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NFTs Lost in the (Open)Sea
NFT Marketplaces are growing fast, but are lacking on the UX front
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Everyone who’s tried using OpenSea’s search functionality knows that it isn’t the best. OpenSea isn’t a functional discovery platform. Yet, it has processed over US$2bn in transactional volume over the last 30 days.
In their early years, eBay and Amazon were also difficult platforms to use. In 1995, the Amazon website didn’t have a search bar, and in 1999 eBay had incorporated a drop-down navigation menu to make discovery easier. It took a lot of experimentation and iteration to get to where we are today, and neither platform would be as big if it wasn’t intuitive to search through the listings on either platform.
However, despite being able to see this evolution, using OpenSea in 2022 feels a lot like eBay and Amazon in the late 90s. It doesn’t make sense that the leading NFT platform is barely useable forcing you to trawl through the trending listings or you use a link to get to the collection that you want. As such, Twitter and Discord become the primary discovery platforms for NFTs which increases the barriers to entry for the casual observer and also cause sensory overload for any new entrant with constant notifications and fast-flowing information chucked at you.
Whilst I’ve hammered on about discoverability being a core component of the user experience of any marketplace, there are a few more elements that are crucial to building a category-defining marketplace. Let’s dive in!
NFT Marketplace Landscape
Due to the ease in filling the supply side, there are numerous NFT marketplaces that exist. These can be split into both horizontal and vertical marketplaces. Horizontal platforms have wide coverage over what NFTs are listed on the marketplace. Vertical solutions are focused on a specific category or industry such as gaming or photography. Within vertical marketplaces exists a subcategory of curated marketplaces.
The most popular horizontal NFT marketplace is OpenSea which interacts with both Ethereum and Polygon blockchains. Rarible, Mintable, Coinbase and Binance NFT platforms are all challengers to OpenSea. Differentiation in this layer can occur in a few ways:
Better discoverability of new projects: At the moment, Twitter and Discord serve as the primary discovery platforms for new NFT projects. By improving the search functionality of the marketplace, then it’s possible to ensure users stay longer on the platform
Integrated SaaS tools: Currently OpenSea and its competitors are nothing more than a nice UI wrapper over the blockchain. If they can add additional tools and functionality, such as NFT portfolio management tools, easier minting tools for creators, additional social features in the marketplace, this would encourage further lock in on the platform.
Reputation: Being a ‘trusted’ platform is incredibly valuable in crypto where scams and hacks are rife. This is largely how OpenSea has managed to pull away from its competition. By creating a narrative that it is a trustworthy organisation through funding announcements, continuous placement in prominent news articles, the company has been able to garner trust by association. As a result, projects regularly place their OpenSea collection links in their ‘Official Links’ Discord channel and Twitter bio. This inadvertently creates a reputation moat around OpenSea.
Vertical marketplaces are not as prominent as Horizontal ones but are incredibly valuable. Marketplaces such as Foundation, SuperRare, Immutable all specialise in one specific vertical. For Immutable, this is primarily GameFi NFTs, for SuperRare this is typically 1/1s or pieces from notable artists.
Vertical marketplaces are important as they help buyers cut through the noise of aggregator platforms and focus on what they actually want. As such, the user experience of a vertical platform is more focused on a specific customer persona and can be built out in a way to wholly serve that persona.
Within vertical marketplaces, curation is another key element. As I wrote in my article The Traditional Two-Sided Marketplace is Dead, there is so much clutter in the world that we rely on curation to sift through the proliferation of new goods and items. This theory extends itself to Web3. With so many scams and random NFT collections, it’s hard to find signals from the noise. As a result, curated platforms provide one way to discover higher quality projects. Platforms such as Nifty Gateway offer a ‘curated drops’ section on their marketplace which highlights unique NFT launches.
The NFT Marketplace landscape is pretty nascent and underdeveloped. The asset class itself is still new, with so many dynamics that people experiment with. This makes it hard to build an amazing marketplace experience at the moment. But there are some parallels we can draw between traditional web2 marketplaces and how NFT ones can improve.
What Makes a Marketplace Good
Marketplaces have been around since the start of humanity in some way or another. They come in different shapes and sizes, but it’s possible to drill into the key characteristics that make them successful.
A good marketplace can draw in eyeballs and with that, a huge amount of transactional volume. Usually, this occurs in markets where there is high-frequency purchasing behaviour like food. In the case of crypto, much of the purchasing decisions made are unfortunately fuelled by speculation.
Much of eBay’s initial success was driven by people buying and selling on the platform. Nowadays, the distinction between a buyer and seller on eBay is wider in that sellers are likely to be wholesalers, and buyers are general consumers. In that same vein, due to speculation, NFT marketplaces have been able to take advantage of buyers quickly turning into sellers. This creates a flywheel of sorts.
The best marketplaces are able to extract more from their customers over time. There are a few ways to do this and it depends on the type of items being sold. With food, this is easy - everyone needs to eat a few times a day so this brings people back. With other items, perhaps there’s an inbuilt subscription plan or some other trigger that pushes people to repurchase something. Beyond attracting large amounts of transactional volume, it is crucial for a marketplace to nail the discoverability element.
Being able to efficiently search through a marketplace can lead to higher serendipitous purchases. This in itself increases a customer’s lifetime value. Adding to this, if the search and purchasing experience was ✨magical✨, then it’ll lock that customer in for a long time. At the moment, horizontal NFT marketplaces are playing catch up here. None of the dominant platforms seemed to have focused on their search capabilities, instead of focusing on gathering more volume on their platforms. As such, vertical focused solutions are starting to capture more of the market given the smaller market these platforms target.
This ties in largely with the discoverability piece above but can be extrapolated further. The best marketplaces provide new experiences for both the supply and demand sides. This can include building better payment rails, additional tools that help either side alleviate problems, and a fresh UI that appeals to a broad range of customers.
In its early days, Amazon didn’t look amazing but it brought book buying online. People didn’t need to go to a store to buy a book just to find that it was sold out. Instead, you could order it with a click of a button. This experience was magical and previously unheard of. From here, they grew horizontally and the rest is history.
Horizontal NFT marketplaces to date are fairly stock standard. They simply serve as a ‘nice’ UI to interact with the blockchain. However, if we’re solving for widespread adoption, platforms will need to expand beyond this. Incorporating better onboarding mechanisms, easier ways to bulk purchase NFTs and portfolio management tools will go a long way in expanding the market and keeping existing customers on the platform for longer.
Great marketplaces are able to provide either the buyer or seller an economic advantage or incentive for using the marketplace. Ideally, for a seller, it increases their revenue due to opening up more demand. For a buyer, it might be cheaper to buy through the platform rather than using other services.
For NFT marketplaces, this is done differently. Web3 is all about ownership and tokenisation. As a result, rather than promising increases in top-line revenues, NFT marketplaces can issue tokens to further incentivise and align users to stay on the platform. The clearest example of this is the LooksRare marketplace and its token $LOOKS. Users get a certain amount of $LOOKS token every time they transact on the platform. This can then be staked creating further lock-in of users.
Multi-tenanting is a phenomenon where users are able to use multiple marketplaces to fulfil the same kind of transaction. A marketplace without any differentiation or core defensibility will experience leakage or multi-tenanting. The best example of this is in ridesharing. Both riders and drivers can be tenants of both Uber and DiDi.
From a crypto perspective, this is hard to do. Given the shared data layer that exists, the supply side for marketplaces is the same across all horizontal platforms and it is up to buyers to decide which platform to use. To really solve this issue, NFT marketplaces should be built on their own custom blockchain. Sky Mavis did this with their Ronin Chain which hosts Axie Infinity assets.
Fragmented markets and industries are ripe for consolidation through a marketplace. High levels of fragmentation indicate a competitive market where no single player has control. As a result, a marketplace aggregate both demand and supply to provide an efficient purchasing/selling experience.
In NFTs, within a given Layer 1 ecosystem, demand and supply aren’t that fragmented due to a shared data layer. However, viewing it from a multi-chain lens, the NFT space becomes a lot more fragmented. Buying NFTs on Tezos, Solana, Avalanche and Ethereum all require different platforms, different wallets and are denominated in different currencies. At the moment, there is no consolidated multi-chain NFT aggregator.
The Road From Here
The benefit of being a horizontal marketplace like OpenSea or Magic Eden is that the company is able to leverage a single product experience across a large user base. At the moment, both platforms are still focused on nailing this experience, but the end state is to be able to have a strong generalised experience with the ability to cross-promote traffic to maximise network density.
With vertical marketplaces, the platform can tailor the user experience directly to the core customer persona. Royal, a music NFT platform, provides each song/album with its own page that includes a description, a link to Spotify, a breakdown of the ownership % attributed to each token and the specific rewards that each tier receives. Many of these features are specific to music NFTs and would be an outlier for OpenSea to add. Royal can further cement their spot as the leading Music NFT platform by potentially providing integrations into other tools that creators and music lovers enjoy using.
Drawing an analogy to Craigslist, the high-value categories were picked off first to become vertical marketplaces. Within these categories, the easiest to monetise become the lowest-hanging fruit. From an NFT perspective, it seems like 1/1 art, GameFi and Music NFTs seem like the first verticals to be picked off. What comes next remains to be seen.
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