DLT: A technology that gives consumers the power to vote with their feet

 

 

 

 

Louis de Bruin

The term Distributed Ledger Technology or DLT, is often used instead of Blockchain. Ten years ago, Blockchain came to the forefront as the underlying technology powering Bitcoin, and as a phrase it is catchier, and therefore often used interchangeably with DLT. But it is more accurate to see DLT as an overarching range of technologies, of which Blockchain is a special case. Most significantly, DLT also predates Blockchain and Bitcoin as a disrupting development.

At the beginning of this century, filesharing services such as Napster, Kazaa, and Limewire enjoyed widespread use among consumers of music and film. These services were powered by DLT and these applications made it possible for internet users all over the world to share files containing music or movie media anonymously, rather like an internet version of the public library practice of “borrow a book, lend a book.” The reason for using these file sharing applications was that consumers were unhappy with the power of media companies that required you to buy a multi-selection CD when it was just one specific song on a disc you wanted to listen to, often for a one-off occasion, or when a movie was not available in the region where you lived because of the distribution policy of film companies.

The motivation of filesharing application users was not to so much to defraud the producers of music and films of their rightful income, but more for these dissatisfied customers to bypass the services of these companies that consumers considered to have the wrong price-to-performance ratio. Filesharing applications enabled them to organize themselves through a distributed technology, without a central party. In this way, filesharing services served no different purpose than Bitcoin, which was itself a way for consumers to avoid the banks’ lengthy and costly processing of international money transfers for this service. Bitcoin made it possible to do it in near-real time for extremely low fees.

Again, it was a DLT, in this case Blockchain, that enabled consumers to organize themselves without depending on a central party. Hence, DLT is a way for the masses to make their voice heard and to protest services they consider to be poor and expensive. Not that filesharing and Bitcoin were perfect alternatives for consumers to bypass respectively the media distributers and banks. Both filesharing services and Bitcoin suffer from considerable flaws. But it was a wake-up call for the incumbent parties in the media and financial service industries to realize that they can no longer ignore their consumers, as they can resort to alternative means.

Media companies went through a major crisis because of the practice of filesharing and it was not until 2015 that a new business model would win back mass audiences. Their initial response was taking defensive actions by suing individuals who facilitate filesharing or who download media files. But this had very little effect, partly because people started to use VPN services to disguise their location, but mostly because it did not solve the real problem: people felt they were given a bad deal by the media companies. In the end these companies were saved, not by taking negative actions but by new entities that emerged with an ethic of “consume as much as you can.” These were services such as Spotify, iTunes, Netflix, and Amazon, who would provide quality service with a monthly fee, thus meeting the demands of consumers who previously resorted to the use of file sharing applications.

The result? Consumers now felt vindicated, media companies’ roles were diminished but ultimately saved thanks to the new operating model that the successful startups had created.

The threat that banks face from cryptocurrencies like Bitcoin is dealt with in a similar manner. Fintech firms sprout up and work with banks as competitors to create new services that are geared to the demands of computer-savvy clients, such as easy-to-use apps, lower rates for money transfers, and flash payments that allow cross-border settlement in seconds for a low fee.

Neither the media industry’s response to file sharing, nor the banks’ response to Bitcoin was fighting back with Blockchain. The answer was instead found by new entrants and by providing consumers with a service that was perceived to be a proverbial “good deal” – a good product at a reasonable price. The technology they use is a mix of traditional and newer tech, including DLT.

There are multiple lessons to be learned from these experiences.

First, DLT gives the masses a way to vote with their feet. If organizations become complacent and think that, because of their dominant market position, they can get away with charging consumers for a poor service, DLT may offer consumers a way to organize themselves and offer a method to obtain the services they want, while bypassing the traditional market players.

Secondly, the role of DLT can be to shake up markets that don’t function properly. DLT services don’t have to be new market parties with a need to survive. They can serve to inspire new companies to create new business models that can restore the balance in the market. After that, DLT services may serve a niche market or go into hibernation mode.

In the meantime, the original market incumbents will have to find new, less dominant roles. In the process they may even disappear altogether.

Finally, DLT should serve as a disciplining force to incumbents in any market: Don’t take your position for granted and don’t become complacent! If your service is not up to scratch, your customers may organize themselves through DLT and become your fiercest competitor.

 

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