We live in age of platforms whether you call it – Uber, Amazon or Facebook or anything else.

Industrial value chain systems were setup based on Pipeline model.

It connects single producer to multiple customers as value flows through the pipeline to the consumers. Competitive advantage was based on who controls key pipeline components. Thus, focus was on acquiring these components as much as possible, it guaranteed bigger chunk of customers’ pie.

Then, platforms came in.

They positioned themselves as producer-agnostic and was based on decentralized production model. They connected multiple producers (now called Sellers) to the customers. As more and more customers relied on particular platform, bigger and powerful platform became. Then, it started using that muscle to negotiate with sellers and drove higher margins for themselves. As long as customers loved the platform, sellers did not have choice to skip platform and re-focus on traditional pipeline model. As a whole, platforms simply managed interactions with adding any specific value to end products. They became kind of toll gate , through which all transaction happened. Seller had to pay toll to sell goods, while customers did not complain as long as they were getting good value from the platform.

That’s where we are now.

It has now become winner-take-all economy where platform has to spend to maintain leadership position, as being second means nothing in this game. It also means that too much of power is being vested into specific platform whether it is in area of commerce (Amazon), transportation(Uber) or Search (Google) .

Let us talk about the Uber.

Uber came into industry which was highly regulated or controlled by local unions. They issued permits in specific numbers, thus controlling supply of taxis in specific location. Thus, they also controlled price customer would eventually pay for the taxi. Uber transformed it via simply skipping taxi unions and gave tools to anyone who can drive and have a car. So, taxi supply became abundant, thus benefiting end customers.

Now, Uber controls significant part of transaction whether its identity of participants or payment/credit mechanisms and defines rules that govern transportation marketplace.So, it has become sort of scaled intermediary which poses all the threat traditional intermediaries posed in managing and regulating markets.

Conflicts started to arise between participants (taxi drivers) and Uber as recently as few months ago. Uber proposed to increase its fees from new drivers from 20% to 25%. It faced stiff resistance from drivers who called it getting ‘greedy’.

Now the question is – Has platform become too powerful (or big) to effectively govern ? We already have experience of 2008 financial crisis when scaled intermediaries (read – big banks) failed to effectively manage themselves.

Blockchain provides answer to it. It is based on these unique characteristics.

  1. It has decentralized ledger with distributed computing infrastructure.
  2. It leverages peer-to-peer network to govern transactions. Interactions happen across distributed community and are difficult to ‘game’ centrally.

Blockchain platform generally codify all the rules/protocols in ‘smart contracts’ which becomes core foundation of the platform. All transactions inherently follow same rules via decentralized governance model. Consider Uber-like scenario on blockchain platform. In such case, fees would be codified in smart contract between Uber and Market Participants. If at all Uber wishes to increase the fees, it would not be able to do it unilaterally. All market participants (community) has to be agree that its good thing for the platform. So, blockchain allows all participants to have ‘stake’ in the future of the platform.

While, it is still early days in blockchain world, it shows promise for platforms to move from ‘Decentralized production’ to ‘Decentralized Governance’ model.

 

 

 

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