Blockchain Ecosystems: It's All About Growth

This blog post first appeared in Forbes.

As I have written about before, we are in the middle of a sea change in terms of how commercial markets are organized.

Much of this change is being driven by blockchain technology, which can be used to replace the vertical, siloed industry structures we know today – structures that are fragmented and full of friction – with radically decentralized, open and fluid ecosystems.

Having been in this space for quite a while now, and having worked with a large number of companies and projects, I am more convinced than ever that this vision of new ecosystems in the enterprise space is a fantastic growth opportunity. I also find that the true dimensions of what is going on here are becoming clearer.

Up to now the blockchain discussion in the enterprise space has generally been about efficiency gains – about bringing down the costs of existing processes. What I see more and more is that the horizontal, fully integrated value chains of the future can be a tremendous engine for growth as well. And this is where it gets interesting.

All together now

Let’s have a look at how this looks in practice.

We are for example advising am European bank that is working on a horizontal, blockchain-based real estate ecosystem. In this space, the bank sees itself as one part of a fully integrated value chain in which all the products and services around selling, buying, moving in or out of a home are digitally integrated into a single open platform. This can include everything from the mortgage application and acceptance to title registry to securing building and renovation permits to tax assessment and payment to arranging for the moving company to hooking up the telephone and internet and engaging the landscaper.

Such a platform, if it could be built, would of course be great news for the home buyers and sellers. Instead of dealing with different vendors who do not know anything about what the others are doing, with blockchain and smart contracts, everything can be digitally contracted for and coordinated in a single space.

What I think enterprises need to keep in mind, however, is that the new market platforms and business models that will come out of this kind of integration will be very interesting for them too.

Here’s why.

In any marketplace, all participants have to be connected. Today this is achieved through a hub and spoke model. Industries and businesses exist in their own silos, and then rely on some sort of market platform to come together and do business.

Google and Amazon are obvious examples of such platforms whose business model is to integrate market participants and facilitate transactions. That has proven very useful, but having a proprietary market platform also adds cost and friction. More importantly, these platforms also disintermediate the customer interface, transferring the customer relationship from the business providing the product or service to the owner of the platform.

With blockchain we can build new kinds of market platforms that are collectively owned by the participants.

This technology by its nature makes it easy for large, disparate groups of market participants to communicate, collaborate and – most importantly – safely transact with each other. In a blockchain ecosystem, all participants can also observe the entire state of the market at any time, as opposed to in a proprietary platform, where only the platform owner has the full overview.

Cross-enterprise workflow engine

By adding smart contracts to the mix, we can build a cross-enterprise workflow engine, moving business logic out of the enterprise and into the collective ecosystem layer. This would allow market participants to easily codify market rules as well as individual partner agreements in a way that is transparent, trustworthy and easily enforceable.

Such platforms, which exhibit a high degree of automation, are highly efficient. Without intermediaries, they are also inexpensive to use. By getting rid of the need to build and maintain costly data and transaction silos, not to mention the APIs and reconciliation mechanisms required to connect these silos together, such platforms can be built more quickly and far less expensively than traditional ones. That can represent significant cost savings within the enterprise. Perhaps more importantly, once built such platforms can facilitate cross-selling, reduce acquisition costs and potentially radically increase the customer base.

As has been pointed out, moving to blockchain-based horizontal ecosystems can also have advantages within the enterprise by catalyzing the breaking down of value chains into their component parts. In place of the monolithic legacy systems businesses are used to, enterprises can then move to a microservices architecture built on the foundation of blockchain and smart contracts. That will let them develop lightweight, dynamic, easily scalable and more robust applications that they can plug into the ecosystem, and withdraw, as needed.

Worth the effort

Of course, it won’t be all smooth sailing. Challenges to overcome include the complexities in the initial setup, in particular the operating model discussions (designing the ecosystem, reaching consensus on the desired rules, working out partner agreements).

Once the ecosystem is running, there will certainly be governance issues to deal with as well. Perhaps as challenging will be the mindset change. While enterprises have long been used to cooperating with competitors in strategic partnerships, this brings such “coopetition” to a whole new level. People will need to get used to it.

I believe the potential rewards will be well worth any such growing pains.