3 pillars of digital luxury

How to create, distribute and capture value in digital luxury markets

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A digital luxury item can be anything from: a) a non-fungible token in the form of a virtual product, like Dolce & Gabbana’s the Doge Crown or Gucci’s Dionysus bag that can be used, owned, exchanged, rented or sold in digital environments, b) a token that is a membership card, DAO contribution recognition, a PFP and a social visa, like BAYC or RARE curation token, c) virtual products that are worn in metaverses, like Roblox and Fortnite skins, d) physical products with virtual counterparts, like Diesel’s new PROTOTYPE sneaker and a corresponding NFT, or e) the image of a physical product or a look or a moodboard or any other piece of rare, exclusive or coveted content turned into an NFT and distributed as part of a collection.

Balenciaga launched last week its metaverse business unit. Digital luxury items can become a $56 billion market by 2030, according to a recent analysis by Morgan Stanley. Done right, digital luxury items create cult objects (e.g. Beeple art or a rare BAYC), justify high prices, collectibles, and initiate brands in the domain of intangibles. Digital luxury goods fuel brand growth in mature markets because they relieve the pressure of compressed trend cycles on brands to constantly come up with the new stuff. They also lend a brand a trendy positioning, remove the barrier to a brand’s image and extend a brand’s appeal to multiple audiences. People who’d never consider a brand may go for its digital asset.

The operating system of digital luxury strategy is collecting. Digital luxury goods are simultaneously equities and collectibles. When someone buys a Diesel PROTOTYPE sneaker and the corresponding NFT, they aren’t actually buying a sneaker and a NFT; they are investing and collecting.

In terms of business, digital luxury assets are gold. They combine two traditionally high margin businesses: luxury and digital. The margin of digital GUCCI Dionysus is higher than the margin of physical GUCCI Dionysus (as is its price, as it happened recently).

Three elements of a digital luxury item are: aesthetics, identity and status. Together, they determine the value and utility of a digital luxury item, in virtual or physical worlds.

Aesthetics

This dimension is particularly relevant for virtual items in a) and c) scenarios outlined above: for stand-alone virtual products, like Doge Crown or a Bored Ape or a Beeple piece of art, and for virtual items like skins that are worn in games. Aesthetics is the key determinant of value for both luxury and digital markets, and both luxury and digital items have to be highly visual. The more powerful the aesthetics of a luxury good (physical or digital), the more contagious the idea behind it. Examples are Balenciaga couture, GUCCI collections or a timeless Chanel jacket. But if the idea of female emancipation was not packaged as a highly appealing Chanel jacket, it would have taken it longer to spread and create identity for both Chanel and women who wear it. “That is so GUCCI!” is part of our cultural lexicon precisely because the brand’s meaning is compressed in the unmistakably recognizable Gucci Look. This meaning and a point of view - the story - makes digital and physical luxury good valuable. Digital luxury goods are part of the cultural exchange system, not a market segment. In modern culture, things that command our attention are the things that stand out: logos, slogans, prints, memes, references, remixes, riff-offs. But it is the things that stand out and have meaning - an ironic meaning, a double meaning, a meta-meaning - compressed in one visual that will win in the digital luxury goods market. They are the hardest to imitate because aesthetics isn’t gloss; it’s the story and the cultural link that holds a community together and that gives it identity. Aesthetics without community is advertising.

Identity

This dimension is particularly relevant for virtual items in b) and d) scenarios outlined above: for tokens that act as membership cards, DAO contribution recognitions and PFPs, and for digital assets with their physical counterparts, like Diesel’s new PROTOTYPE sneaker and a corresponding NFT.