Part I. Does Crypto have a sustainable business model?
Looking to Open Source for inspiration
As an entrepreneur and operator from the web 2.0 era, I frequently consider the business model of any new idea. Don’t get me wrong, I’m equally fascinated by the impact blockchain has on tech and society broadly. That said, money “keeps the lights on” and is the key to further innovation within the space. In an effort to understand the long term viability of crypto, I decided to take a closer look at how blockchain organizations are making money or planning to in the future. To my surprise there wasn’t much information beyond ICOs. As an advocate and participant in this new ecosystem, I decided I’d to analyze this question more deeply.
Methodology
Like the early days of the Internet, crypto/blockchain presents various new and interesting paradigms we have never encountered before. Because of this, understanding how organizations and individuals will make money within the ecosystem is far from certain. In trying to find answers, I thought a good place to begin would be to study businesses built on Open Source tech because of their similarities. In doing so, I broke down the layers of the Web 3.0 technology “stack” and compared it to the equiliate open source, Web 2.0 project.
Stack
Though the blockchain ecosystem is still in its early days, the tech stack for consumer or business facing applications currently consists of three layers, developed by usually two or three different organizations. The layers are:
(There are important projects like IPFS and Pokedot that may break the Web 3.0 stack into additional pieces)
In many situations, two of the layers maybe part of one organization’s vision. For example, Bitcoin and Cryptokitties both combine different layers. Roughly speaking, Bitcoin combines it’s own blockchain with its own application protocol, while Cryptokitties combines its own smart contract with an application UI.
If this stack looks familiar, it should because the Web 2.0 application stack is essentially the same.
(The Bottom layer — database and OS — are usually separated, and even within crypto there are related projects in the works.)
Open source business models
When examining open source, bottom of the stack projects, there are two projects that have displayed both long term financial success and proliferation — Linux and MongoDB. Linux is used by nearly everyone who uses technology. Via their phone, the servers that run their favorite websites, smart TVs, and much, much more.
As for MongoDB, it’s a $2B, public database company with thousands of major corporations as their customers including, IBM, Citrix, Twitter, T-Mobile and many more.
For Linux (RedHat’s business model) makes money in several different ways:
- Enterprise version of Linux
- Implementation and set up
- Premium features
- Customer support
- Training
- Consulting services
- Cross selling other enterprise solutions
MongoDB has a similar business model, but they also provide backup and hosting services.
As for the middle of the stack, it’s full of frequently used open source tech like, Node, RoR and Python, none of which are commercial projects. Wordpress is likely the most financially successful and impactful business to come out of the middle of the stack. Today, approximately 5% of the web is built on Wordpress! And they’ve built a diverse set of revenue channels:
- Ads on free sites
- Paid premium version
- Paid plug-ins
- Hosting
- Support
- Referrals
- Additional services
Lastly, the top of the stack — the application UI. Firefox is likely the best example of a top of the stack, open source application. With over 10% of the web being viewed through a Firefox browser, Firefox isn’t some silly open source project. That said, it may have the simplest business model. It drives nearly all of its revenue through royalties from the default search engine.
Conclusion
Though open source is often connected to hobbyists and side projects, it’s clear that the approach has been able to both be extremely impactful and profitable. It would be wise for the Crypto community to look to the open source world for inspiration and ideas on building a sustainable community and business model. Conversely, for the Crypto bears, a decentralized, open development model has clearly proven to work. With the right structure and incentives, it would be unwise to underestimate what can from Web 3.0.
In my next piece I’ll be diving into the Crypto stack more deeply and looking at the business models that appear to be emerging. Stay tuned!
Check out nycblockchainevents.com to receive a weekly email with the top crypto/blockchain events around NYC!
