Published on CRN (https://www.crn.com)
Blockchain Bonanza: Solution Providers Say The Technology Behind Bitcoin Is 'The Real Deal'
by Dylan Martin [2] on June 11, 2018, 12:00 pm EDT
Dan DiSano felt like a rock star.
Standing in front of hundreds of people, the president and CEO of New York-based solution provider Axispoint was pitching a new blockchain development practice to potential investors at a South by Southwest event earlier this year in Austin, Texas.
The response that followed told DiSano he was on to something.
"It was literally like a Beatles concert. There was a stampede of people waiting in line to meet with us," said DiSano, noting that the company plans to raise a round of financing from investors later this year. "That made it real because there were real investors there who said, 'When you're ready, please send us all of your documentation.'"
Blockchain, frequently talked about in the same breath as Bitcoin, is the distributed ledger technology that powers cryptocurrencies. It quickly gained buzz over the past year as hundreds of cryptocurrencies went online and the value of one Bitcoin surpassed $20,000 last December (today it's closer to $7,400). But some enterprises have been plotting out blockchain's second life: as a transformational technology that could bring more trust and transparency to businesses.
Solution providers and other industry observers say the applicability of blockchain goes far and wide [3], with the potential to impact banking and financial markets, insurance, retail and consumer goods, health care, government and transportation, among other industries. A report by research firm Gartner last year estimated that blockchain's business value-add will grow to $176 billion by 2025.
Today, the technology is still nascent. A recent Gartner survey showed that only 1 percent of more than 3,000 CIOs already have blockchain deployments within their organizations while another 8 percent were in short-term planning or experimentation with blockchain. More telling were the 77 percent of CIOs who said they either have no plans or no interest in deploying the technology.
To the channel, that's just a sign that businesses are only starting to understand blockchain's potential impact, which is why solution providers are making early investments and launching new practices around the technology now. Global IT consulting firm Accenture started exploring blockchain a few years ago, and it now has multiple projects that have been publicly announced with the United Nations, Microsoft, the Canadian government and AB InBev, among other big layers. Joseph Francis, a principal director at Accenture, No. 2 on the 2018 CRN Solution Provider 500 [4], said he can't think of a time when dozens of clients haven't been asking about blockchain over the last year and a half. "I haven't had a single customer who hasn't had a conversation," he said.
For Axispoint, No. 296 on the 2018 CRN Solution Provider 500 [4], the benefits of launching a blockchain development practice a few months ago already are starting to show. The company is in various stages of discussions with 10 customers, according to DiSano. In one project, Axispoint is providing $30,000 of up-front consulting work to produce a report on the customer's strategic direction so that it can go out and raise funding. Axispoint also is working on a $400,000 contract for a larger $10 million project to build a platform for a financial services client. "You definitely do see the hype in the market, but blockchain technology is the real deal," DiSano said.
Life Beyond Bitcoin
Blockchain has been likened to the building blocks of the internet, similar to the TCP/IP and HTTP protocols that paved the way for the World Wide Web. "I think blockchain is going to become a really common tool in every IT stack, and I think to ignore it would be a big mistake. It would be like ignoring HTML," said Karen Kilroy, CEO and founder of Austin-based Kilroy Blockchain, which provides a blockchain platform-as-a-service for enterprises.
The technology was conceptualized in 2008 as the public transaction ledger for Bitcoin by Satoshi Nakomoto, the pseudonymous creator of the popular cryptocurrency whose true identify remains a mystery. Since then, the number of cryptocurrencies has ballooned to more than 1,000. It's called "blockchain" because of the way that transactions are stored in encrypted blocks, which are linked together in a chainlike manner, lending to blockchain's tamperproof qualities. These transactions are conducted on a distributed network, which can be public, like cryptocurrencies Bitcoin and Ethereum are. Or it can be private, which means that participants must be invited to join the blockchain. These networks are peer-to-peer, consisting of nodes that collectively maintain the ledger and its history of transactions. Now people have begun talking about the concept of "blockchain 2.0," which involves moving the technology beyond its use as a ledger for cryptocurrencies. It turns out that blockchain's major capabilities meant it would have applications for storing information and recording transactions among multiple parties that weren't strictly financial.
"One of the really nice things that blockchain does is [provide] a single source of truth among a large group of companies," said Accenture's Francis. One of blockchain's key features is immutability, meaning it is difficult to tamper with records. There's also the requirement of consensus -- gained through protocols, algorithms and mathematical proofs -- among a blockchain network's nodes to execute transactions. Then there's the use of so-called smart contracts, which allow for rules and conditions to be programmed into the network for different transactions.
"I think blockchain over time is going to show you a number of features, like speed, cost savings, creating trust, creating transparency," DiSano said. "It's very rare a technology can do all of those things at the same time, in addition to being incredibly secure." Another key takeaway for solution providers is that a blockchain is only useful if the customer is looking for a way to share information among multiple parties.
A Way To Differentiate
When Converge Technology Partners acquired Ottawa-based Becker-Carroll earlier this year, the Toronto-based solution provider saw it as a major opportunity to enter the blockchain space. A developer of digital services, Becker-Carroll already had multiple blockchain deployments with government entities focused on identity management.
"We just felt like that's an overarching asset that adds to the portfolio companies within Converge, so we felt like it was truly a differentiator," said John Flores, executive vice president of marketing and strategic alliances at Converge Technology Partners. For its public-sector clients, Converge Technology Partners is working on blockchain based identity management solutions that would allow government agencies to share records over a secure network.
"There are a lot of trends and external factors, like [the European Union's General Data Protection Regulation], that are driving this necessity for clients to look at this, and we're seeing a lot of demand in government entities and interest specifically in that vertical," Flores said.
Luis Morinigo, practice lead and business development director for the Internet of Things and advanced analytics group at New Signature, said his company started considering blockchain as New Signature evolved into "an applied innovation practice." As a Microsoft partner, the Washington, D.C.-based solution provider took notice of how the vendor was approaching the technology through its Coco Framework for blockchain.
"There are a lot of activities you can manage off the blockchain and use it for what it's meant to do: an immutable record-keeping system for all the actions that an organization takes," Morinigo said.
New Signature has been approaching blockchain with a platform mentality because it requires multiple stakeholders for any one deployment, according to Morinigo. He said there are opportunities for businesses to be either the "platform builders" or the "platform members," the latter of whom would join a blockchain network that is being hosted by the builder.
"If you're a leader in the space and want to be the platform builder, that gives you an advantage because you're opening up a marketplace for all of the entities that you interact with every day, and you can charge a fee for that," Morinigo said. "But if you're one of those entities that is a member of the consortium and you're using the blockchain that a platform builder has made available to you, you get advantages from that. You didn't have to invest in the process of building that platform."
Solution Providers Find Vertical Market Use Cases
Accenture's Francis said the firm sees supply chain as a major area that can be disrupted by blockchain. He recently published a report about how the technology could address the "hall of mirrors" problem in a supply chain, where multiple parties have copies of the same documents, making it difficult and time-consuming to reconcile information. "That's a fairly arduous process," Francis said, which is why he believes the solution lies in blockchain's ability to provide "data mutualization," where all of the documents held among multiple parties match each other and can be reconciled automatically.
"It enormously reduces the cost associated with managing the data itself," he said. 10th Magnitude, a Chicago-based solution provider and top Microsoft partner, is currently working on blockchain projects for two clients. The first client is a manufacturer of landscaping equipment that wants to find a way to deliver secure, trustworthy messages to customers of its connected products. The second client is exploring blockchain as a way to create a tamper-proof record of fire inspection reports.
"That's not something you want to have tampered with," said Mark Johnson, a solutions
architect at the firm. Kilroy Blockchain, whose IBM-based platform helps regulated companies connect their existing software to a blockchain, is currently working with a customer in the real state space that is using the technology to provide an immutable audit trail for transactions.
"Each participating party can have their own copy of the audit trail to keep everyone honest," Kilroy said.
Vendors Have Plans For The Channel
IBM became one of the early movers in the enterprise blockchain space when the Armonk, N.Y.-based company's research lab began looking into potential use cases, according to Janine Grasso, vice president of blockchain strategy and ecosystem at IBM. One of the results was a blockchain-based food safety system that can reduce the time to identify a contaminated food's source from weeks to seconds, meaning that stores would be able to limit the scope of product recalls. "If there was a contamination because they didn't know where it came from, they would
have to remove all of the product -- millions and millions [of dollars] of wasted food," Grasso said. With blockchain, she added, "that overall market will see benefits in the billions."
Now IBM offers a full blockchain development platform that aims to lower the barrier of entry for developers. Grasso said IBM has provided the tool for free to channel partners and that several joint initiatives are under way, though she declined to identify any of the partners.
"I've talked to dozens of partners, whether global systems integrators or value-added resellers or distributors," she said. "They're all trying to figure out where their place is in this ecosystem." Grasso said it's important that solution providers position themselves to their strengths. She said a lot of channel partners have already attended IBM's webinars and enablement sessions to figure out how to position themselves and their own offerings.
"If you're in manufacturing, you have suppliers and consumers that can use this technology," she offered as an example. IBM is among a handful of vendors that have begun offering blockchain software tools aimed at channel partners, a group that also includes Microsoft, Amazon Web Services, Hewlett-Packard Enterprise and Oracle, as well as startups like BigchainDB and Stratis.
Frank Xiong, group vice president of blockchain product development for Oracle, said the company has been working with channel partners who have been using a beta version of the Oracle Blockchain Cloud Service, which has an official release this summer. Early adopters include Accenture, AuraBlocks and IntellectEU.
"My view is that there will be a great opportunity, because we sense there is a lot of need for integration and customization and hooking up things together among different ERP applications and supply chain applications," he said.
Revenue Opportunities
For solution providers putting an early stake in the blockchain ground, the financial opportunities are both lucrative and varied. Johnson at 10th Magnitude said his firm started working on proof-of-concept projects in the past four to five months, and that they can range in cost from $15,000 to $30,000. The solution provider is taking a wait-and-see approach on how to price live production environments. "Right now, most production environments for blockchain won't have much usage right away," he said.
When it comes to the specific revenue streams for blockchain projects, it depends on the kind of solution provider and the nature of the project itself. Don Cuthbertson, CIO at Converge Technology Partners, said professional services and integration services present the largest revenue opportunities. He said there is also an opportunity to bring in managed services revenue for clients that can't manage their own networks.
Oracle's Xiong said for businesses operating their own network, they can decide whether to charge per member or per transaction. "Once they build an application on their blockchain platform, it's up to them to charge each member joining for a monthly fee or per transaction," he said. It's for that reason, IBM's Grasso said, that owning the blockchain network -- meaning that the business is responsible for the governance and manages ownership -- presents the largest revenue opportunity. "Owning the network would have more financial reward then just being an adviser," she said.
No Pain, No Gain
While blockchain offers some new revenue streams, Converge Technology Partners' Cuthbertson cautioned that some blockchain projects "may be a bit of a loss leader" at the consulting stage because the technology's steep learning curve can make it difficult to justify billing for all the hours spent discussing it. "From my point of view, there's definitely information that's not well understood about what blockchain is, what it can do, what it's for," he said.
Solution providers need to help clients see which types of problems can be solved by a blockchain-based network, said New Signature's Morinigo. "If you're building a blockchain platform for just your organization, there are very few use cases where that makes sense, and you're most likely overengineering a solution that could have easily been addressed by a bunch of SQL servers," Morinigo said. 10th Magnitude's Johnson said he's seen clients who don't yet understand blockchain's use cases or tradeoffs. For example, a couple of clients had told the firm that they believed blockchain was a great opportunity for their businesses, but 10th Magnitude
determined it likely wasn't the right fit.
"We asked, 'Why, and what's your use case?' and we find out it's something like a high performance rapid transactional database," Johnson said. "If you want that, go for a SQL Server." But for any obstacles that come with adopting new technologies like blockchain, Morinigo said it's worth it in the long run for solution providers.
"There will be some growing pains in the process of thinking about where one fits in the innovation space," he said. "But in my opinion, if you don't go through those growing pains, the pain further down the line, five years from now, will be greater." Axispoint's DiSano said he's been to multiple conferences where CEOs of major companies are saying boards across the country are going to have to consider blockchain in one capacity or another by the end of the year or else they might experience disruption. "Blockchain is not a fad. It's not the next shiny little object. It's a real technology," he said.
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Links
[1] https://www.crn.com/news/internet-of-things/300104871/blockchain-bonanza-solution-providers-say-thetechnology-
behind-bitcoin-is-the-real-deal.htm
[2] https://www.crn.com/author/dylan-martin
[3] https://www.crn.com/slide-shows/internet-of-things/300104876/8-hot-blockchain-vendors-solutionproviders-
should-check-out.htm
[4] https://www.crn.com/sp-500/2018/index.htm