A layman’s guide to the Bored Ape Yacht Club
I first heard of NFTs (non-fungible tokens) when Kings of Leon dropped their NFT album in March 2021.
I’ll admit also that I paid little to no attention to them since that time.
Until last week.
NFTs have been super buzzy recently for obvious and merited reasons.
“NFT” was the word of the year for 2021, and more importantly, the market is now valued at $41 billion as of the end of 2021.
That makes the NFT market now nearly as large as the global fine art market.
I am an avid listener of Sam Parr and Shaan Puri’s My First Million podcast, and as any listener knows, Shaan is deep into NFTs and crypto, and writes a newsletter on the topic called The Milk Road.
The podcast and newsletter are extremely entertaining and informative. I’ve listened enough now that Shaan has finally convinced me to go down the NFT rabbit hole.
Cryptocurrency in its fundamental form still doesn’t really grab me, and I have reservations on some elements, such as the environmental impact. That’s not a commentary about its staying power in any form, just about my personal interest level as it stands today. I don’t feel equipped to analyze or speculate on currency in any form, certainly not in crypto.
What interests me about NFTs is that they are fundamentally linked to a product or service. They are asset-backed. Those assets range widely from art, music, collectibles, domain names, trading cards, and even access rights, such as to a community.
I’ve written about monetization of art and music several times now, and NFTs is just the newest item in that collection for me.
Digging into NFTs brought me quickly to Bored Ape Yacht Club (BAYC).
*Insert eye-roll and a cheer of “yeah obviously!” from the NFT crowd*
The BAYC is completely novel to me, though, so I’m pressing on. Maybe if you’re like me, and look at NFTs from a newcomer’s lens, with a technology business model and pricing viewpoint, you’ll learn something new.
The Bored Ape Yacht Club is a collection of 10,000 Bored Apes, which are avatars of apes with a distinctive appearance and facial expression. The Bored Apes are primarily distinguished by their attire, which varies in rarity and combination.
To an outsider, the sale prices of Bored Apes are probably eye-watering.
The Bored Ape floor price, which is the lowest price a collection will accept for the purchase of an NFT, is set at 103 Ethereum (ETH). This translates to ~$320,000 USD at the time of this writing.
The most expensive Bored Ape of all time was sold for over $3 million. That’s a long way from where they started, just under a year ago - the launch price for an ape was ~$300 when released in April 2021.
How do you price a Bored Ape?
Naturally, this exploration got me thinking two things - (1) how can I get into NFTs; (2) how does pricing and value work in the NFT space?
I figured that tackling point #2 might help me figure out point #1, so I started to explore that pricing and value question through the lens of the Bored Ape Yacht Club.
My first exploration was to consider how much of the pricing of a Bored Ape is tied to the underlying market price for Ethereum. The hypothesis question - is the pricing trending for Bored Apes consistent with the trajectory of ETH rates?
Short answer - no.
Here’s the last year in ETH pricing courtesy of CoinDesk. Lot’s of peaks and valleys, as I’m sure you’ve heard about from your crypto friends.
Now here’s the average USD sales price of Bored Apes for the same time frame, via Non Fungible (the red line):
Pretty steady price increase.
This tells me the value is mostly intrinsic to the Bored Ape asset, and not just the currency used to price and transact the asset.
The natural next question is - if not based on currency, how do you value the asset?
Most analysts that track the NFT space cite traditional art industry factors as indicators of NFT value. This includes the brand equity of the artist and the rarity of the art piece.
There’s definitely rarity built into the BAYC model based on the art design and the limited size of the collection. BAYC did well to build mystique using a Banksy-on-steroids playbook, and Banksy art routinely sells for millions at auction. So those fundamentals are the same. Celebrities jumped on board the BAYC train, solidifying the premium art positioning of BAYC and further pushing up demand and pricing.
There’s a really good, longer-form primer on how traditional art is priced here. TL:DR - it’s basically all about competitive and comparative pricing. Think real estate appraisals, but for art.
What’s interesting though, is that comparative pricing didn’t really propel BAYC.
It’s instructive to look at BAYC’s primary NFT peer CryptoPunks as part of that analysis.
CryptoPunks is a cornerstone in NFT art and a dominant force in the market. Looking at the graphic below, when BAYC launched, they were priced at a skimming level compared to CryptoPunks.
BAYC remained well below CryptoPunks in terms of floor pricing for most of fall and winter 2022. In January 2022, however, floor pricing flipped, and BAYC’s floor price overtook CryptoPunks.
Source: https://dune.xyz/hildobby/BAYC-vs-CryptoPunks
BAYC was a new and relatively unknown market entrant. They priced to penetrate the market and quickly raised prices as demand grew.
But what drove this fundamental value shift for BAYC versus CryptoPunks?
Bored Ape is a lesson in metaverse ecosystem creation (and thus, monetization)
BAYC disrupted the NFT market and emerged as the most notable project not because of the quality of the art itself.
BAYC captured premium value because of two intrinsic elements:
(1) It’s really less of an NFT than it is a pre-paid private community
(2) The BAYC pricing is in many ways an upfront right-to-use license
BAYC offers the 10,000 Bored Ape owners a metaverse-situated yacht club experience that includes access to a community, exclusive merchandise, future “activations”, and other services and resources specific to members of the club.
Members are also afforded full commercial usage rights for their Bored Ape(s), providing them with an asset that can be used at their discretion and monetized into their own products and services, subject to BAYC’s terms of use. A common future metaverse use case cited would be for a Bored Ape owner to recreate their avatar as a character that can be used in video games such as Fortnite.
These benefits represent really smart positioning by BAYC. At launch, the project was already positioned to be something much, much bigger than the sum of the 10,000 tokens in the collection.
Together, these benefits also make a Bored Ape - dare I say it - cheap?
I’m 33 years old. Let’s assume I bought a Bored Ape tomorrow, and held it until typical retirement age at 65. That’s 33 years (yikes).
If you amortize the ~$320,000 I would pay upfront over those 33 years, the cost comes to ~$9,600 per year, or $800 per month.
Not exactly just mess-around money for most, but not crazy money either. Especially if viewed as an investment in a long-term community-based asset, and not simply an entertainment investment or art piece.
Additionally, buying now locks you in at current pricing. If Bored Ape appreciates at 3% a year (a typical cost-of-living rate) over those 33 years, I’d be paying over $800,000 for a Bored Ape at retirement age.
Disclaimer: This is not NFT investment advice. Just an outside look at pricing and value for high-profile NFT projects.
Community-led growth is emerging as the next frontier for SaaS marketing growth strategy. Building an active, engaged community can augment product-led growth strategies and promote product virality and customer retention.
Product marketers seeking out-of-the-box ideas on how to build and monetize communities would be well-served to take a look at the BAYC model as a proxy. BAYC has all the structural tendencies of an enterprise community, and has built unprecedented community-led virality around its offerings.
Practically speaking also, token-based communities are anticipated to be a cornerstone of web 3.0. So learning the structure, functions, and value of those that are already working really well can set up traditional SaaS community builders for the future of their ecosystems.
Now go buy some art - the digital kind, physical kind, or whatever of your choosing!