Turning Nouns into an infinite culture machine

This post was written to promote the Nouns x Kiwi writing contest. But since I'm a co-organizer, I don't compete for the prizes.

I think I’ve heard about Nouns around 2021. In that era of 10,000 pfp collections, their approach was pretty confusing. 

• Only one Noun per day?

• Shared treasury with holders voting on spending?

• And they're building a brand but don’t plan to make money on licensing? 

Since then, I have learned more and started treating Nouns as a brave R&D project in governance, brand building, and treasury management.

But one thing still bugged me - if Nouns create so much brand value, how could they capture a bigger part of it so the project becomes sustainable long-term? How could it become an infinite machine that can produce a positive culture, possibly forever?

Here are my two cents.

Let’s start with the classic approach to making money on IP (Intellectual Property).

The story of creating a successful IP has been pretty standard for years:
- design the characters,
- present them in the comic book/game/movie/book,
- once fans fall in love with them, produce new stories and license products.

This is how Mickey Mouse, Star Wars, and Harry Potter started — as well as the king of all IPs: Pokemon.

The story of an adorable yellow Pikachu and their trainer, Ash Ketchum, has been around for almost three decades. It’s been not only highly popular but also very profitable - since 1996, it brought around $100B in revenue - more than Star Wars, Harry Potter, and GTA combined.

But what actually is Pokemon? 

Is it a wildly popular 90s GameBoy game that started everything? Or maybe the list of 1000s creatures? Or their logo? Or a trading card game? Or an animated TV Series that reached 192 countries?

In a sense, it’s all of these things. Pokemon is an Intelletual Property which means that their logo, characters, and all things around them are protected by the law.

For those unfamiliar with Intellectual Property, it’s - in a way - similar to normal property. Just like people can’t use your car without your approval, they can’t use Pokemon characters and brands without the approval of their creators. Otherwise, they’d be sued.

And just like you can lend your car to earn money, Pokemon can lend their IP to earn, too. Most of us know it by the word “licensing,” and it lets companies produce toys, t-shirts, and games with Pokemon characters and logo. These companies, of course, pay The Pokemon Company their share. 

It’s estimated that over 75% of The Pokemon Company's revenue comes from this type of licensing.

So Pokemon built a fictional world, introduced it via GameBoy games, anime TV series, and other media, and now earns money from people who build on top of their established Pokemon universe. This income might not be 100% passive because they have to review the licenses, run co-marketing campaigns, and so on, but it is as passive as it gets. 

A beautiful business model that’s a gift that keeps on giving. And a few years ago, our crypto world showed a different approach to building new IPs.

I started the previous paragraph by saying that the path to building the IP is as follows: 

- design the characters,
- present them in the comic book/game/movie/book,
- once fans fall in love with them, produce new stories and license products.

But in the crypto world, this process has been unbundled. 

When NFT collections like Pudgy Penguins, Bored Apes, and Clone X launched, people bought just characters. There were no stories, no movies, no games. The idea was that holders would create these things themselves because the more popular their characters get, the higher their NFT price.

And although this incentive alignment has been very useful, it has also led to speculation. People were betting on “the next Pokemon,” thinking that since Pokemon is worth billions, this new NFT collection might also be worth that much one day.

This is part of the reason why the pfp NFT market pumped so much, and why it was dumped when it turned out that creating a great animation or game is not easy. It shouldn’t be surprising - Netflix & Amazon spend billions every year, and most of their shows are crap. Same with experienced game studios, where most games are flops. So, what are the chances that a few chaotic groups of NFT holders would do a better job?

So, crypto created this new promise of easier creation of new multi-billion-dollar licensing machines. 

But Nouns? 

Nouns said:

“f*** it, let’s ignore all licensing money and let anyone use our brand and see what happens. CC0 ftw!”

And a few things happened.

The Nouns approach helped to spread the meme far and wide.

The idea was simple - if you want to create, e.g., a Pudgy merch, you need to have a Penguin or do a licensing deal. So, the creative machine is limited to 10,000 holders & some professional partners. With Nouns, everyone could create their Nounish things. The creative machine is open to 8,000,000 people. And if their creations are cool enough, it’d bring more people into Nouns.

So there have been Nounish NFTs, merch, events, and whole communities facilitated by the Nounds dot build. Even we at Kiwi had a Nounish NFT some time ago. That, combined with the handsome treasury funding brave ideas such as a Super Bowl ad, $400,000 Protocol Guild animation, and giving glasses to kids, is the reason why most people in crypto have heard about Nouns.

I think we can agree that this part of the experiment worked well. What is also worth noting is that most of Nounish content is high quality - there’s very little garbage, which is amazing.

Thanks to the 'let's bet on CC0' decision, Nouns can be seen as an open-source brand. But how many open-source companies are good at capturing the value they generate? Not many. Most are struggling to survive, and that’s why the crypto community has been working so hard to fund public goods.

And I do think that Nouns aren’t good at capturing the value they create, either. This is also part of the reason why some people dunk on Nouns and treat it as a DAO that’s just throwing money around and will eventually get to 0.

So how could Nouns keep their open nature and still generate more revenue?

Let’s take a step back and look at Nouns through the lens of capital allocation.

Nous have a certain amount of money in the treasury. As of this writing, 3,873 ETH (about $10,000,000). 

And Nouns want to:
1. Make their brand as visible as possible.
2. Get more people to join the project and co-create it.
3. Have a positive impact.
4. And do some crazily creative stuff on the way.

If Nouns were sustainable, which means that they’d generate more money than they spend, it’d be a never-ending cycle of creating cool stuff. It'd be an infinite culture machine.

So how could it be done?

When I look at Nouns, I see one major challenge:

The only way to generate revenue is to get mints via Nouns or Nouns-related collections like Lil Nouns. This means that if someone wants to show their support for Nouns, they must spend at least $7,000 or $100 respectively.

This means that we leave out a lot of people. 

And it reminds me of a business concept called a Value Ladder. It's a product strategy where you have multiple products in different price tiers. Someone wants to buy a $1 Pokemon sticker, someone wants to get a $20 mascot, and others want to buy a holo Charizard for $4,000.

You could argue that Nouns also have that, with multiple NFT derivatives starting from a few cents. But this is basically recycling the same concept, not providing new or more unique value like Pokemon stickers, mascots, and cards.

I can imagine people saying that it's not true. Nouns don't leave out people. There are ways to buy Noggles (or get ones for free). You can also buy some merch. Or a sticker. 

The difference, though, is that since Nouns are an Open Brand, the money doesn’t flow back to the Nouns. It flows back to the people who produce the merch. Nouns capture only the last - most expensive - step, whereas traditional licensing companies capture every single step.

And it's not a bug; it's a feature - Nouns want to stay open. But it'd be great if they could also stay sustainable so they can keep creating great stuff.

So what if Nouns took a totally different approach and still tried to stay Nounish? I will riff on some ideas shared by Auditless in his "Reinventing the Nouns" essay.

How to get more capital flowing back to Nouns

Right now, independent teams get funded to do Nouns-related projects. We could say that this is the core of the Nouns operations - funding interesting props. But what if we treat this funding just as a market research tool? And then, once we validated there's a real need for Nouns merch, NFTs, or projects, we would do it all the way?

What do I mean?

For example, doubling down on successful projects.

It's hard to do things perfectly on the first try, so the second iteration should be better - regardless if it's a high-budget animation for Protocol Guild or some merch. It already happens to some extent but to keep the capital flowing back to Nouns, it would be useful to build a culture of voluntary royalties. If I got funded by Nouns and my project made some money, I would share some of this money with Nouns, like Patagonia shares 1% with the planet or Lil Nouns shares 10% of supply with Nouns.

We could also take a totally different approach.

Let's say Nouns make a call for brands that want to open themselves to Nounishness. A clothing brand with a non-crypto distribution that already generates money and might want to print Nounish merch. Or a media company that would be happy to plug Nouns. Or a bakery that will bake Nounish cakes. Nouns could start some profit-sharing deals with these businesses or even buy some of their shares.

They could also do a call for artists who want to do Nounish art. For artists, it's a good deal because if they create good art, they could make a name for themselves thanks to the Nouns support. And making it voluntary to share a bit of revenue with Nouns shouldn't be weird.

Also, Nouns has supported many projects such as Agora, Stand with Crypto, and Protocol Guild. But most people aren't aware of that because social media posts about these fundings are very ephemeral. If you haven't seen the tweet about Nouns supporting Agora once it was posted, you'd never see it.

It'd be good to make it obvious when Nouns have funded some projects. ZachXBT gave a good example by adding Nouns to his Twitter background picture, creating a constant promotion for Nouns.

Of course, all this doesn't mean Nouns should stop doing bottom-up props. Actually, the reverse - it could eventually do even more of them, given that it would have some new revenue streams. More ETH in the bank means more money to do more experiments and good projects such as glasses for kids.

Would that be Nounish? I think Nouns could keep their project's CC0 nature and - at the same time - do these deals. And yes, competitors or artists could copy the Nounish designs without getting sued. But you can also right-click save NFTs and buy a fake Louis Vuitton bag, and it doesn't mean that people don't want to buy originals.

I think Nouns have created a lot of value, and now there are many ways to capture a piece of it. The hard part is, of course, not turning a fun experiment into running a serious (and boring) business. But I am sure that if it became a priority, it could've been figured out.

I think Nouns have been a very brave brand-building and governance experiment. And I think it was - generally speaking - successful. Some people say that Nouns "fund a lot of dumb shit," but so do VCs and R&D departments that need to find their way out of the idea maze.

Since I am an IP guy (I even wrote the IP Protocols series), I find this experiment fascinating. And I do hope that Nouns would figure out how to stay 100% open and still earn some money on a regular basis beyond NFT mints.

I am not a longtime Nouner, so there's a chance that most of these ideas wouldn't fit well into the Nounish culture. But if any of them do, I'd be happy to brainstorm how to make them happen.