What Small Companies and the “Middle Market” are doing with Blockchain
By Dr. Drew Miller, Managing Director, Blockchain Business Consultants, drmiller@bchainconsult.com
In April 2019, Forbes released it’s new “Blockchain 50 list,” covering big company use of blockchain.[1] A great article, but in focusing on the largest companies using blockchain (BC) Forbes gives a somewhat distorted view of business use of BC. The Forbes 50 applications are dominated by Finance and Supply Chain applications. Small BC startups are doing the large company BC applications, but many more innovative and bold applications, pursuing BC uses that may yield more disruption and industry advances long term. Deloitte does an annual survey of BC use, also very biased towards the Fortune 500. Most companies launching blockchain applications are small. The “Middle Market” ($100 million to $3 billion in sales) accounts for roughly one third private sector sales, small businesses contributing another third. This article summarizes how small and medium size companies, the vast majority of businesses, two thirds of total sales, are using blockchain as of early 2019.
In Blockchain Business Consultant’s database of over 500 companies pursuing blockchain applications (including all the Forbes 50, excluding tiny ICOs just developing a new blockchain) we find that 62% of known BC applications are in small and medium sized companies:[2]
Source: Blockchain Business Consultants, business blockchain applications database, www.bchainconsult.com
While the Forbes article and annual Deloitte blockchain survey provide very valuable information and examples of blockchain business applications, they give a biased overview of blockchain business applications. They ignore many uses of blockchain occurring in small and middle market businesses and sometimes give misleading conclusions of what the most important BC uses are.
For example, the major use of BC in the Forbes 50 list is Financial Services. Our blockchain database shows that large firms account for about 70% of the financial services BC applications. As a percent of total applications, small firms are not pursuing many financial service applications of blockchain (we did not count cryptocurrency trading or wallets as financial services). When companies of all sizes are included, financial services are about 20% of blockchain applications.
Blockchain as a service and blockchain consulting and development makes up a slightly larger percent, and supply chain about 15% of blockchain applications.
The other category of blockchain applications contains a myriad of applications small firms and startups are pursuing, some innovations well beyond what you see in the largest companies. Real estate, voting applications, customer loyalty programs, and many other blockchain applications are in development or use at small firms that may have big impact.
There were no foodservice companies in the Forbes 50 list, but many small and medium sized restaurant companies accept cryptocurrency for payment and are using blockchain for other business applications. One of the first uses of Bitcoin for purchase was a Pizza buy. Not the full, big chain, but Burger King in Russia minted a “WhopperCoin” cryptocurrency to reward customers for purchases. Bloomin’ Brands, owner of Outback Steakhouse, Carrabba’s, and other restaurant chains, is experimenting with a blockchain solution that provides transparency and accountability in sourcing, and helps in the case of a food safety–related recall.[3] More restaurants are stressing that they source locally for better freshness, safety, and to promote the local economy. Blockchain can be used to prove this provenance as well, with a consumer able to scan a barcode on the menu or a poster in the restaurant to see where exactly the ingredients came from. A steak restaurant has just added this BC application. According to Food Marketing Institute research, 44% of customers want to know that their food has been produced ethically, and 75% don’t trust what is listed on the food labels.[4]
False and misleading restaurant reviews are a problem for both restaurants and customers. It is difficult to know which comments are honest and which are fabricated to help or hurt an establishment.[5] The Bloomin Brands EVP says in their video on BC use in restaurants that a 1-star boost in Yelp ratings yields a 5 to 9% increase in sales.[6] Companies like SynchroLife hope to fix review problems by rewarding reviewers with cryptocurrency tokens for contributing reviews on restaurants, stored in a blockchain where they can’t be altered. Users and restaurants can’t wipe away bad reviews. SynchroLife’s machine-learning algorithms will also be used to offer recommendations.
So in just this one industry, foodservice, traditionally not very high tech, we see a host of innovative uses of BC, yet there were no foodservice companies in the Forbes 50 list since they focus on megacompanies.
Some industries have just one company using blockchain. The little known (outside the 3 to 5 million U.S. “preppers”) preparedness, survival industry has a company that did an ICO for a utility token that not only sidesteps the regulatory problems but is up in value since the cryptocurrrency token gives you not just a fixed price to join the Fortitude Ranch survival and recreational community, but priority to join when a wait list forms. [7] Unlike most ICOs with coin prices that tanked after the Bitcoin December 2017 price collapse, the Fortitude token is up 45% in price since it has real value. Many other companies should be using cryptocurrency utility tokens to do advance sales of new products and services — enabling customers to get priority and perhaps a fixed price for a hot new product, but with the ability to sell their token to someone else if it rises in value or they decide not to buy.[8]
A huge difference between small and huge firms using BC is that big established firms were unwilling to risk securities regulatory problems and ignored ICOs, which thousands of small companies and start ups exploited to raise funds. icodata.io lists 1,883 completed IOCs as of April 2019.[9] Some of these IOCs were fraudulent, some have failed, but we guesstimate about 1,000 small ICO funded startups are still out there developing new blockchains, new BC applications, and some new industries.
Some start up blockchain focused companies like Everledger are no longer small. Founded in 2015, Everledger tracks the provenance of high-value assets like diamonds on a blockchain digital ledger. Using blockchain, smart contracts, IoT and machine vision, Everledger provides users with immutable data on a product’s ownership with complete history of origin and transfer, making counterfeit goods or bad practices like sourcing from warlords difficult. In 2018 Everledger raised an additional $10 million in financing and has expanded rapidly into many consumer goods beyond diamonds. Everledger is a medium sized company today, with employees in 12 offices around the world. They rightly claim to be the “Pioneers of digital provenance”[10]
Everledger provides a good illustration of how Middle Market and large companies will have to react to the small BC company upstarts. A jewelry industry consultant warned in 2018 that “blockchain technology is coming to the jewelry industry, and it’s coming fast.”[11] Actually, it had arrived several years ago, but the big companies were not paying attention. DeBeers, the huge diamond miner, reacted to Everledger by creating their own diamond supply chain blockchain, rolling it out in late 2018. Some other jewelry suppliers, manufacturers and retailers worked with IBM’s TrustChain to form another jewelry supply chain blockchain that won’t be operating until later in 2019 — while Everledger continues to expand its substantial lead and move into more markets beyond jewelry.
Walmart has a food safety private blockchain in use that produce suppliers must use, and likely all their suppliers in the future. A megacorporation like Walmart using a centrally controlled private BC that its suppliers are forced to use would not qualify as a blockchain according to the standards of early BC adopters and Bitcoin fans. For these purists, a BC is all about decentralized operations to eliminate any central controlling authority. Many, perhaps most of the small ICO funded BC startups are indeed run by blockchain enthusiasts who are dedicated to destroying big banks, megacorporations, and abusive control and power.
Some small startups are openly after megacompanies. SharedChain is a “mouse that roared” new shared supply chain and eCommerce system with blockchain, going after both Amazon and Walmart to help small retailers source at lower cost, get faster and cheaper same day delivery, and survive against the megaretailers. SharedChain founder and CEO Luke Lee noted, “nobody has tried this, and therefore there is no efficient, public process system with infrastructure or platform for real markets.”[12] Lee patented his business concept, developed the software, and market tested SharedChain™ — a shared supply chain and eCommerce system using his patented internet concept and blockchain. With network effects in a shared eCommerce system exploiting the Internet, and physical goods economies of scale in a shared supply chain system, SharedChain enables “competitive-cooperative relationships” with each supplier “able to achieve much higher efficiency, productivity, and application capability than before.”[13] Lee rightly calls this a “Supply Chain Revolution.” He is building a “networked, public, real supply chain infrastructure bundled with a third-party infrastructure for communication”[14] and blockchain for better data security and trustworthiness.[15]
Mark Zuckerberg was quoted in the Forbes blockchain article saying, “We could do fully decentralized authentication if we wanted to. I think the real question is, do you really want that?”[16] Why would Amazon or Walmart, Facebook or Apple work surrender control to a decentralized blockchain application when they’ve got the market power to force clients and customers to use their system? Early Bitcoin advocates regard a centrally controlled private blockchain as anathema and an oxymoron. Why bother with a blockchain controlled by one dominant company? Walmart can simply require its suppliers to use the Walmart controlled blockchain — so why not just use a traditional Walmart run database? Actually, it does make great sense to use blockchain even if it has a completely one company controlled consensus mechanism because “blockchain is a record-keeping mechanism that makes it easier, safer, and simpler for businesses to work together over the internet.”[17] Blockchain is fantastic for integrating and sharing information with business partner’s IT systems and databases without the cost and risk of trying to directly connect them as the article below explains:
But megacompanies may also want to keep central control of their owned private BC to sell and exploit data on their system.
Another misleading aspect of the Forbes 50 BC list is that they require some U.S. operations to be included. According to a report by the Wharton Business School, China has the lead in blockchain applications over the U.S.[i] Many other reports and articles suggest that China probably has more blockchain projects than the U.S., most from companies that likely have no U.S. operations.[18] From giants like Alibaba using BC for its massive supply chain, to other large and small startup companies, China, with strong government support, is launching a cavalcade of blockchain businesses. The Agricultural Bank of China, one of the largest banks in the world, has started using BC for real-time updating of borrower information, providing customers more transparency and faster approval times. Again, data on number of companies pursuing BC is inherently unreliable since many will keep their work confidential or the media hasn’t covered it, and users of other’s blockchain systems (suppliers especially) won’t be seen. Many small countries are also high on cryptocurrency and blockchain businesses, eager to exploit the Second Internet Revolution, including Estonia, Malta, Switzerland, Singapore, and the United Arab Emirates.
The smallest users of BC to date are Middle Market companies ($100 million to $3 billion in sales), which are reluctant to make investments like the larger firms, and could not take the regulatory and legal risks of small startups who jumped in with ICOs and pathbreaking use of BC. While Middle Market companies are laggards in BC use now, they will have to move rapidly to use BC whether they want to or not. If they are supplying bigger companies like Walmart or Airbus, or selling through Amazon (we expect Amazon will require BC use at some point, of course using their system under terms they dictate), they will have to use their blockchains. If their industry faces disruption from small companies leveraging blockchain to generate decisive new competitive advantages, they’ll have to follow suit.
Another big difference in how large companies use blockchains relative to small companies is what blockchain they use. As you would expect, the big firms favor private blockchains, especially Hyperledger Fabric. The small companies use a lot more blockchains, and largely public blockchains (“real” BCs as some purists would say). Our data on blockchain applications shows that 28% of large company blockchains are built on Hyperledger Fabric, compared to just 1% for small companies. Ethereum is the most popular blockchain overall for business use, but while half of small company applications are running on the Ethereum blockchain, just 18% of large companies use it. This blockchain use analysis did not count ICO uses of blockchain. If it had, the dominance of Ethereum would have been higher since a thousand small companies have used the Ethereum blockchain for their ICOs. The finance application blockchains are also far more prevalent in big companies than small, many using BC systems specifically developed for banking operations. Small companies have more small, other blockchain use cases, as well as more proprietary blockchains.
While the BC applications of the largest firms are impressive and may become industry standards, the lessons of business history and realities of human and organizational behavior suggest that the most disruptive BC applications are likely to come from smaller, more agile firms and startups focused entirely on their BC application. We suspect that the small, startup company BC users like Everledger and SharedChain are more likely to develop and exploit the most disruptive applications of blockchain. The next BC enabled Amazon is likely here, not in the Fortune 100. The Forbes 50 blockchain list and article is a valuable source of information on good blockchain applications, but drawing lessons on blockchain trends or potential from lists that only look at the largest firms is unwise.
We find that IT staff at many middle market companies know they should be jumping into blockchain, but either don’t have the funds or can’t readily calculate the likely Return On Investment of a blockchain application. It is indeed much harder to estimate ROI for a blockchain application that you have far less control over than a typical IT system improvement project, but is readily doable as the following article explains:
Some of our Middle Market clients have assessed blockchain applications of interest, developed a prototype to test with trusted business partners, but most are watching and waiting rather than launching now.
Within the next few years, we suspect that not just 90% of the Fortune 500, but 90% of the Russel 2,000 will be BC users. Middle Market companies will have to adopt BC, either to supply larger companies that require use of their BC supply chain system, or to compete with upstart companies leveraging BC to disrupt their industry.
Dr. Drew Miller, Managing Director, Blockchain Business Consultants, drmiller@bchainconsult.com
[1] Michael del Castillo, “Blockchain Goes To Work at Walmart, IBM, Amazon, JPMorgan, Cargill and 45 other enterprises,” Forbes.com, April 16, 2019
[2] Some companies double counted if more than 1 blockchain application, not counting tiny ICOs that issued a cryptocurrency to develop a blockchain or business application but have not delivered, and not counting users of a blockchain system like Walmart’s supply chain blockchain. Blockchain Business Consultant’s database is by no means a complete scientific survey. It’s based on clients we’ve worked for and blockchain applications we see in the media. There are so many small and mid-size companies pursuing blockchain, many very confidentially. Some companies are pursuing several BC applications in different areas, some applications cover multiple areas (like trade credit financing — a financial service, but also supply chain).
[3] A white paper on blockchain uses in the restaurant industry, with more details and sources, is available upon request, drmiller@bchainconsult.com
[4] Food Marketing Institute data cited in “Blockchain in the Food Service Industry,” https://smartbridge.com/blockchain-video-series-blockchain-food-service-industry/
[5] Dawn Kuczwara, “Blockchain Offers Multiple Benefits to Restaurants” Business.com, December 19, 2017
[6] Bloomin Brands, One Network, “Reshaping the Restaurant Supply Chain in the Digital Age” video on Logistics Management website, https://www.logisticsmgmt.com/article/reshaping_the_restaurant_supply_chain_in_the_digital_age
[8] If interested in more information on this application, contact drmiller@bchainconsult.com
[9] https://www.icodata.io/ICO/ended
[10] www. everledger.io
[11] Andrea Hill, “The Jewelry Industry Prepares For Supply Chain Trace-Ability,” Forbes.com, Oct 7, 2018
[12] Luke Ho-Hyung Lee, “How a “3-D” supply chain process system could revolutionize business,” Supply Chain Quarterly, Quarter 2, 2013
[13] Luke Ho-Hyung Lee, “How a “3-D” supply chain process system could revolutionize business,” Supply Chain Quarterly, Quarter 2, 2013
[14] Luke Ho-Hyung Lee, “How a “3-D” supply chain process system could revolutionize business,” Supply Chain Quarterly, Quarter 2, 2013
[15] www.sharedchain.io
[16] Michael del Castillo, “Blockchain Goes To Work at Walmart, IBM, Amazon, JPMorgan, Cargill and 45 other enterprises,” Forbes.com, April 16, 2019
[17] https://www.inboundlogistics.com/cms/article/a-blockchain-reality-check/; https://medium.com/@collapsesurvivor/blockchains-underappreciated-greatest-application-is-integration-it-systems-and-business-partner-6b1392a9b7ba
[18] https://knowledge.wharton.upenn.edu/article/can-u-s-catch-chinas-blockchain-dominance/
