Oct 4, 2022
Web2 & Web3 Ecosystem Success
Introduction
When I’m thinking about the blockchain ecosystem I’m thinking, high level, about Ecosystem Business model, Opensource software, Community, and DAO (decentralized autonomous organization).
What does a successful blockchain ecosystem look like?
In this article, I speak about value proposition, challenges, best practices, and where possible, metrics, to strategically build successful blockchain ecosystems: main components, their goals, and metrics.
INDEX
- Ecosystem definition, value proposition, challenges
- Principles and strategies to unlock the ecosystem advantages
- Blockchain Ecosystem success
In the last years, we have seen companies try to innovate through a network of other companies that allows them to co-innovate together. New technologies made ecosystem business models suitable to deal with recent disruptions going beyond one company’s capabilities and knowledge, shifting from competition to collaboration.
Blockchain technology has brought a decentralized mindset where collaboration between organizations is inherited from the architecture itself, which is in line with the tendency towards collaborative effort through open-source software. The dominant mode of 2018: see Microsoft bringing all 60,000 patents to OIN, the largest patent non-aggression community with more than 2,650 members [2], and IBM buying Redhat [3].
This article is a reflection on what success looks like for ecosystem business models [1] in the broad term first, and then more specifically, how can be measured, in blockchain ecosystems.
Definition
The ecosystem is usually made by two or more entities that partner together creating more value than any individual participant could create on its own. They are formed to co-create a product or service, market to a common set of customers, and share the value they generate.
There are several advantages that companies have seen as valuable within the context of innovation.
Ecosystems Value proposition
- create more value through the economy of scale, minimizing capital-intensive internal processes. Increasing operational efficiencies both within the organization and the market
- speed to scale not only for companies participating in the ecosystem but the ecosystem itself
- forge new relationships that could land into commercial arrangements between large and small entities, fostering innovation
- data gathering from partners' experiences within the ecosystem, allows knowledge sharing, seeing gap opportunities, and creating new revenue streams
Although ecosystem business models have a clear value, as stated above, making them successful and sustainable long-term is far from trivial.
Ecosystem Challenges
Ecosystems are technically, operationally, and commercially complex. If it is challenging for one company to find a common ground, top-down in terms of vision, goals, and metrics, chasing an ecosystem common vision and direction can’t be easier.
- No one can mandate partners to do specific things. Collaboration comes from incentives and concrete value added from the ecosystem rather than obligations. It is crucial to find the right partners in order to be able to make them profitable and keep them sticking around contributing to the economy of the ecosystems that, long term, grow other nested ecosystems.
- Beyond the orchestration, partners need to have a key component of the platform to become profitable, something that the ecosystem really needs that the partner can contribute. Monetization comes from knowing which is the key contribution of the ecosystem; licenses, royalties, transaction fees, selling value-added services, or the use of data to provide other services
- Another key challenge is data interoperability — ecosystem participants use to be spread in different geographies facing the challenge of data privacy regulations, different, based on the jurisdictions. Same for any other type of regulations, standards, and policies, location or industry-specific.
- Regulatory compliance, broadly speaking, should be addressed as part of the relationship definition within contractual agreements, specifying KPIs assessed during regular auditing to optimize the ecosystem’s performance and adherence to standards and policies.
2. Principles and strategies to unlock the ecosystem value proposition
In a context where different business entities are supposed to share part of their revenue streams in a collaborative environment agreeing on the same objectives and metrics, the human factor is the strongest variable. Despite that, like in any other business, it is crucial to develop an internal operating system that allows scaling processes and the exchange of value. Following foundational best practices is the minimum requirement to build an operational system fit for the purpose of the specific ecosystem.
1- Business Proposition: the value added, or incentive, a partner could get from the ecosystem must be clear, reiterated, and measurable. For example, lower development costs, accelerate innovation, scale up or be part of a new product.
2- Roles, Strategies, and goals: make sure different partners understand their roles and that their roles are structured. Also, agreeing on common goals and strategy
3- Skin in the Game: make sure partners have skin in the game, with investments and take part in the innovation
4- Co-learning: make sure there is a co-learning and that it is shared within the ecosystem
5- Get and drive value: make sure everybody captures values out of the ecosystem but at the same time drives higher incremental earnings
6- On-boarding and Playbooks: adopt frameworks and best practices to achieve operational efficiencies at scale and make it easy and affordable to join (ie: onboarding process) with the standardization of playbooks
7- KPIs: Identify specific KPIs and keep track of them in order to measure the ecosystem performances and make corrective actions accordingly and timely in advance. Align C-suite and board level, regularly, tracking progress and sharing status reports, so that they can drive ecosystem strategy bringing clarity of purpose.
8- Commitment: Demonstrate belief in the ecosystem and make some tangible commitment, sharing tools, knowledge, and co-marketing campaign
9- Roadmap: Share the ecosystem’s roadmap in a way partners can see progress and evolution to be aligned with their investments.
10- Facilitate the connections between partners without passing through the ecosystem’s manager
3- Blockchain Ecosystem
Like open-source software where multiple developers and vendors are working together, blockchain requires collaboration in order to set standards, develop infrastructure, and execute transactions. Consortia and foundations are the concrete representation of this mechanism through which blockchain-interested companies, regulators, governments, and international standards organizations are collaborating together.
Blockchain ecosystems are supposed to be governed by a decentralized entity (DAO, decentralized autonomous organization), although blockchain foundations, for example, are not DAO.
Blockchain ecosystem level of decentralization is determined by the type of consensus algorithm and governance. The degree of decentralization is a spectrum, meaning that it is achieved progressively accepting that can’t be reached right from the gecko. Decentralization is an incremental process, human associations usually are not decentralized, or at least not 100% decentralized.
The power of decision-making usually comes from the hands of a centralized authority, so in order to achieve decentralization it requires a mindset shift and the right automation tools (ie: smart contracts on blockchain).
DAO is a decentralized autonomous organization a community-led entity with no central authority. It is fully autonomous and transparent: smart contracts lay the foundational rules, execute the agreed-upon decisions, and at any point, proposals, voting, and even the very code itself can be publicly audited. (from Consensys website).
DAO is challenging because the business proposition is not always straightforward so people wandering which are the incentives to join. Plus, we live in a command and control society so doesn’t come intuitive to take decisions based on a decentralized voting mechanism, following decentralized governance, which framework doesn't exist yet. Experimentation needs to take place first and numbers reflect the challenge to create successful DAOs with a clear vision, goals, and metrics.
As of today Q4 2022, there are thousands of DAOs created but only 20/30 have active participants.
Blockchain technology is a network effect technology, meaning massive adoption is the condition sine qua non-success can be achieved in the first place. Continuous experimentation comes along with network effect until the right use case, product, or service, will trigger a daily usage of the technology that will foster a new behavior.
Experimentation, co-learning, and co-innovation are the perfect fit for ecosystem business models.
The success of a blockchain protocol is subject to the success of its three main components: the technology, the community, and the whole ecosystem.
The technology needs to be feasible, reliable, scalable, secure, and decentralized enough to justify the effort of building with blockchain rather than other solutions. The technology needs to build a global infrastructure where interoperable applications can exchange value.
What does the most successful open-source project have in common? [4]
The structure and funding from a foundation or corporate sponsor provide more confidence that the project will remain active and stable over the long term. Ideally, this creates a positive feedback loop where high-velocity projects become the core of successful products or services. That adoption helps produce profits for companies, and the companies are able to reinvest those profits by hiring people to work on further incremental development of the project.
The community needs to provide the proper operational support to the end users and continuous engagement so that builders stick around contributing to the technology and expanding brand awareness.
The last component is the whole ecosystem which includes the technology, the community, and partners (technical and business). The blockchain is a network effect technology where the value of the network grows if the participants cooperate together for the growth of an ultimate ecosystem of ecosystems.
An ecosystem is a virtual place usually orchestrated by the foundation that makes sure the ecosystem provides frictionless onboarding and supports builders and partners in order to expand the technology to other countries, industries, and verticals so that the ecosystem could grow exponentially.
To measure blockchain ecosystem value and performance, one should be defined first, how success looks like for different ecosystem members, technical and business: developers, partners, and the community itself.
Developers
- Onboarding time
- numbers of developers
- numbers of commits
- gitHub stars
- number of poll requests
- Lead time, velocity
- LTV life time value
Community
- community support: quality, security, efficiency
- speed to answer questions and fix bugs
- community engagement online/offline. Conversion of people joining vs people participating
- documentation available
- numbers of dApps
- numbers of partners
- different categories of use cases
Technology
- #dApps hosted
- #total transaction processes
- #TLV total value locked
- #wallets
- Time for transaction settlement
A blockchain ecosystem can start with a minimum valuable ecosystem (MVE) and progress incrementally, although should be taken into perspective that the long-term goal is to build an ecosystem of ecosystems that continuously nature itself and keeps growing to make the business sustainable long-term.
[5] Start measuring to establish a baseline for performance. Set up the right tools for collecting data and make sure the data sources are clean and in a format everybody can understand. Many organizations create a dashboard of metrics for their open-source programs, to track all of the data in one place and provide project snapshots that can help assess progress at a glance.
The future of software is community driven [6] and blockchain gives the tools to build up around not only Web3, but also Web2, new business models, ways to interact and engage, and new revenue streams building the economy of the ecosystem of ecosystems.
References
[1] https://ecosystemedge.com/
[3]https://hub.packtpub.com/4-reasons-ibm-bought-red-hat-for-34-billion/
[4] https://www.linuxfoundation.org/blog/successful-open-source-projects-common
[5] https://www.linuxfoundation.org/resources/open-source-guides/measuring-your-open-source-program-success
[6] https://www.bvp.com/atlas/measuring-the-engagement-of-an-open-source-software-community
