Business Models with Blockchain: Exploring the Business

Universiteit Leiden
MSc. ICT in Business
Business Models with Blockchain: ‘Exploring the Business Models of the Applications of Blockchain Technology in Start-up Enterprises’

Name:

Suraj Bhattarai

Student-no: S1721089

Date: 30/08/2017

1st supervisor: Dr. Hans Le. Fever 2nd supervisor: Tino de Rijk

MASTER'S THESIS
Leiden Institute of Advanced Computer Science (LIACS) Leiden University Niels Bohrweg 1 2333 CA Leiden The Netherlands

1
Contents
Acknowledgment .......................................................................................................................3
Abstract ...................................................................................................................................... 4
List of Figures .............................................................................................................................5
List of Tables ..............................................................................................................................5
1.0 Introduction .........................................................................................................................6
1.1 Thesis Summary ............................................................................................................... 6 1.2 Thesis Motive ................................................................................................................... 7 2.0 Background Literature .........................................................................................................9
2.1 Business Model ................................................................................................................ 9 2.1.1 Business Model Design ............................................................................................. 9 2.1.2 Business Model Generation .................................................................................... 10
2.2 BM with Digital Technology (DT) ................................................................................... 12 2.2.1 BM with Big Data .................................................................................................... 12 2.2.2 BM with Social Media ............................................................................................. 13 2.2.3 BM with Cloud Computing...................................................................................... 14 2.2.4 BM with DT: Summary of Findings and Limitations................................................ 14
2.3 Blockchain Technology................................................................................................... 16 2.3.1 Bitcoin ..................................................................................................................... 17 2.3.2 Application of Blockchain: Beyond Bitcoin ............................................................. 18 2.3.3 Limitation and Risk of Adoption ............................................................................. 20
2.4 BM with Blockchain Technology: Research Gap............................................................ 21 3.0 Methodology......................................................................................................................23
3.1 Research Question ......................................................................................................... 23 3.2 Research Design ............................................................................................................. 23
3.2.1 Step 1: Data Preparation......................................................................................... 23 3.2.2 Step 2: Conceptualization ....................................................................................... 23 3.2.3 Step 3: Validation .................................................................................................... 24 3.2.4 Step 4: Finalization.................................................................................................. 24 3.3 Systematic literature Review (SLR) ................................................................................ 25 3.3.1 Overview & Objective ............................................................................................. 25

2
3.3.2 Approach................................................................................................................. 26 3.3.3 SLR 01: Identifying Relevant Literature (Search Strategy)...................................... 27 3.3.4 SLR 01: Selecting Primary Studies ........................................................................... 29 3.3.5 SLR 01: Data Synthesis ............................................................................................ 30 3.3.6 SLR 01: Conclusion .................................................................................................. 35 3.3.7 SLR 02: Identifying Relevant Research (Search Strategy) ....................................... 36 3.3.8 SLR 02: Selecting Primary Studies ........................................................................... 37 3.3.9 SLR 02: Data Synthesis ............................................................................................ 38 3.3.10 SLR 02: Conclusion ................................................................................................ 41 3.4 Use Case Analysis: Factiva ............................................................................................. 42 3.4.1 Overview & Objective ............................................................................................. 42 3.4.2 Primary Articles....................................................................................................... 42 3.4.3 Data Synthesis......................................................................................................... 44 3.4.4 Conclusion............................................................................................................... 49 4.0 Results & Findings ..............................................................................................................50
4.1 Expert Interview............................................................................................................. 50 4.2 Blockchain Application Business Models ....................................................................... 51 4.3 Blockchain Application Eco-System Model (Envisioned State) ..................................... 55 5.0 Discussion...........................................................................................................................59
5.1 Initial Insights ................................................................................................................. 59 5.2 Methodologies ............................................................................................................... 60 5.3 The Artefacts: Blockchain BM and Eco-System ............................................................. 60 5.4 Significance .................................................................................................................... 61 5.5 Limitations...................................................................................................................... 62 5.6 Future Research ............................................................................................................. 62 6.0 Conclusion..........................................................................................................................64
7.0 References .........................................................................................................................66

3
Acknowledgment
Firstly I would like to thank my supervisor Dr. Hans Le. Fever. I would also like to thank Mr. Harry Fulgencio for guiding me throughout the research process. I want to thank the experts who offered to validate my research work and therefore giving it more credibility. Finally I would like to thank my family and friends who have always been very encouraging and have motivated me throughout this work. You all know who you are and your contributions have been invaluable.
Thank you all.
Author Suraj Bhattarai

4
Abstract
Blockchain technology initially came about with the digital currency Bitcoin as the underlying technology supporting the transaction of the Bitcoins. Blockchain Technology is a digital ledger where transactions of digital assets such as crypto-currency are recorded in a chronological order and distributed across a network. This makes the recording transparent, traceable, immutable and autonomous. These characteristics of the blockchain created possibilities for new (disrupting) applications in various industries and therefore has given rise to a huge hype. Major financial institutes, technology firms and other non-financial companies have dived into the research and development of blockchain applications for adopting it in their business and are making a significant amount of investments. Similarly a lot of start-ups have emerged in the past 4-5 years who have their business model around the blockchain technology and are focused on providing blockchain based services.
This research focuses on the business models of start-ups using the blockchain technology in order to understand the potential of this new technology by investigating what new service offerings they bring about with the help of the technology and what business aspects they need to consider to make their business function. The research ultimately identifies and explores only the prominent financial applications of the blockchain for their business model owing to the lack of well-defined business models of the other under-developed blockchain applications.
The research tries to explore the business of the blockchain start-ups from a holistic perspective by using Osterwalder and Pigneur’s business model concept. In order to do this the research carries out two systematic literature reviews and an analysis of news publications from the research tool Factiva. From this, two artefacts were designed. First a set of business models of prominent applications of blockchain technology and secondly, an eco-system model of blockchain services. These two models were validated by two experts working in the field of blockchain technology. The research also highlights some limitations and scope for future research.

5
List of Figures
Figure 1.0: The Business Model Canvas--------------------------------------------------------------------09 Figure 2.0: How Blockchain Works--------------------------------------------------------------------------16 Figure 3.0: Research Design-----------------------------------------------------------------------------------23 Figure 4.0: SLR Process-----------------------------------------------------------------------------------------24 Figure 5.0: Eco-System (envisioned) of the Blockchain Applications--------------------------------55
List of Tables
Table 1.0: SLR 01-Relevant Data Collection---------------------------------------------------------------26 Table 2.0: SLR 01-Primary Studies---------------------------------------------------------------------------28 Table 3.0: SLR 01-Results--------------------------------------------------------------------------------------33 Table 4.0: SLR 02-Relevant Data Collection---------------------------------------------------------------35 Table 5.0: SLR 02-Primary Studies---------------------------------------------------------------------------36 Table 6.0: Factiva-Primary Articles--------------------------------------------------------------------------41 Table 7.0: Interview Participants----------------------------------------------------------------------------48 Table 8.0: The Business Models of Blockchain Technology-------------------------------------------51

6
1.0 Introduction
1.1 Thesis Summary
This research is an exploratory research on the impact that a digital technology namely blockchain technology can have on the development of new business models. The research focuses on start-up companies that have ventured into applications empowered by the blockchain technology. The research refers to the business model and its nine components as defined by Osterwalder and Pigneur, and investigates the impact of the technology with respect to these components (Osterwalder & Pigneur, 2010).
First the study carried out two systematic literature reviews referred to as SLR 01 and SLR 02 in this paper. SLR 01 reviewed the literature on blockchain technology that discusses different applications and business models of blockchain technology. The result of this SLR was used to come up with a categorisation of the various prominent blockchain applications and the startup companies exploiting the technology. SLR 02 reviewed the literature that discusses the impact of another digital technology namely cloud computing with respect to the nine components of the business model. The results from SLR 02 were used as a conceptual background to base the investigation of the business models of the various blockchain applications found in SLR 01. Finally, the business models for each of these applications were annotated with data from news publications on start-ups and their corresponding blockchain applications published in the research tool, Factiva.
The results led to a set of holistic, nine component business model or service archetypes derived from prominent blockchain start-ups. Additionally, an envisioned eco-system model of blockchain applications is proposed. The business models allow start-up companies to understand business models and their characteristics that are in existence and to position themselves appropriately. SLR02 led to the eco-system model for blockchain start-ups, which enables them to understand the role each application plays so they can align themselves according to the application they serve. The final results (the BM service archetypes and the ecosystem model) were validated with the help of interviews of two select professionals working in the scope of the research topic. The results were revised and finalized accordingly.

7
1.2 Thesis Motive
The advent of current digital technology means that business enterprises have new opportunities at the same time as new challenges forcing them to be able to adapt to the changes brought about. In recent years, firms have taken up initiatives to identify latest digital trends and have started to investigate opportunities for making use of these trends in order to improve and gain business advantage (Matt, Hess, & Benlian, 2015). While companies may have extensive investments and processes for exploring new ideas and technologies, they often have little if any ability to innovate the business models through which these inputs will pass (Chesbrough, 2010).
The adoption of new technology involves the transformation of key business operations which often leads to changes in the products, services as well as the entire business model of the company (Matt et al., 2015). However the same idea or technology taken to market through two different business models will yield two different economic outcomes therefore, it makes good business sense for companies to understand the possibilities offered by the technology and therefore re-structure and innovate their business models accordingly (Chesbrough, 2010).
Changes in the business model leads to new business offerings therefore it’s important to understand the impact of digital technology on business models (Amit & Zott, 2009). However new technology brings about uncertainties in this regard as often the possibilities of new technology are identified gradually as it gets adapted and reaches a certain maturity level (Teece, 2010). This understanding becomes even more crucial for start-up companies who lack a proper guideline for them to follow in their venture into block-chain technology.
Blockchain technology, being a new digital technology that promises to be extensively used in future business operations and processes, it’s very important to understand the new business models it has generated and the characteristics of these models. The success of a technology is often determined by the value it brings to an enterprise and profit-oriented enterprises are particularly keen about creating value for their customers. An enterprise would be wary of trying a new technology with business models that have not been experimented with before and therefore prove to be too risky. Therefore it’s important for enterprises to know what kind of opportunities the blockchain technology presents and what are the different business

8
aspects that need to be considered while adopting it in order to leverage from the possibilities offered by the technology. This can be done by looking into the business model empowered by blockchain technology from a holistic perspective as that would explain and give an understanding of the impact of adopting the technology on the various elements of a business such as the value offering, revenue streams, customer segments and partners among others that are detrimental for any successful business model.
Therefore, this research explores the various business models of start-up companies and their characteristics from a holistic perspective by investigating them with respect to the nine components of their business model. This research will help in understanding the impact of the blockchain technology in generating new business models and their characteristics. The findings from the research can help future-start-ups venturing into blockchain applications to refer and understand the different business aspects to consider in order to develop their business. It will also provide a reference point for future research on the topic of generation of business models exploiting blockchain technology.

9
2.0 Background Literature
2.1 Business Model
The concept of Business Model has gained considerable interest in the past decade as new business models help enterprises gain competitive advantage and build stronger customer relationships (Lindgardt, Reeves, Stalk, & Deimler, 2009). The definition of business model varies in different academic literature and according to Schallmo and Brecht they have found 52 definitions of it with several focuses (Schallmo & Brecht, 2010). Based on these definitions they define business model as a description of how an organization combines a set of elements to create value to customers and partners while the value maintains relationships to customers, supports differentiation from competitors and is created with products and services (Schallmo & Brecht, 2010).
2.1.1 Business Model Design
In literature the various elements of a business model have been discussed and defined. Two of the most prominent and widely adapted ones have been from the research work of Zott and Amit, and Osterwalder and Pigneur. Zott and Amit define three elements of a business model namely, content, structure and governance. The content element relates to the selection of the actual business activities to be carried out by the firm while the structure defines how these activities are linked to each other and their importance to the firm, and finally the governance relates to who performs these activities (Amit & Zott, 2009).
As mentioned in the thesis motive, the research considers the impact on the business model from a holistic perspective. Osterwalder and Pigneur’s business model design offers a wellstructured as well as a comprehensive design by dividing the business model into nine key components. This model has been used extensively in research as well as by business firms to develop their own business models. Therefore this research will refer to the business model design of Osterwalder and Pigneur in order to form a systematic and well-defined base for investigation (Osterwalder & Pigneur, 2010).
Osterwalder and Pigneur define nine elements of the business model namely, customer segments, value propositions, channels, customer relationships, revenue streams, key resources, key activities, key partnerships and cost structure (Osterwalder & Pigneur, 2010)