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Beyond cryptocurrencies: E-commerce value chain and the blockchain (Part One).

Apart from the use of cryptocurrencies for payments, the potential value of blockchain technology for e-commerce is just starting to be recognised and explored.

A handful of blockchain e-commerce projects have been launched but they have really just started to scratch the surface. OpenBazaar used bitcoin technology for payments only, for example, relying on the established tech stack for everything else. Whilst there are other e-commerce companies exploring the use of decentralised technologies, the amount of attention and research they have undertaken is tiny compared to the investment being made by the financial industry.

Underinvestment

It’s hard to determine exactly why there is such a lack of attention. E-commerce is a huge sector and one that is relevant to the entire world. Vast resources are being invested in its general development, so why not explore the application of blockchain technology in greater depth? It’s possible that the complex nature of e-commerce — involving different business models and operations — is preventing developers and businesses from moving forward. It’s also possible that the megatrend of blockchain adoption in the financial sector, demonstrated by many new decentralised apps, has drawn all the attention away from other business opportunities. Whatever the reason, the fact remains: there is a huge opportunity here, and it is wide open.

In the following post we will try to explain our approach to this problem. We will use business analysis tools to look at e-commerce value chain operations, exploring the value that blockchain technology may bring to them.

What is exactly e-commerce?

Before trying to understand the potential of blockchain for e-commerce, we should first define e-commerce itself. E-commerce is a complex undertaking, involving many elements, so we will use a Porter’s value chain analysis chart to unpack the different elements of the whole process.

Michael Porter’s value chain canvas, applied to e-commerce.

This chart, although a simplification, reflects the complexity of the different operations involved in any e-commerce business. For our purpose, we can point to five general areas that could be impacted by blockchain technology:

  1. Everything related to inbound logistics, including the reception, storage, inventory, and planning for items in a warehouse.
  2. Everything related to operations, such as listing, payments, escrow, users’ data management, and everything related to the daily management of the operations of both sellers and buyers within the platform.
  3. Outbound logistics: all operations included in order fulfillment, transportation, and distribution.
  4. Marketing and sales: finding, attracting and engaging new clients. Moreover, it is fundamental for any e-commerce business to work on customer loyalty. In fact, this is where the real profits lie!
  5. Service: the main operations for customer support, such as dispute resolution through arbitration, and solving any fulfillment issues.

All of these business processes require support, including the development of new technologies to stay relevant and competitive. Blockchain has obvious possibilities here, and there are further applications within procurement, HR, and infrastructure.

Competitive advantage

Improvement in any of these areas would lead to a competitive advantage over similar businesses, but we prefer to define this as better value for the customer. In e-commerce, this comes down to convenience. E-commerce acquires more and more users, growing every year, because it is so convenient: you can purchase anything from your couch or office, at a reasonable cost.

But people also demand a service they can trust. If you can’t touch an item with your own hands before you buy it, you need to be able to trust the seller to accurately represent the item, and then get it to your home, quickly and safely.

The questions then become:

  • Can the blockchain provide better value to users?
  • Will blockchain bring more convenience and trust to users?

We believe the answer to both questions is a resounding YES. To explain our enthusiastic response we will analyse the properties of blockchain technology that make these competitive advantages possible. This topic will be the subject of our next post.

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