Industry adoption is the biggest obstacle to blockchain becoming important in banking, according to 78% of participants in a study. Wait, what? It’s an odd data point to me, because adoption happens (or doesn’t) because of obstacles like cost and complexity. Slow or late adoption is a symptom of a challenge, not the challenge itself. So let’s take a quick look at what might slow or stall adoption, and what to do about it.
Blockchain is an element of “the platform revolution” that’s based on user economies of scale
Recently I had the chance to speak with Marshall Van Alstyne, co-author of The Platform Revolution and a professor at Boston University. He discussed the network and platform model of many new digital businesses like Airbnb. Airbnb is successful because it can exist and profit from user economies of scale instead of company-based economies of scale, according to Professor Van Alstyne. Essentially, this type of platform business allows users to create and share value themselves instead of relying on a company to create the value. The role of the business is to provide the infrastructure and support. While Airbnb doesn’t use blockchain as its base technology, the concept applies because firms can use blockchain as the basis of new platform-based business models.
Blockchain, with its design point of peer-based approvals for transactions and distributed ledger data storage, is a great example of a platform technology. It’s the enabler of a business that needs users to help define how it will scale.
What to consider in using blockchain as a platform for business
If blockchain can help companies build a platform business, what might slow or stall adoption? Professor Van Alstyne mentions a few:
- Network ownership – who manages the network and gets to decide the rules? Is that owner in a position to run the network effectively?
- Cost/transaction friction – how much does it cost to join or participate? And do you have to pay before you get value out? Can you design the network so participants pay only after they’ve gotten value to reduce the transaction friction?
- Monetary policy (for financial transactions) – who or what agency is going to ensure the network isn’t too volatile? Who will ensure that there are guardrails to give users comfort that the system will have some inherent stability?
- Standards – can players on different blockchain implementations work together rather having to agree on the same implementation? Who creates and manages those standards to ensure adoption isn’t hindered by interoperability problems? A good example of how standards can help is to solve issues like block sizes and reducing network consensus time, both of which significantly hinder the speed with which transactions can be completed.
The end user is at the center of the platform-based business
Customer-focused businesses need to exist in an environment where user economies of scale have become the norm. That means the business needs to understand the user and the users’ needs—doing so, will help identify and drive scale. And understanding the users and what they value, and how that then fits into a business model (addressing compliance, for example) can help drive the answers to the questions above. Rather than trying to scale internal operations like manufacturing, firms that adopt this customer-centric “Digital OneOffice” need to focus on user value and associated data. As Professor Van Alstyne points out, platform businesses can scale indefinitely because they don’t require internal company investment (beyond some compute power.) Instead, platform businesses that use technology like blockchain can scale as quickly as user adoption grows because there are no marginal costs of that growth.
Going back to that study I saw – blockchain may not get adopted, but if it doesn’t, it’s because companies didn’t take advantage of user economies of scale and learn lessons from older network-based businesses like eMarketplaces.
Bottom line: Focus on solving the obstacles to adoption, not adoption itself – especially transaction friction and interoperability standards – if you want your blockchain implementation to succeed and move you forward in your digital transformation.
Posted in : Blockchain