What would eCommerce look like if it were done on the blockchain?
eCommerce on the block chain would be an interesting animal. I’m not talking about an eCommerce shop that accepts bitcoin or even ethereum, a few of those already exist. I am talking about one that bakes the blockchain right into its very fabric. eCommerce could leverage so many properties of the blockchain to completely upend the existing models.
There are obvious wins eCommerce could gain from the blockchain but also some not so obvious.
Most obvious are the low fees. The current financial system causes money to bounce around a lot of companies and includes middle men just so it lands from a customers hands into the merchants. These middle men all want a cut, one of the big advantages that the blockchain brings to the table is that the 2.9% in credit card fees disappear. That’s a tax you pay when you buy and sell anything on the internet today. That may not sound like much but in a game where competitors are bleeding each other dry and the margins are a few percentage points, that is make or break.
Other middlemen would disappear too. Another great property of the blockchain is programmable money, that makes certain guarantees. Multi-billion dollar companies exist precisely to guarantee that money moves hands only when something has happened such as when a product bought online has been delivered, companies like PayPal for example exist purely because of this need. In the blockchain that is a few lines of code and as such those fees are gone too. This provides inherent benefits to anyone doing business online but especially to an eCommerce shop.
As an example of this sort of transaction, a customer could buy something using their digital wallet. Only when the item has been delivered, and a company like UPS sends the confirmation message, only then would the money be released to the merchants wallet. This whole thing would happen with almost no cost to the merchant or the buyer and no middlemen. Not to mention there are properties that the blockchain has that could be used to track the entire order the whole time.
Not so obvious benefits.
A major property of the blockchain that is a big benefit but isn’t very obvious to eCommerce is the radical transparency. The blockchain guarantees visibility. Transparency is a big problem for the brands and merchants that sell on the internet. Big marketplaces don’t want to share data and information partly because it gives them a competitive advantage. More often they can charge sellers a significant amount of money for information. The blockchain provides this out of the box; transactions are visible and brands and merchants can run their analytics. Obviously, efforts have to be made to make sure personal identifiable information is not present but with the blockchain that is already a property one can easily expand on.
As an engineer and a leader of other engineers, I have seen first hand many of the challenges eCommerce faces. Those challenges include blistering competition and razor thin margins. Competitors are bleeding each other out and eCommerce is a massively capital intensive game. Problems of trust and transparency are almost always persistent, even when the best intentions are there, these problems can be eliminated by the blockchain.
Some other properties that the blockchain provides that, if implemented correctly, could massively help eCommerce are around marketing and growth. Building cash back and loyalty programs on the blockchain could be massively disruptive. Imagine if the loyalty points you got through these programs were just like cash, think eBates, but instead of waiting four months for a check in the mail, it was realtime and directly to your digital wallet. Imagine if brands could directly reward their loyal customers with real digital cash that they could then spend on anything and anywhere. The network effects for early entrants from this property on the space could be massive, meaning people need a place to spend their digital cash and early entrants benefit from this.
Other benefits for eCommerce are around advertising channels. Imagine if customers got paid a few pennies for seeing things and a few more for clicking on those things and then finally even more for buying those things. Imagine if customers got paid rather than companies like Google and Facebook. Some of what I’m saying sounds like a stretch, but it’s not. Every great brand and merchant has some sort of loyalty and rewards program and every one of them pays for advertising to companies like Google and Facebook. Why pay the middlemen when you can reward your customers directly?
Imagine a referral program on the blockchain. For every new customer referred to your site, programmable digital money on the blockchain could automatically flow to those referring you new customers, building tiered systems on this where the more you refer the more you make would be a sinch and delightful to those doing the referring.
How about an affiliate program? Something like an Amazon Associates, how could that benefit from the blockchain? All of the reporting for publishers could exist right in the open and on the chain, again guaranteed transparency. Realtime money for every purchase you refer from your content, blogs and articles, baked in as a smart contract means content providers get paid immediately. These sound like small benefits, but they are not. Much like the early internet what might seem like subtle but small differences today will have outsized consequences tomorrow for competitors not doing it this way.
Logistics and identifying the items being sold is another huge help the blockchain could provide to eCommerce. Matching products, meaning if two things are the same is a massive problem; just search for apple laptops on Amazon and you will see hundreds of listings with MacBooks in them, apple does not have hundreds of models of laptops. A single ID that merchants and brands could subscribe for could help all of commerce, online and offline. Right now lots of different IDs exist. Here are a few: GTIN, UPC, ISBN, ISBN13, on and on and on. The blockchain can fix all of that and everyone would benefit. At the end of the day everyone has the same goal, to sell more things.
Almost anything done today could be made better in eCommerce using the right blockchain and some thought.
In my opinion, something that isn’t very often discussed about this sort of technology are the unknowns. Those things we will discover later and only by building things on this technology. No one knows what the network effects will be of this technology yet. As more people have access to it and start to understand it the early entrants will be enriched by that, for eCommerce this means people need a legitimate place to spend these coins as they start getting exposed to them. Most of the places one can spend this digital money right now are not legitimate, no one knows the size of that network effect yet but if the internet is any indication it’s going to be massive.
A killer application that makes this so easy to understand and use will arrive because there is money to be made here. Everyone involved will be enriched by this, especially the consumers.
Now this isn’t about ethereum or bitcoin or any “altcoin”, those things that are alternative coins, for that matter. eCommerce can use this technology even if this evolves completely and in any direction in ten years, the properties I mentioned stand true regardless of which coin is the one. In fact one could construct a blockchain just for eCommerce, that can include properties I haven’t even thought of yet, because it is a big enough and important enough market.
Ultimately it remains to be seen what will happen with this technology and how it will evolve, there are still important questions to be answered. One thing is becoming certain to me, and that is that the next Amazon or Alibaba will have the blockchain baked into its fabric.
Get my weekly email, The Postcard, with the best ideas from each week.