This week marks the 3rd annual New York Blockchain Week, including the fifth iteration of CoinDesk’s marquee conference Consensus. Although this year’s festivities cannot be held in person, it is still a great time to take stock of the industry’s progress, especially in enterprise blockchain.
Investment in enterprise blockchain continues to grow.
Since 2016, at least 1,045 enterprise blockchain projects have been announced, with 488 projects launched in 2019 alone. Over $5.2B has been invested globally by enterprises in the past three years. Worldwide annual blockchain investment is projected to grow to $16B in 2023.
However, not all enterprise projects have been successful. Current estimates are that, of these projects, between 70 and 100 enterprise blockchain consortia are still live. Many enterprise blockchain projects have struggled to move from being cost centers to becoming profit centers for their member organizations, and therefore retain ongoing investment. The economics of blockchain networks can explain this.
Blockchain networks require additional upfront planning compared to other emerging technology projects if they are to achieve a positive return on investment.
Due to blockchain’s inherent distributed nature, a variety of stakeholders must be aligned in order for a blockchain network to launch and evolve.
This requires a unified strategy and concerted efforts by all stakeholders to reach agreement on consortium strategy, implementation, and responsibilities. Crucially, many consortia require various stakeholders to incur asymmetric costs and take differing actions in order for the consortium overall to succeed.
We have developed a framework that blockchain consortia can use to plan and implement their path to monetization. The framework organizes the path to monetization into three distinct phases:
Phase 1: Define value-generating levers.
Phase 2: Capture and distribute value.
Phase 3: Adapt network to sustain value.
Phase 1 happens between defining a use case and conducting a pilot.
From identifying value through the 3C’s, to appropriately leveraging network effects and synergies, all enterprise blockchain consortia must identify the ways its chosen use case creates value in order to then structure the appropriate form of value capture. My colleague Stephanie Hurder has delved into the importance of network effects and use case sequencing in maximizing a network’s generated value.
Once its pilot has been completed, a consortium will be ready to leverage its learnings in order to prepare for live network launch.
These steps of preparation are Phase 2 on the path to monetization.
They include structuring the platform service rollout timeline, creating a software development strategy, and determining what membership fees and subsidies will exist.
It is important, for example, not to try to monetize through fees too quickly because that can dampen network growth. Instead, a plan should be crafted to attract early customers / users with perks and subsidies, and implement fees for various services over time. For example, we.trade, a trade financing network, strategically offers its platform to banks for free (as opposed to charging them a ~$55K membership fee) to drive adoption in new geographies, such as the Czech Republic. Banks can still opt to charge customers normal fees or additional fees for using We.Trade; however, customer adoption would be maximized when customers don’t have to pay a specific we.trade platform fee.
In some cases, consortia may need to subsidize adoption to get critical stakeholders on board early in the consortium’s lifecycle. While the subsidies may be transfers from one set of stakeholders to another, and may seem like unbalanced contributions, the subsidy payers will benefit in the long run from participating in a more robust network.
Once the network is launched, Phase 3 begins.
During this phase, project leaders define membership tiers and a full set of governance processes. Different membership types will have different requirements, benefits, and roles in moving the platform forward.
For example, Hyperledger has many different membership tiers, each with different membership fees and different governance rights, to take advantage of price discrimination. These include a Premier Members tier ($250K annual fee), General Members ($5K to $70K annual fee), Associate Members (free), and Academic Members (free). Hyperledger currently has approximately 13 Premier Members, 152 General Members, 43 Associate Members, and 20 Academic Members, which shift from year to year. By effectively price discriminating, Hyperledger is able to capture a wider set of member entities compared to charging a single, catch-all price, and also to increase membership fee revenues.
While there may be many approaches to achieving monetization of enterprise blockchain networks, a defined framework is essential. Like many business strategies, there are multiple ways to address this concern. Tomorrow, May 14th, we will be hosting the Consensus: Distributed session, “Enterprise Blockchain: The Path to Monetization.”
The session will feature enterprise blockchain industry leaders who will share their challenges, achievements, and outlook for the industry.
They will discuss their current stage, what approach has worked for them so far and which elements they still hope to improve on their path to blockchain monetization.
Joining us on Thursday will be leaders from EY, Fnality International, IBM, ING Bank, Microsoft, Pharmaceutical Utility Network, Salesforce, Spunta, Synaptic Health Alliance, TradeLens, Trust Your Supplier, we.trade, and more. You will hear from each speaker their insights over a set of fireside chats with our team.
Recap and video: https://www.prysmgroup.io/monetizing-enterprise-blockchain