Building Psychological Attachment — Not Just Ownership — Into Web3

April 4, 2023

 

This piece was originally published on Harvard Business Review.

 

Each year, in early December, social media comes alive with the annual flood of Spotify Wrapped. One of the more ingenious pieces of viral marketing, it requires no paid advertising on Spotify’s end. Instead, users organically share their listening habits, compiled by Spotify, out of amusement, pride, or other emotions.

Spotify Wrapped taps into a behavioral concept known as “psychological ownership” — the feeling of possession or “mineness” over a product or service. In the last decade, psychological ownership has become a core part of how we engage with digital products. Despite the lack of tangible or legal ownership, digital goods and applications have fostered psychological ownership and loyalty from users through personal investment, control, mastery, and alignment with how they see themselves. Users were more likely to stick around, stay engaged, and contribute to tech products that successfully cultivated that sense of “mineness.”

For crypto and Web3 projects, it might seem that psychological ownership would go hand-in-hand with actual digital asset ownership. But in practice, crypto projects often experience the opposite: user interest is often transactional, mercenary, and short-lived.

As the next era of the internet progresses with products that give users ownership through crypto tokens, people building in crypto and Web3 can learn a lot about psychological ownership from other categories of products/services. By applying this lens, crypto projects can foster a greater sense of psychological ownership that accompanies ownership of actual crypto assets, leading to healthier user retention and sustainable ecosystems.

Why Psychological Ownership Is Important

Think of all the products or apps you use on a daily basis and the emotions they conjure. Some material and digital products feel utilitarian and unmemorable: the car you rode in during an Uber trip or a one-time conference app may not stir any real emotion. Others inspire loyalty or affinity because of personal investment: think music playlists you curated or your Twitter profile.

This psychological state of feeling like an owner is distinct from legal ownership: individuals can feel ownership without actually being a legal owner of a product or service, and vice versa. For instance, my social media profile or my sports team reflect a feeling of ownership without formal ownership. Conversely, individuals can legally own things without having a sense of psychological ownership: consider stocks or ETFs which rarely engender that sentiment toward companies.

Over the last decade, new digital products, services, and business models have disrupted the traditional relationship consumers have had with goods/services — shifting from purchasing and owning a product outright to more access and subscription-based models. This shifting relationship introduces new levers and opens up additional design space for cultivating psychological ownership.

Psychological ownership is important because it changes behavior. Research has shown that it can increase customer loyalty, word-of-mouth referral, and willingness to pay. In the public realm, high psychological ownership increases people’s sense of responsibility and stewardship, encouraging behaviors like removing trash from a public lake or donating money to a cause. In digital communities, psychological ownership leads to “increases in satisfaction, self-esteem, and contribution quality.”

study on music streaming is particularly illuminating here. The shift from physical ownership of music (CDs, vinyl records, cassette tapes) to digital ownership (buying individual songs or albums) to digital access (streaming platforms) has been characterized as a move towards a “post-ownership economy.” In theory, its easier than ever for users to leave one app and go to a competitor, since switching costs are minimal. However, the study found that once users had invested time getting to know an app and personalizing their experience — e.g., making public profiles, curating playlists, customizing recommendations — they were reluctant to switch to a competitor, even when potentially superior (including lower-priced) alternatives were offered.

Notably, a corollary implication is that users are developing stronger psychological ownership to a specific platform or app, but their sense of emotional closeness with a specific artist or album is eroded in the streaming era as there is less investment and intentionality in forging a direct connection.

How Is Psychological Ownership Created?

Product builders can actively cultivate psychological ownership among users. Consumer research has illuminated a few drivers of users feeling ownership, with implications for product design:

Investment of self

People have a greater sense of psychological ownership in a product when they’ve invested time, energy, effort, or money into it. “The more effort people put into some pursuit, the more they come to value it,” write the authors of a study on the so-called “IKEA effect” — named after the Swedish retailer that sells self-assembled furniture kits.

In the digital realm, people put effort into a product in many ways: customizing one’s avatar or profile picture, creating content on a social media platform, giving feedback to the company. For example, on TikTok, users deliberately interact with videos in the hopes of tailoring their feed (e.g. “commenting to stay on this side of TikTok”). When users spend years building up a corpus of content on an app, like tweets and blog posts, their sense of personal ownership increases. Just look at the uproar on Twitter in the wake of Elon Musk’s purchase.

Control

Offering a sense of agency over a product/service can also create a sense of connection. That often means providing features that let users shape their experiences through creation, customization, and expressing preferences. Interestingly, these strong feelings of ownership can also backfire for companies. When Apple automatically added a U2 album to all users’ iTunes libraries in 2014, it incited a backlash because it undermined users’ sense of control. Slate deemed it “extremely unsettling, possibly indicating a terrifying new future where taste and culture are even more explicitly chosen directly for us by our corporate overlords.”

Intimate knowledge

Familiarity often inspires feelings of ownership. A local restaurant may feel like my breakfast spot because I have the menu memorized and have a favorite table. Software products can exhibit this characteristic as well: users can develop familiarity with all of the extensive power user features of a particular application. For example, mastery of all of the shortcuts and UI of an email client can increase feelings of ownership and loyalty to that app, despite low switching costs (in theory) due to the backbone of email being non-proprietary open protocols, which anyone can use. This is closely related to investment of the self: by investing one’s time, one also gains intimate knowledge.

Self-object congruity

Finally, the alignment between the product’s attributes and the user’s self-concept — called self-object continuity — can build psychological ownership. Users gravitate to brands that most closely match their self-image, aspirational or realized; people are more likely to use apps that match their self-concept. When older generations took over Facebook, Millennials fled to Instagram and Snap. When Gen Z came of age, they carved out their own space on TikTok.

How Crypto Projects Can Make Users Feel Like Owners

Crypto ownership can be thought of as a internet-native property rights system, analogous to how legal ownership is enforced through legal contracts. In the crypto context, ownership is enforced cryptographically on a blockchain. By virtue of being dictated by decentralized protocols, crypto ownership is internet native: default global and independent of any legal jurisdiction or central authority.

Crypto and blockchain offer the potential to build a user-owned internet, with networks and products that turn users into owners through native tokens. But simply giving users tokens isn’t enough; users need to feel like owners in order to be aligned with the success of those networks, contribute to their growth, and stay engaged long-term.

Blockchains introduce new dynamics to the question of psychological ownership. First, blockchains make it easier to leave any given interface or platform — like NFT marketplaces or wallets — because you can take your assets with you. While Web2 platforms were able to foster strong psychological ownership among their users through investment of time and effort into creating content or customizing their experiences, Web3 may shift users’ feelings of ownership to be more closely tied to underlying crypto assets and creators, rather than with platforms. On the other hand, products can turn their users into owners through a distribution of tokens, amplifying a sense of psychological ownership because users become actual shareholders with potential governance or economic rights.

Second, psychological ownership can produce different effects in the crypto context. High degrees of psychological ownership correlate with behaviors like actively participating or contributing to those communities, long-term retention, and evangelism. Conversely, low psychological ownership can manifest in mercenary, short-termist behaviors like flipping assets, using products only to farm an airdrop, and low participation rates in governance.

The challenge — and opportunity — for builders in crypto is to explore how to design products that support a greater experience of ownership and feeling of “mineness.”

Crypto and Psychological Ownership: Drivers and Hurdles

In the traditional gaming world, skins — cosmetic items that can be used to customize a player’s appearance inside the game — are estimated to be a $50 billion market. In contrast, NFT fashion — an emerging category that has seen major players like Dolce & Gabbana and Karl Lagerfeld launching collections — is merely a $245 million market, or less than 1% of the size of video game skins. Why this discrepancy, when crypto ownership of NFTs is arguably a “stronger” form of ownership, independent of a single gaming company’s database?

Psychological ownership is one explanation. Intense feelings of ownership over in-game characters and experiences lead to users willing to pay for skins at scale. Conversely, today, fashion NFTs have only limited opportunity for self-investment beyond financial spend, little ability for users to exert control, and few places where other users can see the NFT and accord its characteristics to the owner. (Projects like fashion NFT marketplace and digital closet DRAUP are notable exceptions here.)

Let’s examine some drivers of psychological ownership, and dissect where various crypto projects do well (or fall short) in strengthening users’ feelings of ownership:

Investment of Self

Crypto projects are often good at getting an investment of users’ time, energy, and money, but that doesn’t necessarily translate into a sense of ownership. Consider the practice of rewarding users with tokens for performing certain actions — known as liquidity mining — which has been applied widely by play-to-earn games, NFT marketplaces, and DeFi protocols. However, while they have often succeeded in driving an initial surge of usage, it has rarely translated into long-term success. For instance, a Nansen analysis of yield farming activity among DeFi users showed that “42% of yield farmers that enter a farm on the day it launches exit within 24 hours … and by the third day, 70% of these users would have withdrawn from the contract.”

Why do these programs — which are quite literally about creating buy-in — so often fail in fostering long-term user retention?

One explanation is that most token distribution mechanisms attract mercenary users who are performing a simple profit calculation rather than users with an intrinsic interest in using the product. That means high user churn when other opportunities appeared that offered higher ROI for their capital and time.

If that’s the case, then reframing the problem might present an opportunity. Historically, most tokens have been utilized to juice growth with little consideration for facilitating long-term sustainability: they lure users to a new network or product through the promise of a future airdrop or ongoing token rewards, which in turn promise financial rewards. This is a weak strategy for creating feelings of attachment.

But what if the order were reversed: the attachment comes first and the token ownership second? By identifying key drivers of psychological ownership and making token rewards contingent on users taking those actions, tokens can be used to reward psychological ownership, reinforcing attachment and building engagement habits. This is what successful incentive programs in Web2 do — the Uber or Doordash guaranteed earnings programs for new drivers deepen drivers’ intimate knowledge of how those apps work, fostering psychological ownership that then translates into stronger network effects for their apps. The Blur token airdrop has parallels to that model, in making tokens contingent on users taking behaviors like utilizing new features and contributing to liquidity on the NFT marketplace.

Control

Various Web3 communities are tying creative and engaging experiences of control to token ownership. For example, Shibuya’s White Rabbit animated film allows users to stake their NFT Producer Passes (locking them into the platform) in order to vote on the next chapter, with more than 80% of tokenholders participating. Mad Realities, a reality dating show, allowed NFT holders to control different elements of the show, such as voting on the winning couple and influencing the set design. Creating a richer experience of control around users’ crypto tokens can engender greater psychological ownership and loyalty.

The trick here is that users have to care about the particular type of control and feel a sense of agency in order to value their asset ownership. One reason most protocol governance sees low participation, with less than 20% participation in proposals among DeFi protocols, is that the average user may feel that their level of influence is insignificant, which reduces their sense of control.

Intimate knowledge

If creators can engender a sense of psychological ownership among their tokenholders, it could mean turning a speculative user base that sees the creator as a potential path to profit into an engaged community that is long-term oriented and places disproportionate value on their relationship to the creator. For an idea of how this works, consider Bonfire, a platform for Web3 creators to build custom experiences for their tokenholders, including exclusive content, contests, and airdrops. By enabling fans to invest time into creator communities and develop intimate knowledge of the creator’s work, Bonfire facilitates feelings of ownership above and beyond simply owning a token.

Self-object continuity

Certain crypto communities have extremely high degrees of association between token ownership and identity: users purchase and display NFTs or even change their usernames or bios to indicate networks that they want to publicly associate with, signaling their identity and beliefs (e.g., Bitcoin and laser eyes). This kind of emotional attachment and alignment with self-identity can lead to extremely high retention among holders, causing them to disproportionately value the thing they own.

Crypto projects can foster greater user retention and loyalty by standing for a clear set of values that resonate with their owners. The opportunity is for builders to hone their positioning and storytelling to make it clear what they stand for, attract those users who resonate with that mission, and activate them as further evangelists of the narrative.

A case study: NFTs vs. social tokens

Another interesting example of the power of self-object congruity comes from the web3 creator economy. In early 2021, social tokens were widely predicted to be a new type of asset that would gain rapid adoption in enabling creators to monetize and audiences to invest in their success. However, NFTs have eclipsed social tokens as the type of asset that accomplishes those goals. One explanation is that NFTs have been much more successful in creating psychological ownership among users. In particular, visual NFTs lend themselves easily to self-expression and social signaling, and provoke greater emotional connection with the asset that users own. Whereas social tokens are abstract and challenging to wrap one’s head around due to a lack of a real-world counterpart. NFTs initially gained steam as digital art or collectibles, which have high degrees of psychological ownership in the offline world. Going further, the categories of NFTs which have seen the greatest growth and adoption are those that lend themselves to showcasing certain beliefs about oneself, versus other emerging categories of NFTs (writing, podcasting, music) that are more challenging as a mechanism for signaling one’s identity due to lack of venues for display and consumption.

Building Psychological Ownership Through Better Relationships

Given all of this, how can builders in the crypto and Web3 worlds put the ideas into practice? Putting the idea of psychological ownership to work requires building a different kind of relationship with users, changing their sense of their own role in a project, and leaning into co-creating alongside users. Here’s what that can look like.

Interoperability and user control

A hypothesis I have is that users’ feelings of ownership was stronger in Web2 with platforms, whereas in Web3, ownership is more strongly felt in relation to underlying crypto assets, communities, and creators. That’s because crypto enables interoperability and data portability: by being built atop open, decentralized ledgers, users have stronger feelings of control and “mineness” with their assets. They can access their tokens from any crypto wallet, buy and sell NFTs from any marketplace, and engage with tokenized communities across social apps. In contrast, in Web2 applications, users’ data, content, points, etc. are stored in centralized databases, wherein users had control in the context of a particular app, leading to feelings of ownership with the platform.

For example, in decentralized social networking protocols like Lens Protocol, user profiles, follower relationships, and content are represented as NFTs. This means that any client can build on top of Lens Protocol and access the data. When users download an app that builds on top of Lens Protocol, their existing social connections and content are populated from the get-go. For users, that can enhance feelings of control and ownership over one’s content and relationships, but can erode feelings of loyalty with any given application.

In Web3, cultivating psychological ownership and defensibility as a product relies on other drivers. Those include investment of self through customization or distribution of a token; intimate knowledge that is built through user habit; self-object congruity with a clear brand identity; or proprietary product elements like better discovery algorithms and off-chain data. Crypto app builders can learn from the email or podcasting worlds, where significant market share is commanded by certain products despite those products being built on open data (Spotify represents 27% of podcast listening; Gmail represents 30% of the email market).

User co-creation: building in public and governance

Studies have shown that companies that involve customers in the creation process and give them a sense of decision-making power enhances positive word-of-mouth, enjoyment of a product, willingness to defend it in public, and willingness to pay. That’s because empowering customers as co-creators builds a sense of control, intimate knowledge of a product, and allows them to invest time and effort into the product.

This maps to a growing trend among startups of “building in public,” or openly sharing progress and soliciting feedback from the public, as a means to foster a community of early adopters. In crypto, user co-creation also takes the form of governance, wherein stakeholders are able to vote on the direction of a project or protocol, typically through their token holdings. In crypto, user governance is often a benefit accorded to token owners, rather than a prerequisite. Given the power that fostering user involvement holds in generating psychological ownership, it may be worthwhile to explore making collaboration and co-creation a prerequisite for becoming an owner or receiving an airdrop.

The Foundation for a User-Owned Internet

Psychological ownership is the key ingredient for many successful products, especially in the internet era when countless alternatives are just a click away. The products we all feel a strong sense of “mineness” over have shored up their stickiness through the cultivation of our effort, control, intimate knowledge, and alignment with our values and self-identity.

In crypto, the new technological innovation is an internet-native system for tracking ownership, enabling any product to make their users into owners through tokens. That has led to projects that can grow meteorically because of user ownership — but it’s also led to notable flameouts and rampant speculation. I argue that those adverse effects have happened because psychological ownership has been missing and underexplored, with the result being tokens attracting mercenary users and ultimately undermining projects’ long-term success.

Instead, tokens — or the promise thereof — can be deployed strategically to encourage users to invest their time, effort, and energy; exert control and agency; and signal their identity and beliefs about themselves, which are antecedents of feeling like owners. Research from the traditional financial world highlights the potency of combining actual asset ownership with psychological ownership.

A Columbia Business School study found that in a fintech app where users selected certain brands or stores to receive stock from once they shopped there, users’ weekly spending jumped by 40% at those brands. The researchers concluded that stock ownership increases feelings of brand loyalty. Critically, users intentionally selected their stock holdings and invested time shopping at those brands in order to receive a stock grant — a meaningfully different path to ownership than buying into an ETF or mutual fund, where little personal investment beyond capital is required. Analyzed through the lens of psychological ownership, this experiment cultivated a sense of “mineness” with the brand, through giving users a feeling of control over the company, triggering deeper knowledge of those brands, and causing users to invest time and money.

This is the potential for crypto builders: when asset ownership is distributed more broadly and programmatically — and, critically, coupled with psychological ownership — it is a new, powerful tool to enable products to grow faster, drive retention, unseat incumbents, and build long-term sustainable networks.

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