Decentralized platforms - A better way to align early contributors and strengthen the desired network effect? (Uber as high level case study)

Online platform businesses such as Uber (for car rides), AirBnB (for hotel rooms) or Facebook (for social media) are among the most successful businesses in today’s economy. The ownership in such businesses has been extremely beneficial for early employees and investors of such platforms. As a result of the success the power of those platforms is often concentrated to those early stakeholders. In today’s platforms typically one of the most important early contributor — the user or the community — is not benefiting from the success of the platform in the same manner as early employees and investors, although the user or community is essential to create the network effect which platforms are seeking.

Through the rise of blockchain technology, future decentralized platform business models might offer the possibility to align early contributors and strengthen the network effect. To illustrate the potential we would like to look at Uber’s business model.

Uber can be seen as typical example for a highly successful platform business model. Uber is a platform which offers decentralized peer-to-peer services (car rides) but is highly centralized at platform level. The centralization leads to Uber, as company (and its shareholders), having the majority of power over the platform and being able to change terms and conditions for the platform without the consent of the drivers and riders (i.e. its users or community). As a result, the interests of Uber as platform and company (incl. its shareholder) and the interests of its community is not necessarily aligned in the current state.

In a decentralized future state of such a car ride platform, the initiation of crypto assets could decentralize the power and support the alignment of the whole car ride platform community. A potential way would be to build a car ride platform on the digital infrastructure of a smart contract platform, creating a dApp for its users. The decentralized car ride platform could introduce two crypto assets;

  1. A governance token
  2. A stable coin

A governance token could give the whole platform community the right to vote on changes in terms and conditions or changes in the dApp which ultimately would decentralize the power of the platform to its community. It could also incorporate the right for a share on the fees that the car ride platform would generate. The issuance of the token to drivers, riders and developers could be directly linked to their contribution in the network and therefore align the interests of all early contributors.

A stable coin could be used as means of exchange within the dApp. Drivers and riders would have a wallet for holding the tokens within the dApp. Payments would be executed automatically via smart contracts with confirmation from driver and rider and would exclude third party payment providers.

Key challenge of such decentralized platforms could be the slower pace of decision making and incorporating changes in the platform because the whole community would need to vote on them, which could slow the decision making process. On the flipside, the introduction of a crypto asset could further attract drivers and riders since they would be rewarded to be part of this community, which could lead to a stronger network effect that successful platforms are currently seeking for.

It remains to be seen if future decentralized platform business models will be able to succeed and rival the current centralized platforms.

Tiuri Ventures focuses on investments in the #crypto space. The information and publications do not constitute financial / investment advice #bitcoin