The Democratization of the Platform Economy — Platform Initiation (2/6)
Decentralized platforms have the potential to democratize the platform economy using distributed ledger technologies and to fairly allocate revenues. In this article we will shed light on the challenges and incentive mechanisms for initiating decentralized platforms.
By Nicolas Gilgen & Kilian Schmück
In the first issue of our series of Medium articles on Decentralized Platforms, we discussed the relevance of the democratization of platform economics, which entails a decentralization of transaction platforms. The removal of the centralized middleman — while at the same time maintaining the intermediary function of the transaction platform — leads both to higher transparency and reduced transaction costs on the Platform’s Marketplace. In addition, the redistribution of the platform economics leads to increased innovation power through a fair margin distribution in favor of the continuously value-creating Marketplace Complementors. The Decentralized Platform Framework developed at the Institute of Technology Management at the University of St. Gallen (ITEM-HSG) has been briefly introduced in our first article. The present and several future articles will discuss the different roles within the framework using Share&Charge´s Platform for EV charging stations as an example. In this article, we examine the role of the Initiator of a Decentralized Platform in more detail.
When dealing with Decentralized Platforms, a distinction between the initiation phase and the live phase has to be drawn. During the initiation phase, the future state of the Platform and its Marketplace are defined and developed. After their launch, the Platform and its Marketplace are operated and further developed in a decentralized manner. The transition into the live phase occurs through the investment of the network in the Platform. This investment usually is made in the form of an ICO. Although there is almost no regulation regarding ICOs in place yet, already existing law usually applies (e.g. prospectus or ticket size requirements). However, what should have been a straightforward method of financing early stage companies and projects via DLTs has unfortunately fallen into disrepute due to the recent years’ news about so-called exit scams and sharp fluctuations in the prices of all major crypto assets. Nevertheless, the Initiator is to this point still mainly incentivized by the network’s investment in the Platform. Part of the Platform development is the launch of the Marketplace with all its related activities as well as the implementation of a functioning (ideally on-chain) governance model, which ensures the continuous decentralized development of the Platform and the optimal implementation and support of the Marketplace.
Many of these activities are carried out by the other roles, namely Marketplace User (2), Marketplace Complementor (3), Platform Curator (4) and Marketplace Modulator (5). The incentive and governance model as well as the initial embedding of the minimum required roles until the network effects appear must be defined and implemented by the Platform Initiator. If the Platform and the Marketplace operated on top of it are successful, more and more Ecosystem Complementors (6) will be attracted to them and hence increase the overall value of the Platform.
Platform Initiation using the Example of Share&Charge
In our understanding, the Platform Initiator represents the bundled roles and their respective activities that are required to initiate the Platform and its Marketplace, develop a first consistent and minimal service offering (MVP) as well as to pilot the MVP in order to coordinate all future roles and optimize all processes involved. In the case of Share&Charge, the Share&Charge Foundation located in Switzerland is the Platform Initiator. The Foundation mainly focuses on two activities: developing an MVP as well as creating network effects through an initial customer and partner network. The Foundation’s incentive lies mostly in the network’s investment in the Platform.
Developing an MVP
The MVP includes the technical development of the Platform and eventually the Marketplace. The technical development refers to the infrastructure consisting of a number of services, including the connection of platform assets (EV drivers, Charge Point Operators/CPOs and Mobility Service Providers/MSPs), the development of the Decentralized Platform itself (i.e. software code, such as the application logics and data layer configuration) and the setup of a virtual private network, which is managed via a smart contract. CPOs are companies operating an EV charging station (e.g. Innogy, Vorarlberger Kraftwerke). MSPs, on the other hand, are companies allowing EV drivers to connect to Share&Charge’s network through their applications. This could be an OEM (e.g. Volkswagen, BMW and Audi), a car-sharing platform (e.g. DriveNow and car2Go), a charge station app (e.g. Plugsurfing) or another company offering similar services.
As mentioned above, the Foundation develops a series of smart contracts, which partially implement the logic of the platform. Partially meaning that one must differentiate between services that happen on-chain and services that happen off-chain. On-chain services are related to information that must be shared with everyone in the network. Examples for such services include information regarding platform assets, (KYC’d) partners and settlement smart contracts. It is important that everyone participating in the network is able to verify that this information is complete and has not been tempered with. Off-chain services, on the other hand, are services, such as the connection of settlement processes to accounting, the Platform’s connection to the charging stations’ back ends (each charging station network has a management system that needs a software/service to connect to Share&Charge’s Platform) and the message broker responsible for the delivery of notifications and messages (Ethereum creates events through transactions — thus, it would be too expensive and slow if every search event created an Ethereum transaction).In terms of the data repository, Share&Charge differentiates between asset data and transaction data. Asset data mainly includes the mapping of public addresses to EVs as well as personal data (stored off-chain due to regulatory requirements). MSPs’ and CPOs’ transaction data is stored on-chain on the Energy Web Blockchain/Ethereum. Data analytics is conducted inhouse and could, for instance, yield improved search services.
Creating Network Effects
The customer and partner network is generated by acquiring an initial base of platform assets (EVs, CPOs and MSPs). Clearly, any platform needs an initial foundation of assets for it to deliver a value to its users upon launch. Since CPOs (Marketplace Complementors) are in many cases transacting with MSPs (Marketplace Users) — and not directly with EV drivers — MSPs try to aggregate as many EV drivers as possible on their apps. For instance, Volkswagen and BMW could in the future integrate an EV charging stations app in their vehicles. Similarly, DriveNow, car2go and Plugsurfing also try to get their app into as many EVs as possible and thus enhance the user experience.
Aggregating assets on the Platform, however, is easier said than done. Share&Charge pursues a highly technological marketplace model and hence by definition needs to interfere in the infrastructure of the participating CPOs. CPOs as Marketplace Complementors make sure that charge stations exist at a certain location and are ready to be used by EV drivers (e.g. have a socket, are connected to the electricity grid and are connected to Share&Charge’s Platform). However, this poses many challenges since different CPOs have different hardware and software infrastructures that need to be individually accounted for. It is therefore crucial that appropriate standards, such as standards regarding the transmission of digital signals and events, are already defined and established during the initiation phase. The creation of network effects, however, is not merely the acquisition of platform assets and the implementation of appropriate technological standards. It further involves a holistic approach to the business perspective, including the business model development, the partner search and the persuasion of users to trust decentralized protocols.
Incentivizing the Platform Initiator
In most cases, the Platform Initiator is incentivized and financially supported by an ICO of some sort of crypto asset — and subsequently by the successive backflow of the asset to the Initiator (e.g. in the form of a transaction fee). The newly issued asset may grant the investors certain rights (e.g. profit participation and voting rights) and may be used to transact on the platform (e.g. payment token). As seen above, currently Share&Charge follows a B2B approach: end users (EV drivers) connect to the company’s Platform only via an MSP’s app. Hence, the funding of the initiation and curation process happens through a combination of conventional (venture capital) investments and user investments. In the case of Share&Charge these are not carried out using tokens. The day-to-day financing of the Share&Charge Foundation will eventually mainly happen through the backflow of tokens to the Foundation. However, the different tokens used and the token economics applied by Share&Charge will be discussed in our next issue when we will take a closer look at the Decentralized Platform and its Marketplace.
This is a multi-part post. Links to the other parts can be found below:
