Limited functionality available
CEOs and Boards are wise to consider the emergence of digital assets in today’s strategic decisions. Transitioning generations, disintermediation of value chains and invention of digital scarcity will unequivocally lead to new opportunity spaces, competitive dynamics and customer needs.
Early? Yes. Too early? Maybe… until suddenly, it’s not. The Digital Asset revolution has started, and unfortunately, in business it takes time to change direction. Why think about digital assets in the context of today’s decisions?
It is likely that customer bases will change, future consumers will engage differently, and new competitors will emerge in yet unimaginable areas.
Crypto, BTC, ETH, NFT, ICO… head spinning? Confusion and distraction are further amplified by polarising news articles and extreme market volatility in various digital tokens and currencies.
Nevertheless, Boards and CEOs have the obligation to their shareholders to stay focused on the big picture; learn and see the underlying trends that require a business response. Consequently, an open-minded approach is required - positive scepticism.
There are 3 underlying trends, which, when these come together, could dramatically impact the mid to long-term playing field for businesses:
1. The rise of Alpha – over the next ~10-15 years Gen Z/alphai (mostly born after 2000) will gradually ‘replace’ the Baby Boomers in the labour market. They are digital natives, ‘the swipe generation’. Expectations will fundamentally change – how they socially engage, consume, earn an income or create value. For them it is normal to browse YouTube (rather than Google), meet their friends in online games with VR headsets rather than outdoors and instantly interact on a plethora of social platforms.
2. Disintermediation of value chains – blockchains have given us the ability to have decentralised, trustless and self-sovereign networks that are safe, transparent and instant. Outside of the obvious financial services industry, many businesses are already experimenting across a variety of use cases – e.g. proving authenticity and/or provenance of product in agriculture and jewellery mining, tracking of containers in shipping, or enabling peer-to-peer trading of surplus solar energyii.
3. Invention of digital scarcity – non-fungible tokens (NFTs)iii have allowed us to replicate the concept of physical scarcity in the digital world. It is now possible to have unique, verifiable, non-duplicable assets in digital form. The best example of this is the recent Beeple artworkiv – though let’s not begin a debate on the subjective value of art.
The opportunity – new business models and growth
There is a clear and well-discussed opportunity to use decentralised technologies for business optimisation such as greater transparency, improved efficiency, and reduced risk. Yet, the less understood opportunity is how the combination of these trends might revolutionise business models and open completely new growth areas.
First, there will be new opportunities to offer consumers digitised products and services, as marginal cost of production for digital products is close to zero, digital uniqueness and ownership can be guaranteed, and virtual audiences can scale infinitely. Regarding products, consumer brands could extend and monetise their range digitally. If today’s consumers care about physical appearance, next generations will likely care about digital appearancev. Gaming ‘skins’, i.e. virtual appearances and in-game cosmetics, are already estimated to be a ~US$40b/annum marketvi vii. Regarding services, companies could bring physical services into the virtual realm and leverage the opportunity of a limitless customer base. One such example is Wave, a service that is facilitating live-streamed entertainment in virtual venues and as such creates a new source of income for musicians and their labelsviii.
Second, digital assets will inspire new models of engagement. We know that access to and information about the end consumer is critical, but not always possible due to intermediaries or emerging data protection and privacy laws. What if there are different ways to engage consumers directly or create new experiences for them?
Imagine if businesses could allow their most loyal users, consumers or fans to influence the products or direction of the company, have different rights based on their usage, or participate in profit growth (without equity shares). For example, Socios.comix has introduced fan tokens and is completely reimagining current loyalty schemes. Companies will also be able to rethink experiences – rather than having physical or online storefronts (i.e. websites) companies could provide direct coordinates to an experience in a virtual world (called a metaversex), see reference to Beeple’s B.20 art galleryxi.
Last, there is an opportunity to enhance traditional revenue generation models and unlock new sources of value. Opportunities to monetise digitally unique products and services are endless and previously impractical models could become attractive, like automatic, indefinite royalties on any creation (e.g. news article, blog, photo or any product). Alternatively, value accrual could occur through owning (parts of) scarce (digital) assets like art or real estate. Republic Realm is playing this trend with their professionally managed real estate investment vehicle to buy and develop land in digital universesxii. Finally, companies will find ways to better monetise their communities as they become more accessible and valuable.
CEO/Board takeaways – what does it mean and why think about it now?
There are inherent uncertainties about the ‘if, when and how’ of Digital Assets. Yet, it is not about predicting the future but preparing for it.
Robust strategies have reinforcing Where-to-Play/How-to-Win strategic choices that deliver on a Winning Aspiration. In addition, at the corporate level the aim should be to create a business portfolio that is strategically sound, generates appropriate value and is resilient, i.e. survives potentially different futures and builds strategic optionality.
To make these choices today however requires four elements:
1. Understanding of what the future can potentially bring – i.e. a diverse set of scenarios – to distinguish between current no regret moves and more contingent moves that are to be decided on later.
2. An aspiration that wins with your future customers against your future competitors.
3. An open-minded and unconstrained perspective on potentially attractive strategic choices that include a new digital reality. Imagination will be key here, as well as risk appetite and time horizon.
4. Clarity on your unique competitive advantage – what is it that sets you apart from the rest that allows you to either differentiate and/or compete on cost
It might not be the right time to fully embrace digital assets yet. However, today’s strategic decisions should be influenced by the opportunities, and risks of tomorrow.
Zoom out. Zoom in. Play to Win.
ii) Many examples can be found - https://www.alltech.com/blog/what-are-implications-blockchain-technology-food-and-agricultureinclude
Bram is a Partner at Monitor Deloitte Australia, located in Sydney. He is an internationally experienced Strategy Consultant specialising in Growth, Transformation and profit improvement in Consumer Goods, Life Sciences and Manufacturing. He combines analytical strength, creative intuition and interpersonal engagement on C-suite and Board level to deliver transformational outcomes with lasting bottom-line impact. He is a recognised leader for talent development and has led numerous engagements in complex, multi-disciplinary, multi-cultural environments across Asia-Pacific, Europe and Africa.