Spotting NFTs with Massive Competitive Advantage – DataDrivenInvestor

DataDrivenInvestor
Feb 26
In a previous article, I’ve written about using data to invest in NFTs. In this, article we’ll use Porter’s 5 Forces framework to identify NFTs with competitive advantage. This is more of a thinking exercise than actually identifying real NFTs because to be frank, if I did find one, how smart would be if I shared it?
1. Competition in the industry
2. Potential of new entrants into the industry
3. Power of suppliers
4. Power of customers
5. Threat of substitute products
But, before we continue, I do need to point out that Porter’s 5 forces was intended to be an industry analysis, and not a specific business analysis. This is okay because we are looking at NFTs as an industry. Furthermore, this framework is static in nature and future industry changes may require often revisiting of this framework.
No doubt the NFT marketplace is competitive. Opensea probably has hundreds or maybe even thousands of contributors on its platform. I’ve been on the website and I’m flabbergasted at what’s available — not just how much but also the quality of everything. For instance, my favourite drops are NFT Worlds because they look great.
I would say that making a name for yourself is tough in any industry. I can relate, I had a tough time getting Medium followers. To be honest, I did try many things such as writing an article a day and even one of those follow-me-follow-you articles.
Without being an NFT artist myself, I can’t comment how tough the or easy the industry is, but as a consumer, there’s a lot in the marketplace — a bit too many to choose from.
Nevertheless, there also appears to be a few niche players. So, I would say even if there’s a lot in the NFT marketplace, as long as you know what you’re looking for, you might be able to find a niche where your chosen artist may have a monopoly. For example, NFT Worlds appear to dominate custom created metaverses.
Being such a new way doing business, there are very little barriers to entry for those who want to sell NFTs. Well, except for the fees (eg. Gas fees — the cost to interact with the Ethereum network) and the artist’s talent. However, given that there are so many artistic avenues to sell NFTs eg. Art, music, books and so on, the NFT landscape can just be flooded by many people.
Personally, for myself, I have no creative talent besides writing Medium stories on a cell phone. As a matter a fact, I would dare to say that my artistic work looks like chicken scratch. Sometimes, I tell myself I’m the Picasso of Poo. (I try not to swear but if you substitute poo with a better sounding s word it sounds funnier) However, if I were to join the NFT marketplace, I would personally be flipping parcels of land since I’m better at estimated cash flows.
Nevertheless, here are some ideas I think could dissuade others from entering the NFT marketplace.
For NFT makers, there probably wouldn’t be too many suppliers that would limit them, assuming that their work doesn’t involve tangible resources. However, here are some ideas I think that could limit the NFT artists creating and distributing their work.
Who actually buys NFTs? Well according to Adweek, millennials buy NFTs the most. Apparently, those who do invest in NFTs tend to view them as collector’s items and the brand behind the NFTs also matter a lot. Given that the NFT marketplace is so large, it seems like the customers have a lot of power.
When I reflect on why investing in NFT is a good thing, it reminds me of the days when I would collect Pokémon and Yugioh cards. Given that you can buy trading cards on NFT marketplace, there is an allure to buy them as a way to reminisce about the good old days, and a way to make money.
Really, you can only substitute NFTs with something tangible. For example, you could have an NFT of the Mona Lisa or the real thing. Given that da Vinci painted the Mona Lisa before the times of NFT, I would bet the real thing cost more.
Furthermore, nowadays, you can get both the NFT and the product at the same time. For instance, Nike let’s you buy a certain shoe and get its NFT too.
However, I would dare to say the real threat of substitution comes from which network you use. Ethereum or Solana, for example. Sure, you can easily swap between the two currencies, but your money could be loss due to conversion. Furthermore, consumers may not be loyal to one blockchain network, so it’ll be wise to have a presence on the major networks.
To make things a little bit easier, here’s a framework to help you identify if the NFT you have has massive competitive advantage.
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