Economic Disruption: From Pipelines, to Platforms, to dApps

Pipeline businesses have been outdone by Platforms. What business model disruption is next?

Pipeline businesses, which produce goods and services and sell them to customers, have been popular ever since Henry Ford’s assembly line. But they have since been outdone by the Platform. Instead of manufacturing goods and services and selling them to end users, platforms build infrastructure to connect buyers and sellers.

eBay. Uber. Facebook. Airbnb.

With the Fourth Industrial Revolution picking up steam, decentralized platforms are fast becoming a powerful means for coordinating economic activity, unlocking new models of value creation and exchange. The DAPP Network is evolving the platform revolution by creating a marketplace for a suite of powerful developer services: decentralized storage, RAM-compatible memory, cross-blockchain operability, and more.

latforms are changing our economy.

No longer do companies need to produce and sell more units as a prerequisite to accruing value.

For example, rather than owning and operating a fleet of taxis, Uber connects consumers looking for rides with the closest available driver on a single platform. Facebook is a gigantic media company that produces almost no content, instead facilitating the creation and exchange of content between users on their platform. AirBNB owns no hotels.

By building the interfaces and matching engines that connect buyers and sellers, platforms are able to facilitate frictionless value exchange and capitalize on two-sided network effects to grow their ecosystem. (Click to Tweet)

However, in their centralized form, platform businesses still extract rent from ordinary users in favor of the corporation.

In exchange for playing ‘matchmaker’ to connect riders and drivers, ride-sharing platforms take 25%-30% of their drivers’ fares as commission. Similarly, content creators on social media sites have no direct control over their creations. Both their creative works and engagement data are properties of the controlling corporation, who reap the rewards by sharing them with advertisers.

Decentralization represents the next phase in the platform revolution.

Shifting control from the institutions to their communities of users enhances the level of transparency on a platform and introduces novel incentivize models that encourage active contributions. The interoperability of different systems can create positive-sum games between platforms by allowing them to leverage each other’s networks.

On the DAPP Network, DAPP Service Providers offer a range of trustless scaling services which developers access through on-chain staking on a free-market based platform. A vibrant ecosystem of DSPs, developers and users enhance the network by creating interfaces, tools and services to scale decentralized applications (dApps.)

By giving ordinary users a stake in the network, decentralized platforms could evolve our economy one step further through incentive mechanisms that coordinate activity around a common goal: growing the network.

From Pipelines to Platforms

The old paradigm of doing business split the world neatly into producers and consumers. In pipeline businesses, value is produced at one end by producers and consumed downstream by users.

Ever since Henry Ford introduced the assembly line process for creating the Model T, car manufacturers and other pipeline businesses have grown revenue by increasing both supply and their customer base simultaneously.[1]

Instead of manufacturing goods and services to sell to their customers, platforms create the infrastructure for an ecosystem of buyers and sellers to meet and exchange value with one another. While real-world platforms have existed for years in the form of malls and markets, the internet has expanded both the scale and scope of the platform. Suddenly, they are not limited to a single location and can scale to a global ecosystem.

Furthermore, data collected from interactions and searches allow businesses to iterate on their discovery and matching processes, creating a frictionless experience for both buyers and sellers on their platform.

Not all platforms are created equal. For a platform to be successful, it must overcome a chicken-and-egg problem from the get-go. Buyers will only join if there is a strong selection of sellers, while sellers have to see significant demand for their service before signing on.

There are different strategies to approach this unique conundrum, including:

  1. The micro-market strategy: Targeting a smaller, niche segment of the market could serve as a means of onboarding passionate early adopters who can then evangelize the platform to potential new users. Facebook began with Harvard University students first before opening up to other universities and eventually, once a critical mass of early adopters was reached, to the general public.
  2. The marquee strategy: Identifying powerful players who wield significant pull in their respective domains and providing them with star treatment can go along way to kickstart the credibility of a platform.
  3. The big bang strategy: As SXSW 2007 rolled around, Twitter was a few months post-launch and the team began to notice that nearly all of their thousand or so users would be heading to Austin for the festival. They decided to go big by displaying a Twitter visualizer on a number of flat screens throughout the venue. Making a splash worked — Twitter’s growth rate increased significantly after the conference, leading it to become the household name it is today.

But once the platform is bootstrapped with an initial cohort of users, expanding the network becomes a lot easier as existing users join the effort to recruit new users to the platform. This is due to the nature of network effects: the value of a network can grow exponentially as more users join the network and the number of potential connections between them skyrockets.

Metcalfe’s law, a popular model for valuing network effects, states that the effect of a telecommunications network is proportional to the square of the number of connected users of the system.

While platforms represent a considerable value-add over pipeline businesses, they still have one more step up to make. For one, centralized platforms are mutually incompatible and cannot aggregate demand and supply across each other’s community of users. This lack of interoperability leaves value and data locked in silos and limits the number of connections possible on the network.

Evolving the Platform Revolution

By decentralizing their architecture, platforms can enhance transparency and unlock new value chains by incentivizing active participation on their network and interoperating with one another.

Undoubtedly, the creation of the internet was the key contributing factor enabling the emergence of platform businesses which facilitate value exchange at scale.

But in the days before blockchain technology, a trusted, centralized entity was necessary for these networks to function.

In exchange for facilitating the exchange of value units between buyers and sellers, these gatekeepers retain full ownership of the valuable data on their platform. Moreover, the code of conduct governing interactions on these platforms is dictated by arbitrary committees who get to decide whether to censor content or revoke privileges for a user.

With blockchain technology, these centralized corporations are made redundant. All the information about the users and the value units exchanged on a platform can be stored in a decentralized fashion on chain. Smart contracts can carry out the functions critical to the platform’s success such as the matching engines for connecting demand and supply and the reputation scoring system for assigning a quality score to individual users and services. Interoperability solutions such as Liquidlink can accelerate network effects even further by linking previously-incompatible platforms together.

Furthermore, tokenized incentivize structures can be implemented on blockchain platforms, giving users a direct stake in the network and its growth. Businesses, suppliers, consumers, and content creators become part-owners of the platforms upon which their livelihood depends.

For the internet to more closely resemble the digital democracy it was designed to become, control of platforms must transition from trusted third-parties to decentralized communities. (Click to Tweet)

A Decentralized Platform for Essential Developer Services

Platforms for storage, computing, communication, and other developer services are not new. Amazon grew AWS from what was initially an internal cloud storage project into a multi-billion dollar business by expanding their service offerings to include machine learning, identity management, and video transcoding amongst many others.

What has changed is the nature of such platforms. Decentralization promises to evolve platforms and unlock new models of value creation and exchange.

Unlike centralized platforms, there is no single entity responsible for dictating the flow of interactions on the DAPP Network. Services provided by DSPs run on open source code and can be accessed by developers through staking on chain. The DSP marketplace is completely free market-based, giving service providers complete autonomy to decide which services to offer and under what terms and conditions to enter into a Service Level Agreement (SLA) — which is also on chain.

Furthermore, the DAPP Network community could create their own services, such as KYC, payments, and more, to run alongside existing services on a common provisioning layer. The interfaces for accessing DSP services were also built and designed by the community.

With a dream of making a reliable car cheap enough that “no man making a good salary will be unable to own one,” Henry Ford sought to design a manufacturing process that would speed up production of the flagship Model T. Ford’s assembly line would go on to become the most popular mode of manufacturing — not just in the automobile industry, but for the Second Industrial Revolution as a whole. The internet made possible the emergence of platform-based businesses which would go on to disrupt the older pipeline process and dominate the Third Industrial Revolution.

As we progress into the Fourth Industrial Revolution, trustless cooperation enables decentralized platforms to become the primary model of coordinating economic activity.

What began 6 months ago with vRAM is now a vibrant ecosystem of developers, DSPs, and users exchanging a suite of powerful scaling services on the DAPP Network.

Take a more active role in the DAPP Network’s participation in the evolution of business models by joining the conversation in the official Telegram channel. If you’re building dApps or you wish to learn about becoming a DSP, join our Developer’s chat.

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[1] This section on how platforms are disrupting the pipeline process in various sectors is inspired by the book Platform Revolution: How Networked Markets Are Transforming the Economy — and How to Make Them Work for You by Geoffrey Parker, Marshall Van Alstyne, and Sangeet Paul Choudary.

DAPP Network aims to optimize development on the blockchain by equipping developers with a range of products for building and scaling dApps.