that eliminates friction in their lives, other people become responsible for making that service happen. The spread of the 15-minute economy has given more people the option to order immediate deliveries of anything from pharmacy medications to snacks to full grocery orders. That means more people are needed to deliver to them. The result is influenced by a bifurcation of wealth and a new labor structure, where workers are separated by what side of the algorithm they’re on.

It became clear during the pandemic that there was a human cost to convenience as people began ordering same-day delivery from Instacart, Amazon Prime and Target’s Shipt in order to avoid going into grocery stores themselves. Rather than take on risk of exposure, those who could pay to do so sent couriers on their behalf, while those who needed the wages took on that risk instead. We’re no longer in a Covid-related state of emergency, but the delivery app industry isn’t slowing down.

In the feature article of No. 758 of 2PM Attack of the Snack Apps, Ajesh Patalay spoke to the rise of Europe’s suite of delivery apps, including Getir, Zapp, Weezy, Jiffy, Flink and Gorillas, all of which have swelled in size and valuation and shrunk the expected delivery time of energy drinks and ice cream from local convenience stores. Deliveroo, also in the UK, is partnering with Morrisons to promise 10-minute delivery via a new service called Hop. In the US, Gorilla has launched its 10-minute delivery, while Gopuff is building a new convenience store model based around speedy delivery. When need is taken out of the equation in favor of sheer convenience, on-demand delivery begins to look less like a positive innovation and more like a wedge-driver. Consider this prescient quote by Michael Miraflor:

The goal is to stay above the algorithm. If you fall below it, you are 10 minute delivery labor. There’s nothing wrong with that. Nothing wrong with hard work. But instead of white vs blue collar I refer to it as above/below the algorithm bc that’s what it has become.

This reminiscent of the sentiment behind the Parasite Economy, as 2PM published last December.

This is the cost of the proliferation of eCommerce. We’ve set the precedent where last-mile workers and drivers are without the benefits that the market would expect of hard workers. The growth of the online retail industry is critical to local, national, and global markets. But it does not need to be this way.

The middle class is shrinking as jobs opportunities and wages gravitate towards two poles (working class, wealth class). Many opportunities in the digital-first economy are determined by one differentiator: requesting the help of the algorithm or being commanded by it. On-demand delivery is the biggest tell. As Michael Miraflor wrote in that tweet, the algorithm is the new line of demarcation. We will begin to view the economy through the lens of the algorithm that controls our personal impressions, our information, our entertainment, and – increasingly – the service that we receive (or are commanded to provide).

By Web Smith | Art: Alex Remy | Editor: Hilary Milnes 

Editor’s Note: this is syndicated opening from Member Brief / No. 758. On occasion, I publish key insights to 2PM’s wider audience. To take full advantage of 2PM’s platform, join the membership.