7 Business models for blockchain

Business models can be defined as (Ostwalder et al. 2005): “a conceptual tool that contains a set of elements and their relationships and allows expressing business logic of a specified firm… a description of the value company offers to one or several segments of customers and of the architecture of the firm and its network of partners for creating, marketing, and delivering this value and relationship capital, to generate profitable and sustainable revenue streams”. This Chapter on business models at hand is based on Nowiński and Kozma (2017).

How to innovate new business models based on blockchain technologies? The question is hard, as understanding the technologies involved is a time-consuming process, and innovation on top of these studies is even harder, taking a lot of time and effort (Nowiński and Kozma 2017). In general, business model innovation is an outcome of organisational learning processes, where trial and error are indispensable parts of the whole (Sosna et al. 2010).

If experimentation on blockchain technologies can first be carried out on a relatively small scale then failures can be used as a source of learning for further changes in the business model, until a consensus on the version of the business model to be scaled up can be reached (according to Nowiński and Kozma 2017). In addition, “it illustrates also the critical role of company leadership which, if committed to business model experimentation, may facilitate innovation processes.” (ibid.)

On a general level this is a good starting point. It is also useful to review what type of business innovations there already are that have been established through blockchain. On this course, we have already dealt with cryptocurrencies, logistics, tourism, voting and smart contracts. In all of these cases, blockchains are being used, developed and redesigned to suit the needs of the business idea behind. On this course, we have excluded the newest developments with blockchain 3.0 and distributed software. Even so, there are plenty of examples to work with. While the primary use blockchains has been in the creation of cryptocurrencies, blockchain technology offers broader opportunities, including any transactions requiring authentication.

To innovate new business models, it can be useful to review what is already been done. Along with the financial blockchain applications, that are being adopted by the banking sector with accelerated pace, there are also business endeavours in areas like computing (Sonm), rental (Bitsrent) and carpooling (VV Go). Even decentralised trading platforms (Xcov) and social media (e.g., Steemit, Minds) are out there.

One of the potential new areas for a blockchain business model is music industry. This relates to the fact that even though there is e.g., Spotify for almost free streaming, it is still a controller (a middleman) of the publication of music. With blockchain, this middleman can be forgotten about and a real peer-to-peer system can be established for publishing and sharing music.

Cost efficiency of retailing can also be improved with blockchain. If the scale of transactions in which large retailers are involved can be decreased cost effectively with blockchain, then retailers could increase the number of their suppliers, sourcing from small ones as the costs of transporting more products go down. In addition, blockchain can be used in unison with other technologies like smart tagging, which enables authentication of luxury products, art, foodstuffs and medicine. These technologies can also be used to increase social responsibility, e.g., for sourcing metals. When goods can be independently authenticated, it again removes the need for a middleman and makes purchases from parties who are deemed traditionally less trustworthy a safer option.

In general, blockchain can decrease frauds in any sector that operates with it. Therefore, it is unlikely that blockchain disrupts old business models, but rather it makes them more versatile. This is especially true in real estate market, where there are number of players including lawyers, banks, insurers, regulators, tax agencies, inspectors and finally buyers and sellers. All these instances have their own IT systems which are not transparent and do not communicate with one another. Blockchains could alleviate this burden by streamlining the flow of information both between systems but also temporally by making updating different instances on recent developments much faster. This would bring economic benefit by reducing the downtime in different institutions, also making the process of acquiring real estate much simpler than it currently is.

We already mentioned music industry, but the same goes for the media industry in general. Different web-based streaming services are already there, but they still act as gate keepers (or middlemen) between the content producers and the consumers. The content can be distributed in a peer-to-peer blockchain, effectively reducing the possibility of fake news and copyright issues. The consumers would be more willing to pay for the content as they would choose only the items they wish to purchase, and their payment would go directly to the ones producing the content. With marketing produced content, the blockchain would allow a far better targeting of potentially interested consumers.

As can be seen, the blockchain technology offers many new business models which can be operational in a few years’ time. The description above is by no means complete, and many other types of businesses can also be founded that utilise the working principles of the blockchain technologies. We will see the future developments when they are realised, but for now many different developments can occur, most probably beside each other, developing different industries further by the help of blockchain.

7 Business models for blockchain

Further reading

Further reading