Now, what is a business model? A business model should answer at least two questions:
- How does/ will a company make money?
- What value do you offer so that people actually pay for it?
Having no precise answers to these questions will most probably lead to failure. A profitable business model separates a good business idea from a bad one. Maybe you have heard the story of Long Island Iced Tea Corp. That is a US based company offering ready-to-drink ice-tea and lemonade. In December 2017 they changed their name and Long Island Iced Tea Corp now was Long Blockchain Corp. Guess what happened! Stockprices skyrocketed by 290%! Neither did they change the way they make money (still producing and selling beverages) nor did they provide higher value to customers. Being perceived as a “blockchain company” was enough - Back in 2017. And there were many businesses in the past where blockchain was used because it sounds good – and not because it makes sense.
Blockchain Business ModelBy now entrepreneurs as well as investors have witnessed that blockchain cannot override basic economic principles. Using blockchain technology only makes sense when the underlying problem cannot be solved otherwise. No matter if you plan an ICO or not. If you want to build a product or service basing on blockchain, you better make sure that using blockchain adds value to the customer. Otherwise there are technology costs and risks without value for the company and potential regulatory issues if blockchain is combined with tokens. Using blockchain for plain marketing and perception purposes is out.So, ask yourself questions like:
Do you need a database with shared write access?
Are there writers to that database you would not trust?
Can it be done without an intermediary?
Can you live without high speed transactions?
Is it enough to store only small amounts of data?
If there is only question with a no as answer blockchain might not be the right thing. Using blockchain technology is a lot of work that might not pay off if it is not a necessary element of a competitive business model. (See this post from Sebastien Meunier for a good overview of decision models on whether to use blockchain or not)
- is a well-thought-out ledger system
- is a versatile technology that can support financial transactions, medical records, or the flow of goods, information, and payments between various companies of a supply chain
- can provide more security, identity protection and, in some cases, anonymity
- does not actually add value unless it ensures trust in a solid use case
- is more of a business model enabler than a technology.
Remember: blockchain is
- mainly for storing rather static information (records) and
- for tracking updates and changes to that information (transactions).
In both scenarios blockchain technology supports transparency and immutability, spanning from land titles and identity records to smart contracts, cross border payments or insurance claims. Many ideas came up on where to use blockchain. It is obvious that it is well suited for financial use cases like digital payment, banking, insurance, trading etc. But the use cases reach far beyond that, eg. in real estate, home rental, healthcare, music or games; Or in data storage.
Best Practice: Filesharing
Think of all the data that is generated nowadays. It´s supposed to be stored somewhere. On the other hand, there is a jungle of possibilities where and how to store that data. But whom to trust when storing data in a foreign cloud? Filecoin is in the middle – connecting empty storage space with data to be stored.
Best Practice: Supply Chain Management
Some food or beverage you consume may have had a long way to get here, the goods being handed over from one service provider to the other – often across multiple continents. This means a lot of paper work, time lag, loss of transparency and maybe even loss of the goods. Wave offers a solution pursuing paperless trade: a blockchain based ledger that connects all carriers, banks, forwarders, traders and other parties of the international trading supply chain.
By the way: IBM and Maersk (the world´s largest shipping company) founded a joint venture pursuing similar goals. But even for the big players of this world implementing blockchain it is not easy to win partners for their platform. (Read more here)
Best Practice: Power Ledger
Generating electric power by your own becomes more and more popular. If you have your own photo voltaic power station and produce more power than you actually need need to put it somewhere. Why not sell it to others, like your neighbor or even a utility? Power Ledger helps in connecting suppliers and buyers of electric power securing transparent transactions.
Best Practice: Identity Control
Have you ever heard of identity theft, eg. on Facebook or Instagram? Making sure, only you decide whom to share your identity and personal data with is more important than ever. And the broader the range of digital services is (like plain online banks and insurance companies) the more important a secure ID easy to work with becomes. This is helpful for votes or know-your-customer processes during the opening of a new bank or crypto account. Civic helps in setting up this ID. Users can define what data is shared with whom, being in control of personal data and not forced to type in the same information over and over again.
The future of blockchain business models: Disrupting the disrupters
Of course, you know Careem and Uber. They bring together drivers and passengers. But what if we don´t need Uber in the future? Imagine booking a ride: There is no absolute necessity for a centralized player like Uber. Passengers can get into contact with various drivers by themselves, contracting and billing is done on the blockchain.
Do we need the drivers? Now we do; But in 10 years from now? In the future the car can take care of its own. The car itself can contract drivers, look out for passengers, schedule service inspections and get fueling. And guess what, it all runs on the blockchain.
Judging a Business Model
How to evaluate a business model basing on blockchain? I suggest checking at least these four influencing factors:
- if there is no common standard and no regulation at all it´s hard to predict who sets the future´s standards and how they will look like; Even big players can struggle in building up standards customers accept – just think of Microsoft´s Windows Phone: Billions were invested but Android and iOS could not be defeated
- blockchain technology is not very ripe – yet! It lacks speed, the volume of data transferred is low, etc. These constraints are diminishing – but they are there now
- assets that can be recorded easily are king (like tokens, money and ownership of something); Involving and securing physical goods is not that easy because it requires sensors, Internet of Things technology and surveillance mechanisms; This leads to more and more ifs in the business model
- the more players and users set on a common product or service the more likely the business model will be profitable; But the higher the need for coordination between various parties of various industries, the less likely will be massive growth
- Blockchain still is in its very early days. Especially platform business models including blockchain seem promising nowadays. What does that mean for (future) entrepreneurs? Finding a profitable business model still is key. If the underlying problem cannot be solved without blockchain then go for blockchain!
Students of MODUL University´s General MBA programme receive an in-depth, panoramic understanding of the fundamentals of business requirements. The broad variety of business models is evaluated, best practices and tools to setting up or optimizing a business are shared – be that business with or without blockchain technology.