The economic impact of the coronavirus pandemic has cast a bright spotlight on the inefficiencies in the way many firms do business, forcing them to adopt new operating models to stay relevant, productive and, ultimately, afloat.
Companies will always seek to minimise risks, especially in an ever-evolving environment of increased volatility, uncertainty, complexity and ambiguity. This means they must engage with their partners and customers in new and innovative ways.
However, closer collaboration is easier said than done and requires that the companies can trust each other while sharing data, insights and risks. With enterprise blockchain technology now maturing at a rapid pace, it can add exponential value to network
economies and drive the adoption of exciting new business models.
Customer demand in most markets is shrinking significantly, and companies are left pondering over two fundamental problem sets. For asset heavy industries, the challenge is asset under-utilisation. On the other hand, for asset-light industries, operational
expenses are based on as-a-service models. As-a-service models are mostly built around consumption of resources, rather than achieving business outcomes. Companies are hence not able to directly link cost of resources to business outcomes and inherently carry
The combined effect of these two problem sets is driving interest in two transformational business models:
Asset Fractionalisation and Outcome-based pricing. As both models are fundamentally based on data sharing and validation, blockchain can alleviate substantial complications at the technology layer.
Asset fractionalisation is the concept of splitting an asset into multiple logical parts. This is quite prevalent in financial markets. A well-known example is shares of a publicly traded company, where each share is essentially a part of a company that
the investor owns and in return receives a proportional component of that company’s profits. However, for physical assets, such as industrial machines, such models aren’t prevalent.
Such illiquid assets remain under-utilised as there is no easy way to connect the supply side with the demand side.
For example, a paints manufacturing factory could have the equipment needed to manufacture sanitizers. However, pivoting the entire business model for such a company is a risky proposition. Instead, it may prefer fractionalising assets, with fractionalisation
being based on time utilised, and allowing other companies to use the assets for a short-term period instead of changing the entire the business model.
Asset Fractionalization converts the previously illiquid assets into new revenue streams. This can then result in a secondary market where the fractionalised assets could be traded as per the then demand-supply equilibrium.
Similarly, outcome-based pricing isn’t an entirely new concept either. Instead of resource-based pricing, in outcome-based pricing, the supplier charges the customer only if particular business outcomes are realised. Outcome-based pricing is already being
explored in a number of industries and is an enticing proposition for the customer.
Instead of paying the supplier for resources, the customer now pays for business outcomes.
Let us take an example from real estate industry. In current models, a retail outlet (tenant of the commercial property) pays the owner of the property (shopping mall) for the rented area. In an outcome-based pricing model, rent would be based on the actual
footfall instead of the rented space. The retail outlet would pay only if it experiences footfall for its outlet. If the footfall drops, the retailer’s outgoing expense also drops. On the other hand, if the retailer’s footfall increases, the shopping mall
would earn additional revenues for the same rented space. Such a model would enable the supplier and the customer to share risks, costs as well as the revenues.
Both models – asset fractionalisation and outcome-based pricing – require this closer level of collaboration and trust to succeed.
For asset fractionalisation, it is important that a consuming company has access to all historical records for that particular asset. Similarly, for the secondary market to operate in a regulated industry, all interested parties must be able to trace the
fractionalised asset back to the real physical asset with ease and minimum overheads.
For outcome-based pricing, the supplier as well as the customer should be able to access and evaluate events related to outcomes. Both parties need to be assured that one party doesn’t have the rights to conceal or extrapolate the data to take advantage
of the other party. Yet, all parties should always be in sync.
Since both models are entirely based on availability of shared data, in the current context, each party would want to process the data independently. This would invariably result in reconciliation efforts and disputes. The eventual cost of such disputes
would soon outweigh the benefits of these models. Without a layer of transparent data sharing and orchestration executing, both business models become extremely challenging and risk prone.
In a blockchain-enabled context, the key data points can be stored and shared on the distributed ledger. Smart contracts can then automate business processes such as measuring business outcomes, tracing history of the asset, trading of assets, automatic
reconciliation, and so on. A purpose-built enterprise permissioned blockchain platform that ensures data privacy and confidentiality as a fundamental feature would be an optimum solution for such cases.
If these two new business models come to life, companies would fundamentally alter their risk models, liquify assets and gain the agility required to rapidly pivot their operating and financial models. From a game theory perspective, this would result in
closer collaboration and significant value addition across the industry, thereby transforming zero-sum games into non-zero-sum games. Blockchain has so far been the missing link in this chain of events and could lead to new business models to further innovate
in today's times.