In our previous blog, we presented four big societal shifts and explained how blockchain can be applied to each of them. In this blog, we will introduce two growth paradigms that correlate to the big shifts and can guide blockchain strategies. We’ll explain how blockchain strategies differ between the two paradigms – be it to create a competitive advantage on behalf of shareholders or to create ecosystem value on behalf of communities. Finally, we’ll show why a business’ existing market position influences the extent of investment they make in blockchain initiatives for each growth paradigm.
The first growth paradigm, the Platform Age represents how digital platforms are changing the nature of industry competition. The second paradigm, the Ecosystem Age represents a radical new way of doing business where competitive market dynamics are complemented by cooperative efforts that increase value creation for everyone.
The Platform Age
Extending revenue-driving platforms with decentralized technology
The Platform Age represents how digital marketplaces and innovation platforms control an increasing share of the world’s economic activity. On this curve, a company develops and monetizes a proprietary digital platform that creates a step change in consumer convenience or communication. As the platform gains network effects and becomes the standard channel to consumers, the platform becomes an intermediary that controls the rules of competition for suppliers or advertisers that are compelled to participate.
Platform Age has given rise to e-commerce and social media giants like Amazon and Facebook whose platforms have generated exponential revenue from network effects and market leverage. In this first curve, platform companies pursue decentralized technology like blockchain for its ability to extend the value of their market mediating platforms. Blockchain’s capabilities, such as immutable and transparent data, provenance, fast global transactions, data security with digital identity, and smart contracts reduce inefficiencies or create value-adds in complicated business processes that are shared throughout a value chain. For example, Facebook’s blockchain statements allude to their interest in platform data security or embedding a cryptocurrency. WeChat is piloting a blockchain e-invoicing tool to streamline users’ employee reimbursements, and Alibaba is improving cross-border logistics transparency in their subsidiary Lynx International. In the first growth curve, blockchain improves platform margins in ways that other technologies cannot.
The Ecosystem Age
Disrupting the platform age through cooperative ecosystems
The Ecosystem Age challenges the platform age by shifting value away from platform intermediaries and toward a community’s service providers and creators. This shift is occurring as platform users have increasingly become dissatisfied with intermediaries that:
operate near zero marginal cost to monetize participant created content, data, products, and services
monetize or manage user data in ways that are vulnerable to identity fraud, unauthorized access, or infringe on privacy
lack sufficient focus on community or social purpose
This dynamic creates an opportunity for innovators to disrupt platform intermediaries by developing open, non-profit platforms that serve a community purpose and enable ecosystem participants to exchange/trade in fair, secure, economically inclusive and non-rent-seeking ways. Innovators frequently use transparent smart contracts to automate community rules including participant roles and permissions, value distribution, ecosystem operations, and how the rules can be amended. The following three examples showcase how Ecosystem Age innovators solve the problems cited above:
In travel, Global Distribution Systems (GDS) charge significant commissions to travel service providers who gain visibility by selling their products through a GDS platform. In the new business paradigm, Winding Tree has developed a commission-free GDS platform on blockchain to increase provider margins and allow for more travel innovation.
Centralized, platform-controlled data vulnerabilities and misuse are being addressed by self-sovereign identity (SSI) community who researches and develops identity systems that give individuals data ownership, privacy and control across any platform. While the global SSI community has many contributors, two of note include the Decentralized Identity Foundation and the World Economic Forum.
Lastly, the Bill & Melinda Gates Foundation’s Level One framework and project guide address the gap in global financial service accessibility. Banks have traditionally focused on the most lucrative market – those with higher incomes and left 2.5 billion people unbanked. In response, projects like Level One are developing universal transaction protocols to tap the societal and business potential of banking the unbanked.
These examples demonstrate that blockchain is a core technology in this paradigm. Its unique architecture creates a shared platform that can be self-funded with blockchain token rewards given to anyone supporting the platform. Once built, service providers can create differentiated services on top of open platforms.
The Way Forward
While the platform age embodies proprietary platforms built on the internet’s open protocol, the ecosystem age represents cooperative ecosystems built on open platforms. Blockchain can create efficiencies and cost savings within private ecosystems of business partners and suppliers as well as enable open ecosystems that rapidly garner network effects as participants join. So, on which paradigm should a business exploring blockchain focus? Ideally, businesses should invest in both. The amounts they invest in either paradigm depend largely on their current market position.
Market leading platform intermediaries today would likely consider thwarting or delaying the ecosystem age and extend their position with blockchain. However, because cooperative ecosystems are an alternative to platform intermediaries, market leaders should consider experimenting on cooperative ecosystems as they emerge. If you’re not a market leading platform intermediary or you’re a service provider being disadvantaged by one, the ecosystem age offers an attractive opportunity to participate in alternative open platforms that transform market dynamics through cooperation. Yet, non-market leaders can still use blockchain to improve efficiencies in their business processes.
Preparing for the Ecosystem Age:
Understand the new consumers’ increasingly social needs.
Identify communities and envision how an open ecosystem and your business would bring them value.
Engage in communities to monitor the pace of ecosystem emergence and build relationships.
Identify, nurture, and empower ecosystem thinkers within your organization.
Empower an autonomous team to collaborate across organizational, provider and industry boundaries in ecosystems.
Don’t ignore the Ecosystem Age and be especially patient as it emerges because it represents a highly disruptive threat and opportunity.
While blockchain’s capabilities are beneficial for enterprises, it impacts increases exponentially as it is applied to societally focused consumer needs that require widespread cooperation. Enterprises should develop strategies that simultaneously address opportunities of current platform models while reshaping their business models to generate new value from the Ecosystem Age.
About the author(s)
David is a strategist and social entrepreneur, consulting on the impact of decentralization and blockchain on business and society, including the transition of industries into platform ecosystems. He collaborates across the business and social spheres to create life experiences that enable people to thrive.