What big companies should NOT learn from KODAKOne’s lightpaper

This analysis continues our coverage of the decentralized digital rights management sector. We’ve written about KODAKOne’s ICO in a previous newsletter.

In early January, Kodak announced its intention to partner with WENN Digital to release a crypto platform for image digital rights management. The ICO was met with a decent amount of criticism and cynicism. Subsequently, the ICO (originally planned for January 31) was postponed indefinitely.

Last week, after a communication hiatus and nearly two months after the original announcement, KODAKOne released its lightpaper providing an overview of its crypto platform. The key word here being overview. The lightpaper is not a whitepaper — the lightpaper does not detail technical specifics of the platform.

Our main takeaway: KODAKOne misses the point of decentralization.

The lightpaper does not tell us much new information regarding its platform besides that KODAKCoin will be a ERC20 token and its intended platform release will be June 2019. The lightpaper, however, does illustrate the main reason why big organizations will have difficulty launching and popularizing their own crypto assets:

Decentralized platforms typically don’t have business models. At least not in the traditional sense of the word. But KODAKOne’s does.

One of the beauties of decentralization is that it can render middlemen redundant and, in doing so, do away with rent collection and transactions fees (on most blockchain platforms, miners who maintain them charge little to no fees). Instead, the “business model” of a decentralized platform is primarily token appreciation. The supply-demand dynamics of a decentralized system can lead to the appreciation of that platform’s token value. Instead of collecting transaction fees, the team developing a decentralized platform benefits from the appreciation of their token holdings.

KODAKOne, on the other hand, is planning to instill a business model based on transaction fees. Hidden away in a footnote on page 6, the lightpaper reads:

For big businesses, token appreciation is a hard concept to grasp, especially the likes of WENN Digital and Kodak have lived in a world of charging fees. Token appreciation is a fundamentally different way to think about running a company (if we can even consider decentralized platforms ‘companies’). It’s no surprise that centralized companies will struggle to fully embrace decentralization.

KODAKOne’s lightpaper also is a good example of how NOT to write a problem/solution section — there are no mentions of any centralized digital photo marketplace throughout the lightpaper or any backing sources.

The lightpaper did not once mention the largest digital photo marketplace, Shutterstock (Ticker: SSTK), nor did it mention the numerous other microstock photography startups. The lightpaper fails to offer a compelling vision of the existing problems facing the digital photography industry and how to solve them.

One problem with most centralized services is their transaction fees — no one ever really wants to pay. If KODAKOne still plans to have transaction fees, why would a photographer switch from a centralized service with a robust network to a new decentralized service that takes comparable fees? There are other reasons why a photographer might switch in this scenario but KODAKOne’s approach feels neither here nor there.

After all, there’s nothing stopping other developers from building a similar version of KODAKOne that is actually decentralized with no transaction fees. KODAKOne is up against three decentralized photography DRM platforms (StockBlock, GPCC, IPStock) and four multimedia DRM platforms (Decent, CreativeChain, Stop The Fakes, Mavo). In other words, KODAKOne has competition, and it will need to provide some more robust technical specifics to merit the trust of accredited investors, in our opinion.

KODAKOne’s lightpaper is a case study of how not to write a lightpaper or design a decentralized system. We’ll be on the lookout to see if other centralized companies implementing decentralized systems (like classic game developer Atari SA) make the same mistakes.

For more information on the digital rights management space, read our (free) breakdown here.