Competition, Network Effects & Synergies in the Age of Blockchain
Since completing my Ph.D. in Entrepreneurship at the University of Colorado in Boulder (2001), I have spent most of my time advising aspiring entrepreneurs in how to build a distinctive competitive advantage. I also heeded my own advice in most of my own startups, building proprietary software companies in the smart cities arena.
After observing first-hand the flaws of capitalism in contributing to climate change and inequality, I began to rethink the winner-takes-all approach to building startups. So much so that for my third book, published in 2017, I explored in depth what I referred to as Post-Capitalist Entrepreneurship, whereby entrepreneurs collaborate in networks in the hopes of wider community benefits as opposed to individualist profit maximization models. In this book, I looked at commons-based peer production in maker communities, platform cooperatives and decentralizing blockchain tech including distributed autonomous organizations.
My research led me to meet and engage with Jamie Burke and his team at Outlier Ventures over the course of two years in collective thought and project incubation. In the end, I decided to form a blockchain project in the smart cities arena, where I have worked for more than a decade. The first step was growing the founding team which includes 2 Ph.D’s in computer science, Josep Sanjuas and Victor Lopez.
As we have begun to build our protocol for the Internet of Mobility (IoM) I have been reflecting at length about what competition means to our target ecosystem and even how we at IoMob should view other competing protocols. Below I share some of my latest thinking about competition in the blockchain age. But a quick comment first. In what industry can you think of do entrepreneurs openly publish their funding and development plans before they have even launched their first product to the market? Blockchain projects developing an ICO inevitably do this as part of their pre-ICO process, allowing their “competitors” access to their early vision, funding strategy and product road map.
Open Protocols Foster Open Innovation and Synergies in Ecosystems
At IoMob, we are building a 2-layer architecture to facilitate decentralized mobility in urban areas. In the old days, and even today, most urban mobility operators are building all of their own tech in the hopes of building walls around their proprietary IP while each of them also seeks to compete with other mobility services for access to mobility users. Quick quiz, how many mobility service operators can you name in your own city? How many mobility apps do you have on your phone right now?
Would you be surprised to learn that in Barcelona alone there are more than 50 shared mobility operators? All of them spending their scarce resources on core tech and marketing to get user adoption and downloads of their own app. In the age of blockchain this doesn’t make any sense to us. Which is why we are building an Internet of Mobility (IoM) protocol which will allow any mobility provider to plug into our core tech AND access a universal network of users of public and private mobility services. It is indisputable how such a protocol will substantially enhance the mobility experience for users. Rather than having to discover and subscribe to dozens of mobility services and their respective apps (and having to open and close several apps to find the right solution for their particular journey), user-facing apps connected to IoMob will have discoverability and eventually the capacity to pay for intermodal journeys or even aggregated monthly service plans for a host of public and private mobility services-known as Mobility as a Service (MaaS).
While the value to the mobility user is supremely obvious, for some mobility operators, this open model is scary. For those who seem to be succeeding at building their own network effect, why would they join an open protocol where other mobility providers could also access their users? Over time the answer will become as obvious to these providers as it is for the users. The cost to erect barriers around their tech and their user base, outside of a handful of extractive unicorns with seemingly unlimited access to billions of dollars in follow-on investment is just too great. Joining an open ecosystem allows former competitors to find strength in numbers. In a compelling blog post from last year, Preethi Kasireddy referred to the network effect created by sharing access to an open protocol as synergies. Collectively all of these mobility providers can share access to a universal network effect.
At IoMob we get asked all the time, but why would Uber join you? Our first answer is that Uber is not our target. Uber has developed an extractive businesss with walled proprietary tech and their own network effect while exploiting drivers as a mere part of their MVP for autonomous vehicles. Urban mobility is a multi trillion-dollar market and Uber can’t own it all, especially when many cities and countries don’t even let them operate. However, at some point, it is possible that even Uber could be intrigued by plugging into an open protocol (while still maintaining walls around parts of their own business). For example, Uber could offer compensation to mobility services on the protocol (through smart contracts) when these smaller services do not have installed capacity of vehicles, bikes or drivers to meet their user needs.
Another interesting aspect of this approach to synergies in network effects involves looking at public transit operators. In some parts of the world, public transit networks make up such a small % of daily mobility usage, but in others, like in most European cities, public transit is a huge part of daily mobility needs for residents and tourists alike. Even in the US there are cities with high rates of public transit use for commuting, like New York which tops the list at 56%. Until recently the idea that public transit operators would consider partnering with private mobility “competitors” seemed unlikely. Public transit operators have sunk costs in the billions to build and operate their train, metro and bus networks. And they have done so with the understanding in most cases that mobility is a public good and should be free or subsidized to allow for inclusive access. As we know private operators incorporating things like “surge pricing” do not share this value.
Yet, in the past few years, cities are increasingly collaborating with private operators to improve service delivery and to address things like first mile-last mile with bike sharing, carsharing and carpooling among others. When people live just outside of good public transit hubs, they tend to take their entire journey in a passenger vehicle, 70% of which are single occupancy, contributing to congestion, air contamination, stress, economic loss, and an underutilization of public transit! So, public transit authorities have realized that if private operators can address the first-mile, last-mile problems, than public transit use can actually increase not decrease, and quality of life can improve. Mobility as a Service (MaaS) solutions have been introduced which usually entail a private mobility aggregator, building proprietary software to integrate a handful of public and private mobility operators in a monthly service package to residents. We see this as a first step to the synergies Kasireddy was talking about.
However, we believe the Internet of Mobility, powered by open blockchain protocols will allow for even more benefits to cities, providers and users, by opening up the network effect to any validated mobility operator, not just the largest ones capable of negotiating with a private aggregation service. Further openness will support more rapid prototyping and innovation in mobility services. For example, at IoMob we aim to allow something we refer to as personalized MaaS. Instead of a user being dependent on a proprietary closed network of mobility services, personalized MaaS, or iMaaS if you will, could support an infinitely customizable grouping of mobility services to meet the unique transportation needs of every mobility user. And when new services become validated, they become immediately discoverable to mobility users on apps connected to the protocol.
But what about competition amongst protocols?
It’s easy for me to write about why mobility providers will have improved access to tech and network effects by collaborating more openly on the IoMob protocol. But what about collaborations amongst blockchain protocols too? I have been struggling with this issue ever since we began focusing on developing the Internet of Mobility. If we in the blockchain community are building the fat protocol for web 3 than does that mean there is only room in the market for one IoM solution? Doesn’t this just recreate the winner-takes-all extractive mentality of web 2.0?
“These projects aren’t in a ‘winner take all area` in the same way that say a cryptocurrency might be as a store of value. For example, building a decentralized data marketplace could require a number of Developer Tools subcategories such as Etherium for smart contracts, Truebit for faster computation, Nucypher for proxy re-encryption, etc…Because these are protocols and not centralized data silos, they can talk to one another, and this interoperability enables new use cases to emerge through the sharing of data and functionality from multiple protocols in a single application.”
He goes on to describe ways that multiple tokens tied to multiple protocols will eventually be seamlessly interoperable. This to me suggests that there is no reason why one protocol, say for the Internet of Mobility (IoM) couldn’t collaborate with another one, especially when the cryptoeconomic incentives are unique and complementary.
As I write this I am on a plane from Barcelona to London to speak on a panel at the Smart IoT London about demystifying blockchain. It turns out the founder of a “competing” protocol to IoMob is also going to be at this conference. We have also both been invited to speak at a mobility conference in Spain next month as well. So, in an effort to live what I preach, I have reached out to my “competitor” to see if there is a willingness to explore synergies amongst our protocols. (Note: I am not naming the founder so as not to point fingers in the event his organization is not prepared to explore collaborations).
Future of Collaboration and M&A in the Blockchain Space
This leads to a final point of reflection. Sure, we have seen a few acquisitions of private blockchain companies and we will see many more in the future. But what will collaboration and even mergers and acquisitions look like in the open protocol arena where the tech is owned by a foundation? While most people I speak with believe it is impossible because once the cat is out of the bag and there is a non-profit foundation and tens of thousands or more, of token holders, owning hundreds of millions or even billions worth of tokens, there will be no real way for M&A to happen.
Something tells me those assumptions are incorrect. If the synergies amongst protocols are so great, and say one foundation has managed to accumulate a massive global network effect and ether worth billions, why couldn’t a token swap (like a share swap in the publicly traded company model) happen? I do not confess to know the answer to this question but I will be fascinated to see how this unfolds in the coming years.
Post-publication comment: The founder of the “competing” protocol did not respond to my request for a meeting.