CMO Blockchain Primer: Commerce and Sales Get Automated and More Measurable
Time is money and, well, money is money.
For a business that processes credit cards or bank transfers to fund its operations, transactions can end up being costly and time consuming. Credit card transaction fees average anywhere from 1.5% to 3%. This doesn’t include other fees such as monthly minimums. Companies pay these fees to compensate for the fact that they cannot be 100% confident about the trustworthiness of every customer or supplier. It’s a big “Trust Tax.”
Meanwhile, it is not like bank transfers are any better. They can take anywhere from 2–5 days in the US and international can take 2 or 3 times longer, and there’s more and higher fees for those.
To make matters worse, the Nilson Report estimates that in 2016, losses topped $24.71 billion. Merchants were responsible for 28% of those losses stemming from card-not-present issues when customers buy online or pick up in a store. Retailers spend $6.47 billion annually on credit and debit card fraud prevention.
B2B Challenges As Well
On the B2B side, there are plenty of challenges when it comes to commerce. According to the Atradius Payment Practices Barometer, only 50% of businesses check buyer credit worthiness, request secure forms of payment, or both, and 81.5% of companies report employing credit management policies to mitigate trade risks.
This does not even mention all of the value lost by payments not arriving on time, with average payment terms for the Americas of 28 days and the average Days Sales Outstanding of 48 days, according to some estimates.
Beyond B2B and B2C, there’s a humanitarian element to address with not-so-ulterior motives. There are 2 billion people in the world who do not have access to the traditional banking system. Banking the unbanked serves the greater need of extending capital to those previously unable to prove themselves trustworthy to participate in the global economy, growing an entirely new market in the process.
Where Blockchain Technology Can Fit In
One of the oft-quoted maxims of the blockchain world is that “the trade is the settlement.” In Satoshi Nakomoto’s whitepaper, the entire point of Bitcoin and peer-to-peer digital currencies is the elimination of middlemen and the increase of trust. Every payment could be automatically verified.
Each customer or vendor can immediately prove his trustworthiness “by demonstrating ownership of the private key that can access funds.” People that were too costly or risky to serve (say in a developing country) can now become customers.
While fees for transactions will not go away entirely, peer-to-peer transactions verified by a network consensus model will ultimately be lower than centralized third parties.
Near-Term Impacts and Benefits
As digital currencies become mainstreamed, you will see an increasing number of companies that accept them as payment as well as opportunities to use them to lower costs.
There are already more than 46,000 merchants worldwide that accept Bitcoin via Coinbase alone. The CEO of AirBNB, Brian Chesky, said he was “surprised that Bitcoin functionality was the number one requested improvement to Airbnb, even topping a loyalty scheme.” There are even two New York City private schools which are now accepting Bitcoin, Litecoin, and Ether as payment.
The benefits are clear: faster transaction processing times and reduced fees means that either prices are lower, sellers keep more of the revenue, or both. Accepting these currencies will provide a competitive differentiator for some companies.
For one simple example, let’s say you put on a customer or partner event that has 1,000 people attending with an average ticket price of $500. Today, you are paying $10,000 in credit card fees. What if you could reduce it to $1,000 or less by accepting digital currencies? It may not make sense for every activity, but it will allow you to get more value from your marketing budget.
You will also see more and more adoption of digital currencies internationally, lowering the barrier to sales and enabling you to expand more rapidly to new markets. South Korea is preparing to legalize Bitcoin. Japan has removed the consumption tax on Bitcoin leading some to estimate that 300,000 stores will accept Bitcoin by the end of 2017.
Finally, you may start to see discounts from vendors if payment is made digitally. Vendors might make this offer if payment cycles and cost of processing can be reduced. When you are in the vendor position, you may want to offer discounts for payment in digital currencies.
As for the accounting of it all, that appears to be going mainstream as well. Microsoft has announced that it will add native Bitcoin support to Excel. Others are sure to come behind.
A company called OpenBazaar is essentially a decentralized eBay/Amazon. By eliminating the middleman entirely, they offer a commission-free environment for sellers and a shopping experience that has better security and privacy (and potentially lower fees). Because it is decentralized, any information about your transaction is known only to you and the seller. This is unlike eBay or Amazon who know everything and use that information. As a result, it becomes a great way to build your direct relationship with customers.
Plus, there are more customers (and potential vendors). Since there is no bank or ID requirement to set up a store or become a buyer, you have access to more potential customers. You do not have to worry about credit card fees or invoicing; every transaction occurs in a cryptocurrency. People often ask me “what can you buy with Bitcoin?” My favorite answer is “earrings for my wife for Mother’s Day.” There is a world of customers that will be using OpenBazaar (or some version of it) soon.
As a side note, OpenBazaar is doing a pilot program with a charitable organization in Buenos Aires, Argentina enabling women who live in the barrios to access the global market with their wares and have greater financial security by owning Bitcoin instead of the inflationary Argentine Peso.
Long-Term Impacts and Benefits
One of the most exciting components of blockchain technology is the enablement of smart contracts. If you think about a set of business processes or a legal agreement, it is really nothing more than a set of if/then statements. That same logic is the basis for computer code. A smart contract takes the if/then of a legal requirement and embeds it immutably into the blockchain, signed by two (or more) parties.
A simple SEO example that you could implement today at SmartContracts.com may help illustrate the potential.
What if you want to improve your organic SEO rankings? Today, you might hire a vendor and negotiate a fee and a timeframe. When the time for the contract is up, the vendor and you agree on what has happened (hopefully) and then you are billed. You approve the invoice, send it over to AP, and thirty days later (hopefully), your vendor is paid.
What if, instead, you set up a smart contract that said:
“Two months from now, if Google returns http://SomeSpecifiedURL.com for keywords A, B, & C in the top 10 results, pay this Bitcoin address 1 BTC
If it does not return the following URL, then pay this Bitcoin address .5 BTC”
After you set it up, both you and your vendor cryptographically sign the contract and it is immutably written into the blockchain.
On the specified date, the smart contract itself queries Google (the oracle) and since the result is known, the payment is automatically released in the appropriate amount.
It may be a simple example, but you can begin to see the power of how commerce can be automated. Even better, you will have the ability to pay for performance as a marketing executive. At the same time, when you recognize that the legal and business rules that surround our business agreements can be turned into code, you will have the opportunity to flexibly and dynamically create new types of revenue opportunities within your target customer audience.
Is it early for smart contracts? Absolutely. Will there still be a need for dispute resolution? Yes. The key point is that a great deal of friction will be removed from many marketing processes, simplifying commerce and facilitating sales at all levels of the organization.
Another area where commerce and sales will change will come from the arrival of a “pay for attention” model. We talked previously about advertising, but this trend could extend to market research and many other functions as well. The basic idea is that in a blockchain-world where customers maintain their own identity and control over their information, marketers will have to pay each individual to get their attention. Today, you pay Google or Facebook. Tomorrow, you might pay BitBounce or 21.co. Eventually, large enterprise-grade tools should emerge that allow you to manage these efforts at scale, but the concept will be the same.
Each person will set a price for their guaranteed attention. It will be a marketplace and you can choose to pay it or not. If you do pay it, you will get a response that you can verify came from that individual.
It is not that either of these solutions are precisely what the future looks like. They are a glimpse of the future in which customers are taking control of their data and access to their attention. With blockchain-based cryptocurrencies that can handle micro-transactions, it is now already feasible to have this type of system.
When we assign an exact amount to the cost of attention for each individual, marketers will have a far more granular understanding of how to value the relationship with each customer.
As scrutiny on the enterprise CMO intensifies, smart contracts provide an opportunity to more clearly demonstrate the value of marketing spend. Pay for performance and pay-for-attention could prove to be the two pillars of how CMOs of the future are judged.
- Have someone on your team execute a very simple smart contract so you can understand the immediate potential
- Download OpenBazaar desktop or the OB1 mobile app for OpenBazaar to see a decentralized shopping experience
- Set up a 21.co site of your own. Feel free to test it out with me (http://21.co/jer979) — all proceeds will be donated to charity