Blockchain to Usher in a New Era of Decentralized E-Commerce
We are one human generation into the digital age and e-commerce has become part of modern life. There is unprecedented growth in online shopping and a notable shift away from brick and mortar retail. This transition is made possible by technological developments that led to new and more creative distribution methods, operation scaling solutions, and a change in personal everyday shopping habits.
As we enter the second generation of the digital age, this process of transformation will continue. Blockchain technology promises to reshape the landscape of e-commerce the same way the last generation of internet-based innovations did. Various companies are once again developing new business models, new methods of distribution, more effective methods of leveraging purchasing power, and improved efficiencies in logistics and backoffice operations to usher in the next generation of e-commerce.
Blockchain and the Rise of E-Commerce
In 1995, Amazon.com opened its doors. Billing itself as “Earth’s Biggest Bookstore,” it offered internet users the ability to buy books in an online store. Four years after its launch, Amazon.com reached $1 billion in sales. Today, it is an e-commerce giant, with over 100 million customers in its Amazon Prime program worldwide and nearly $178 billion in net annual revenues.
Amazon.com’s success has even had an effect on U.S. shopping habits more generally, as more and more consumers have started to buy things online. Forrester Research projects that e-commerce sales in the U.S. will account for 17% of all retail sales by 2022, up from 13% in 2017. Forecasts for global e-commerce sales are significantly higher. eMarketer predicts that e-commerce sales around the globe will reach 4.5 trillion by 2021.
Challenges to the Growth of E-Commerce
For e-commerce to achieve its full potential a number of challenges will have to be overcome. These relate to friction between the various segments of the e-commerce industry. The current e-commerce ecosystem has several segments, each with its own dominant players:
- Storefronts — Shopify.com
- Payment Processing — Paypal, Stripe
- Shipping and Fulfillment — FedEx, UPS
- Backoffice processing — Salesforce.com
There are several friction points in how these segments interact:
Last Mile Distribution: The “last mile” refers to the final segment of the freight delivery journey where parcels are transported from a distribution hub to an end-consumer’s location. Last mile delivery is expensive and resource-intensive due to inflexibility in the supply chain and the use of outdated technologies. These are problems not only for small retailers but big retailers as well.
Purchasing Power: While more and more consumers go online to buy goods and services, there is no efficient mechanism to consolidate their purchasing power so they can take advantage of wholesale pricing.
Fragmentation for Smaller Retailers: Smaller retailers do not have access to a vertically integrated service platform. Thus, they have to use the fragmented set of services as shown above. This is a barrier to any new competitor posing a serious threat to larger retailers such as Amazon.
Startup Offers Solutions
A new startup, Buying.com, is hoping to capitalizing on the inefficiencies on both the supply and demand sides of the e-commerce equation. Using blockchain technology, it can overcome the efficiencies of fragmentation in ways not available to earlier generation platforms.
Microdistribution: In addition to distribution centers run by Buying.com, anyone can become a node on the Buying.com network and leverage spare storage in their garage or home, essentially becoming a microdistribution center. This idea is similar how Airbnb lets people turn spare rooms into a hotel, or how Uber lets people turn their cars into taxis.
Bulk Pricing: The platform has a plan to enable individual consumers to receive direct from manufacturer pricing through bulk orders.
Real-Time Logistics: blockchain solutions deliver real-time logistics data. Manufacturers, Businesses and Consumers will have seamless access to real-time shipping data to optimize dropshipping costs.
Cryptocurrency: Buying.com utilizes its own cryptocurrency as a token for transactions on the system.
Transparent and Auditable: the use of blockchain technology allows Buying.com to auto-verify transactions and leaves behind a transparent, immutable audit trail.
Blockchain’s Potential for E-Commerce
The current ecosystem for e-commerce evolved in the mid-90s during the first wave of the internet, with most major retailers establishing a web and mobile e-commerce presence. In addition, several new players such as Amazon.com, Walmart.com, and others emerged in the area of mass market retailing.
Buying.com’s business model is to capitalize on barriers faced by these conventional platforms with blockchain technology. While a number of e-commerce companies are capable of fielding an engineering model similar to Buying. com, most existing players are held back by their installed base. For example, while both Amazon.com and eBay are aware their user interfaces could be improved substantially to raise conversion, their complex system architectures prevent them from making major changes.
Thus, although there is an opportunity for direct competition to emerge, Buying.com’s early embrace of blockchain will make the Buying.com business model hard to replicate for the time being.