The old NFT business model is obsolete, Luca Netz says.
The formula? “Create hype, tell a narrative, hope people believe that narrative, mint a collection, make an exorbitant amount of money for little to no effort on royalties,” according to the Pudgy Penguins CEO.
Speaking to Blockworks on the Empire podcast (Spotify/Apple), Netz adds: “Pray that your floor price goes higher 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 could come out of there with a hundred million bucks. Basically, that’s been the business model.”
Netz remarks that NFT-centric companies need to change their tactics amid a challenging environment. The bear market has “humbled that business model,” he says. He explains that entrepreneurs need to make “real money in the real world,” where they can control their own destinies.
“When you’re making a business that’s dependent on outside variables you can’t control,” like royalties or volatility, he says, “then you do not control your own destiny and you don’t really have a business.”
Transcending Web3
Netz explains that he felt Pudgy Penguins needed to create “real products” that “transcend” the NFT ecosystem.
Coming from success in the toy business with Nerf competitor Gel Blaster, Netz says he saw plushie collectibles and high-end figurines as the best way for the Pudgy Penguin intellectual property (IP) 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 been diluting supply when there’s not enough demand.”
This “dependency on minting and making new collections,” he says, is derived from greed and the inability to make money elsewhere. “They continue to do it, which ultimately crushes the entire business.”
Real-world toys, on the other hand, give Netz the “safety net to build a long-term digital collectible that will accrue real value.”
“I’m not selling them on NFTs right now,” he says. “I’m not selling them on Web3. I’m really selling them on a cute, iconic, prolific, Pudgy Penguin character.”
“The problem with NFTs today,” Netz says, “is everyone’s trying to force them into a crypto blockchain Web3 NFT narrative.”
NFTs should be the back end
“It is the biggest mistake out of all of these major Web3 crypto blockchain-oriented brands,” Netz says. “It’s really just a back end. It’s not a front end.”
Instead of expecting consumers to start in the daunting digital space, real-world Pudgy Penguin toys act as the front end, introducing the IP and then escorting users to Web3. Each toy comes with a birth certificate, Netz explains. “On that birth certificate, there’s a QR code,” he says.
The code allows the purchaser to sign up via email and password to create a Pudgy World account, which is a custody wallet solution, unlocking four free NFTs via a gasless experience.
“That’s how I onboard people.”
“I onboard people by selling a $10 toy that has a QR code and a birth certificate that points you to make a blockchain wallet without you knowing,” he says, “giving you your first NFT and digital collectible at zero cost to you.”
“We cover the gas and — all of a sudden — you’re having fun, you’re digitally collecting, but you don’t even know it’s an NFT.”
