Enterprise Blockchain: Where is the Business Value?

An executive’s guide to distributed ledger technology (Part 1)

TLDR: When looking for the business case of using distributed ledger technology, you need to consider the merits of the technology as well as the new economic systems that it creates. Whereas use of the technology can reduce cost, especially in interactions with other parties, token economies can create completely new ways to interact with customers, to innovate business models, and opportunities beyond that.

In a recent discussion on the Unchained podcast, the current number of blockchain or distributed ledger technology (DLT) projects was estimated at about 5.000, with approximately 50.000 to 100.000 people currently involved in the ecosystem globally. That’s still small compared to the 6.7 million tech workers in the US alone. However, with the ecosystem growing and maturing, and projects launching their platforms and solutions, broader industry adoption is expected to happen within the next 12–24 months.

With new innovative solutions emerging continuously, and the media attention of a something hundred billion cryptocurrency market cap, many executive wonder about the technology’s impact on their business. In this multi-part blog post, I’ll try to answer some of their questions:

Part 1: Where is the business value? (this post)
Part 2: What is the state of industry adoption?
Part 3: Which solutions are enterprise-ready?

To understand the value potential of DLT solutions, there are two things important to understand: 1) Key characteristics of DLT, and 2) how cryptocurrencies fit in the picture.

DLT creates a permanent, decentralized, global, trustless ledger of records, i.e. it once something it stored on it, it cannot be changed or deleted, there is no single point-of-failure, it is accessible from anywhere on the internet, and it does not require a trusted 3rd party for securely conducting transactions. Because these characteristics come out of the box, whenever they are required, using DLT will produce a savings case.

When blockchain projects create a new cryptocurrency, the cryptocurrency is not their product, it’s their market. They are creating a new economic system, where the cryptocurrency tokens are the units of exchange, and the DLT technology allows for rules and incentives for each participant being built into this economic system. In a way, they are developing the rules of a new game, that anyone can participate in. This is the real game changer; it not only enables and fosters new types of collaboration, but also allows for the inclusion of previously uninvolved parties.

You can get people to do stuff, by rewarding them with tokens. Blockchains are incentive machines. — Trent McConaghy

To dig deeper into DLT’s business value potential, I’m using an adjusted version of the Accenture Digital Strategy Framework to classify use cases in three buckets: Transform operations, transform business, and new opportunities.

Transform operations: This category is looking at benefit potential along internal processes and interactions within the business’ value network. Primary value driver here is cost reduction.

• Payment: Decentralized payment allows to cut out middlemen and charges that these take (especially in international transactions), and reduce administrative efforts e.g. in clearing, settlement, or by using smart contracts to execute payment for goods received.
• Asset tracking: Integrating a DLT solution in record keeping systems can make use of its permanence feature to reduce cost of maintaining an audit trail of data, especially across organizations. This can be used e.g. to track ownership provenance of assets or controlled items, goods along the supply chain, data in research settings, or financial data for auditing.
• Data sharing: A DLT can be used as a system of record between organizations to exchange data without additional cost for running a 3rd party that maintains current data and its integrity. The can help with e.g. counterfeit / fraud prevention, demand synchronization within a supplier network, or with keeping public records.
• Identity management: Decentralized solution could be used to avoid redundancy in organizations having to manage user-controlled identities (user accounts) or identity verification (government-issued identity). This could be used for e.g. KYC, credit history checks, HR background checks or academic credential verification.
• Cloud 2.0: DLT-based offerings of online resources take the on-demand and scalability premise of cloud to a decentralized setting where services can be offered at lower price by leveraging otherwise unused resources. This can be applied to e.g. file storage, database, network management, or high-performance computation.

Transform the business: Looking beyond just the technology and including the token economies that it enables, there is value potential in new types of customer interactions and ways to innovate business models.

• Customer engagement: Creating an economy with integrated incentives for its participants to behave in certain ways can be a powerful tool to engage customers. This can be e.g. in the form of loyalty programs, rewards for customer insights, or incentives to contribute to a platform.
• Micro transactions: A token economy can make real-time consumption-based payment models feasible, where a customer only pays for what is actually consumed as compared to a flat fee or subscription model. This can be a way to monetize content, collect royalties, collect license fees, or charge for advertisement.
• Creating new markets: Making it significantly cheaper and easier to build a marketplace business, marketplaces for any type of assets can be created. This could be for previously illiquid assets such as unused production capacities, or as secondary markets for raw ingredients, parts, goods, and services.

New opportunities: Looking at both the technology and token ecosystem value potential combined, new opportunities are being enabled that are neither part of the core value chain, nor the core business model.

• Funding: Similar to how the ICO rush of 2017 made cryptocurrency offerings an accepted means of funding for early stage startups, a similar development can be anticipated for larger companies using (security) token offerings as a means of capital acquisition (e.g. Telegram, tZero).
• Access to data: With data as the new oil powering today’s businesses, access to big amounts of relevant data is ever more important. Token economies can create marketplaces where the right incentives allow for creation and exchange of (privacy-protected) personal data, crowd-sourced data, and data from privately-owned devices.
• Crowd collaboration: Using the mechanisms of a token economy to incentivize certain actions and behaviors can be a platform for collaboration beyond the boundaries of an organization. It can be used as e.g. a platform for task management and payment for a liquid workforce, or as a basis for crowd prediction markets.
• Self-governed organizations: Using DLT, virtual organizations without any employees can be created that are run only through the rules encoded in its smart contracts (so-called decentralized autonomous organizations or DAOs). These types of organizations can be set up to e.g. manage certain aspects of a joint venture, industry consortium, or central authority.

On the flip side of these value opportunities are of course threats for today’s businesses as well. As per a WEF analysis, digital disruption has pushed more than half of Fortune 500 out of business since 2000, and adoption of DLT is likely to aggravate this trend.

Similar to other digital technologies, there will be pressure on profitability through competitors that are able to leverage cost benefits from using DLT better or faster.

In addition though, certain businesses will face the risk of being the middleman that is being cut out, seeing the value-add that one’s offerings provide being challenged meticulously.

Similar, certain parts of or even entire business models are at risk of being decentralized, with the token economies at least taking over market share, if not replacing whole markets.

And of course there’s the innovator’s dilemma angle to it. DLT and token economies might be the enabler for new initially inferior offerings within an industry, that slowly take over the market while it changes.

This technology will be a game changer; it can impact your competitiveness, your competitor landscape, and your market!

Please let me know what you think about this post, and if you can think of any further enterprise use cases or threats, please let me know, too!