Blockchain Babel by Igor Pejic

Author:Igor Pejic
Language: eng
Format: epub
Publisher: Kogan Page
Published: 2019-08-15T00:00:00+00:00

Data behemoths – the real challengers that have managed to slip from the radar

In business, most Goliaths get butchered by other Goliaths – an inconvenient truth often forgotten about in blockchain discussions. Management theory makes the distinction between de novo market entrants and diversifying market entrants. The former are complete newcomers, the classic Davids; fintechs, in the case of blockchain. Diversifying market entrants, on the other hand, are firms that have been successful in other arenas and strive to expand their reach. This group is often overlooked, yet in most technological shifts it is the diversifying entrants that scoop the market because they are experts in capabilities that suddenly become relevant to the new product or service generation. They also have massive resources at their disposal, unlike start-ups. When the camera-maker Polaroid failed it was not de novo entrants who took over, but companies such as Canon and Nikon that brought their experience with optoelectronics to the table. The power of diversifying entrants is not just proven by anecdotal evidence, but revenant members of the most elite management strategy circles such as Michael Porter (1979) see them as the biggest threat for incumbents. The tricky thing is to spot diversifying entrants early. To do this, you need to identify which competencies are likely to become central once the innovation hits the market.

A technology like blockchain that challenges one of the world’s largest industries cannot just live off programmers and algorithms. Distributed ledgers and applications are only a part of the computing infrastructure enabling payments and transactions. Storage, archiving, communication and file serving – the blockchain cannot work without these, and all of them gobble immense hard-drive space. Blockchains also have an end of life. When they go out of business they will still need to be accessible, with each ledger archived. Contracts written on a former blockchain need to maintain their validity – they cannot lose it because of a technological update or because the platform provider on which the contract has been written goes bust. This is the moment for cloud-computing giants, most notably Amazon, Microsoft, IBM and Google.

These giants must not be underestimated, or labelled as mere providers of raw server resources. Realizing the enormous revenue potential of the blockchain, cloud-industry leaders have opted for a differentiation strategy; blockchain-as-a-service (BaaS). We touched on BaaS in Chapter 3. Instead of undercutting each other on price, these cloud providers are working on BaaS, which offers the server infrastructure and the necessary software environment for users to do away with the complexity of setting up and configuring their own blockchain ecosystem. This news is not great for incumbents as they lose one of their competitive edges in financial services, as smaller companies or banks can rent blockchain infrastructure without capital investments. No software developers, no complicated integration with the existing system, and no danger of blackouts causing downtimes. Not only do cloud giants grab market share for themselves, they level the playing field for smaller banks and companies. The competition intensifies and drives down profits across the value chain.

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