This space has written lots about the evident rise of platform businesses at the expense of declining linear or analogue businesses. It makes lots of sense. Platforms not only cater to their audience on the consumer end of the story but also on the producer and provider end. They both constitute pools of customers, and the platform stands on the middle and facilitates the exchange. Platforms have become entire ecosystems, and it is no wonder that the 5 largest in America make up over 20% of the S&P index.
It’s not hard to guess who they are… Apple, Amazon, Microsoft, Google and Facebook. It doesn’t stop there, however. There are Airbnb, Booking.com, Snap, Uber and many others that carry the same features. Some people have called the biggest ones dominant, and politicians have been pondering to regulate them or even breaking them up. Monopoly character and behaviour, privacy concerns, and the phenomenon of fake news have been cited as reasons for governments to become more active.
But maybe it is not governments and regulators the platforms need to fear most. Maybe it is technology and its innovative power that pose even more of a threat. As much as those named enterprises have been disruptors to the status quo, theory and practice tell us that they themselves will one day fall prey to other disruptors’ newer, more efficient models. This will obviously not happen overnight, but the seeds are gradually being sown on the back of next-generation systems like blockchain and crypto.
It was therefore interesting to stumble across an
article in the Financial Times on Monday that addressed a new breed of businesses known as DAOs, as in decentralised autonomous organisations. DAOs are at the heart of a recent movement to create the internet of the future, or the internet of the people (IoP), paving the way for an alternative trust-based business model that has the potential to disrupt at least some of today’s disruptors.
The significant difference to platforms is that it calls for individuals to be able to control their personal data and for a drastic reduction in the role of intermediaries who create fortunes by exploiting those very data. As the FT states, the IoP movement argues that cyberspace has in fact been colonised by a few platform companies that have turned the internet into a hostile environment by using personal data and charging horrendous fees.
In contrast, the DAOs are built on the principle of the IoP movement, as in they are based on the belief that parties directly involved in an exchange can operate without having to rely on third-party networks such as Uber. The FT mentions Swarm City as an alternative example. It is a ride-sharing app that is able to replicate all those features by employing blockchain technology. How this works is described as follows:
A DAO can create a hashtag #needaridefromAtoB, which serves as a marketplace and a smart contract. Drivers who are interested in providing the ride can send a bid directly to the prospective customer, eliminating the need for an intermediary like Uber. It sounds great and truly decentralised, but questions around due diligence processes, security measures etc come to mind. It is not immediately clear how within a blockchain framework these essential services can be provided.
Also, and as mentioned above, a DAO is based on the belief that users should control their own personal data, and they do not capture user and interaction data centrally. This is obviously in stark contrast with Uber in this case, which maintains centralised data sets and uses them for commercial purposes. DAOs use blockchain with advance cryptography for data security, to store relevant trust-forming information like consumer reviews etc in distributed ledgers.
Commissions and fees are the next things mentioned. DAOs typically charge ultra-low commissions and pass on the savings to the parties involved in the transaction. They also enable payments using cryptocurrencies, mostly next to credit cards. The FT author and I guess the IoP, conclude that these trust-based models perform the predominant functions of platforms, ie matching supply with demand, verifying suppliers through reviews, and payment, and they return data control to users and share profits more equitably.
The likes of Uber and Airbnb are being cited as primary targets and the most vulnerable of the platform lot to be disrupted down the line. The behemoths like Amazon should be relatively safe for now, as they have built an infrastructure that is hard to be replicated. Netflix is also mentioned as harder to be penetrated, but for reasons that actually don’t make Netflix a real platform company. They produce their own content and run massive inventories.
Not that suppliers haven’t been exploring every route to escape the fangs of the behemoths. They would want to offer their products and services without Amazon or Alibaba discriminating against them or introducing competitive own-label equivalents. They would want to avoid the censure of Facebook and Google. And they wouldn’t mind losing the status of a captive client when it comes to payments and fees.
To be sure, it will be a while before DAOs reach a maturity level conducive to taking on platform incumbents and making a real impact. And the platforms will not be caught sleeping at the wheel. There is a reason why the Amazons and Alibabas invest heavily in blockchain technologies. They are seeing the writing on the wall and will be playing their part when the business model takes on momentum. The winner, however, should be the consumer.
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