Away with Amazon: Let's Decentralize the Ecommerce Platform Economy by@uppfirst

Away with Amazon: Let's Decentralize the Ecommerce Platform Economy

Blockchain Technology has shown its ability to decentralize and disintermediate many aspects of our lives such as Money (Bitcoin), File Storage (Filecoin), Computation (Ethereum) or Exchanges (Uniswap) It has made little inroads into the E-Commerce Platform Economy. The lack of traction can be explained by several factors: current platform operators such as Amazon, Ebay, or Uber have already benefited from tremendous network effects and now hold excessive market power. The sheer amount of data they own creates significant barriers to entry while their quasi-monopolistic position means they effectively dictate the terms of trade.
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UppFirst

UppFirst is the Web3 commerce platform defining the future of trade.

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While Blockchain Technology has shown its ability to decentralize and disintermediate many aspects of our lives such as Money (Bitcoin), File Storage (Filecoin), Computation (Ethereum) or Exchanges (Uniswap), it has made little progress in the E-Commerce Platform Economy.

This is in contradiction with the fact that the two key costs most affected by the technology, namely that of verification and that of networking are highly relevant to digital platforms (Catalini & Gans). On one hand, the ability to verify state of ownership cheaply and repeatedly at quasi-instantaneous intervals can greatly reduce the fee structure and encourage trade. On the other hand, the ability to crowdsource resources to quickly bootstrap and scale a network through an effective incentive design greatly reduces barriers to entry. The lack of traction can be explained by several factors:

Firstly, current platform operators such as Amazon, Ebay, or Uber have already benefited from tremendous network effects and now hold excessive market power. The sheer amount of data they own creates significant barriers to entry while their quasi-monopolistic position means they effectively dictate the terms of trade. Platform operators can charge as much as 40% for their services which simply consist in matching buyers and sellers while ensuring that a transaction takes place. Not only have users become “Price Takers” but they also have little say over how the platform is curated, how it evolves or over how their data is used. This has an overall negative impact on culture, society, and creativity.

Secondly, as public companies, current operators have a fiduciary duty to their shareholders. As such, they have very little incentives to leverage Blockchain Technology and reduce the cost of verification until the competitive landscape changes as it would otherwise entail cutting their value-added on the processing front, thus diminishing shareholder returns. Platforms such as OpenSea are able to offer their users significantly lower fees thanks to the technology, but their offering is limited to on-chain native assets. Little has been done on the non-digital products or services front.

Thirdly, their fiduciary duty also greatly limits their ability to issue a native asset (token) as an incentive or decentralization tool as this new form of equity would effectively take value away from traditional shareholders.

Finally, there are current limitations as to how decentralized a digital platform can be, especially one that deals with non-digitally native goods. At this point in time, a central operator or governance structure is still needed to ensure day-to-day operations, the long-run maintenance of the platform, coordination between agents and to act as a reliable bridge between the on-chain & off-chain worlds. 

The process would in fact have to be reverse-engineered and the path to decentralization be a slow and gradual one.

Those challenges create an opportunity for Start-Ups to leverage the power of Blockchain Technology to not only compete effectively on price (fees) with current incumbents but even more so to bootstrap a digital platform by using a native digital asset (token) that rewards users by making them early equity holders. Gearing incentives primarily towards users and other stakeholders, will make early adopters keen to experiment thus reducing the perceived switching costs. They will also be keen to diffuse the technology hoping that the increased network activity has a positive impact on the value of the token. As its price increases, further users will be attracted thus generating a positive feedback loop. While some users might solely be attracted by the utility and value they derive from participating in the ecosystem, others like investors or speculators might focus solely on the potential token appreciation.

Unlike for traditional incumbents where scale has been accompanied with increased market power and less value for users, a slow path to automation and decentralization of ownership and governance will ensure such a platform stays clear of the classic relationship between scale and antitrust concerns.

Ultimately, a digital platform that rewards and is owned by its users will benefit from infinite network effects, scale like no others, and generate many positive externalities.


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