Our EY Startup Challenge has been a fast programme, focusing on identifying blockchain use-cases and whittling them down to develop the prototypes and products for Energy Trading and Digital Rights Management. The momentum is strong and figuring out the case for collaboration has been the key. Having led two startup innovation programmes before, this latest experience has reminded me of a few things and taught me some others. Firstly, about the relevance of blockchain for these two industries of media and energy, and secondly about the process and principles of “open innovation” between large corporates and emerging tech startups.
Some thoughts on blockchain
I came in to this as a relative newbie – I didn’t know a lot about blockchain, let alone the details that are so important when thinking about its suitability for various industry issues. There are plenty of resources online to explain it but I found the easiest way was to take the specific use-case of bitcoin and understand the bitcoin blockchain. Through understanding the bitcoin blockchain, once you’ve understood what distributed means, the importance of consensus, the purpose of mining and the idea of the ledger being pretty much tamper-proof and automatically providing an audit trail, you are beginning to realise the big picture value.
Take it one step further and realise that since every node is a computer that’s processing, you can also add code for nodes in the network to execute – cue smart contracts. By creating and executing smart contracts on a blockchain, you enjoy all the benefits of the blockchain – the execution of smart contracts is recorded on the blockchain just like the transactions, you can create smart contracts to do things with assets on the blockchain, and you can also rest assured smart contracts will execute as written.
But searching for use-cases of what industry issues could be tackled requires thinking through what scenarios require multiple parties to transact commercially with each other, focusing on a common asset of value to them. The ability of a group of organisations to have a distributed ledger of the truth that nobody owns, yet everyone can see and not be able to tamper with the history of, without everyone else knowing, is … surprisingly powerful!
Then, once you get into the realm of, “so what is it good for?” you realise it could be used for so much more than payment settlement. For example, could you take this blockchain inspiration to the world of energy trading? You have multiple counterparties trading energy, fuels, commodities and options, both bilaterally and multilaterally. Could there be a world where the trades are executed, recorded and settled on a blockchain? In such a world, the effort that currently goes into reconciling positions, identifying mismatches and errors and reporting to regulators could be made vastly easier.
Equally, many people are asking about the world of music, licensing and digital rights. Spats over accurate and timely payment of royalties as well as disagreements between streaming titans like Spotify with labels and artists have marred the industry as of late. Could blockchain, with its “one single, un-tamperable and transparent version of the truth” quality help to bring the end consumers of music closer together with the music artists themselves? Could you envisage, somewhere down the line, a world where music artists and labels put whole albums onto a blockchain complete with all metadata on rights and ownership, from which all consumers then use?
Innovate Finance CEO Lawrence Wintermeyer steps down
Some other thoughts, on “open innovation”
Yes, we can envisage such worlds. But envisaging and making are different. This brings me onto one of the key things I’ve realised – a fundamental, I believe, when it comes to “open innovation”, especially the kind that is about exploring industry-changing emerging technologies. What I’ve realised is that, if you are an entrepreneur and you really want to make the future, bring the power of an emerging technology to bear and innovate an entire industry, there is such an intricate web of economic, political and structural reasons why the inefficiencies you see from the outside, exist.
There is such a complex web of archaic processes, legacy systems and misaligned incentives intra- and inter- company within the value chain of an industry, that if you stand any chance of innovating it, you really need the ability to orchestrate and move multiple stakeholders, in multiple organisations, at the same time, for the right reasons, in a non-threatening way. This isn’t easy. It requires a “critical friend”, like EY, and it requires a startup to find its ecosystem fit, which is about identifying their place and role in the ecosystem or value chain of an industry. Whether they plan to enter it or disrupt it, a consistent point of feedback I’ve received from the startups has been along the lines of, “I had a hunch that this is how it is, but I had no idea about the details and the real reason why so and so would feel this way.” It’s realisations like this, learning how things truly are within an industry, that are hugely important.
Personally, I’ve always looked at open innovation through the lens of the entrepreneur – the startup. They are the ones putting their own livelihoods on the line, taking the risk, to try and realise a vision. As such I’ve always believed it’s important to make decisions that help the little guy. How can I help these entrepreneurs achieve success? So far, I’ve found the best way is to help them help our clients.
This year’s programme concludes with a Showcase Day on the 19th October where all 6 of the startups will be presenting.