bobsguide caught up with Jason Kelley, Head of IBM’s Global Blockchain Services, at London Blockchain Week in January 2018. Jason shares his thoughts on ICO hype, what enterprises can reasonably expect from the ‘network of networks’, and how blockchain will be introduced to the enterprise market.
IBM is well known as an established player so we are a little surprised to find you here at London Blockchain Week, which feels more like an event for start-ups.
Sure, way back when we were the big IBM. Fast forward to what is now a cloud-based platform company almost drawing on half our revenue, according to our recent earnings for Q4 2017, we’ve gone through a full transformation with a profitable quarter. We're driving a lot of our business around these faster moving capabilities, things that run on the platform. This is a justification, this isn’t just “watch me doing the dance” - we’re a different IBM just because we’re moving in a different way.
I wouldn't be here if we weren't. This is where everything is moving quickly, this is where we get ideas, make relationships and build out the ecosystem moving forward. That’s the ecosystem we’re trying to build, the infrastructure that the little guys here can build upon. For that to work, we need a reliable, scalable platform.
So when they say "I'm ready to do blockchain for enterprise" then that's where the ecosystem partners with us to deliver not just the large end-to-end applications, but also those microprocesses; behind each supply chain are smaller processes that need integrating and executing. This is the enablement of an ecosystem, a network of networks.
That network of networks requires a lot of work to stitch those pieces together. The ecosystem play is huge. There’s this tree effect where the whole ecosystem of peripherals and everything else now spawns into new business models. You set the stage and then it will have to build out with that ecosystem.
Would you say you’ve changed your approach to reflect changing times?
We’re trying to identify the trailblazers and I'm trying to make sure that we continue to be a convener of opportunity. I’m a custodian of capability, I'm a custodian of end-to-end services. When people ask me who our competitors are I explain that we don't have one. We are currently in a unique position where we have a platform cloud-based company. That consists of the infrastructure that provides the blockchain capability, IoT, advanced analytics, the cognitive Watson capability; we have global end-to-end services as well as shared services.
You think of old-school shared services, that's the backend; who's going to run that when you get to the run stage, who's going to go ahead and run those different networks? Who’s going to manage that? Well, we do that already. Does that mean that we want to be everything to everybody? No, but I think you have to have that end-to-end capability to get many of the large players started and to create the platform to facilitate start-ups.
Often, companies will come to us and say: "I see this great opportunity for a consortium but I can't get all ten of the players to play together". That’s what IBM does and why I'm spending the next 48 hours meeting with clients in a consortium because we're experienced at herding players. When we facilitate new consortia, we sit the players down and they look at us with wide eyes as I tell them the first five things that are going to stop.
We’re the convener of opportunity. I'm not going to say that's always going to be our position but right now that's our position. The quicker, better and faster that we do this, in what is inherently a team sports industry, is going to massively help us and others.
The fact that we’re running in an ecosystem and playing with ex-competitors, such as is the case with DTCC, where we are working with Axoni and R3, and that we’ve just struck a JV deal with Maersk (not yet regulatory approved) in a super-fast time of eight months, that shows we’re a different IBM. We’re running the way the market and our clients are asking us to run. And right now it's really working well, but we need to move faster in the market, to stand us up in order to get past the hype.
I think there’ll be an opportunity for many companies to convene those ecosystem players; the network of networks requires that level of cooperation. Cooperation will be a challenge, but ultimately any successful partnership will deliver value. If you can take complimentary services, chain them together and take it to a client, of course it makes sense.
I'd like to see someone whip those in line because there are always opinions and differing motives. Even in consortia, questions inevitably become about who's going to own the IP; what's the limit of our market; what if I decide I want to replicate this myself over in this region; what if I want to go and sell that; who owns the data; how much of the data; who shares what data? I could go on and on, but to be a convener you have to have that business experience to know what works and doesn’t.
I caught up with Richard Stockley, who leads UK and Ireland blockchain for IBM, who has a business development team that goes out to VCs and start-ups to get a sense of where the IBM cloud and blockchain platform can help them get over that initial infrastructure hurdle. With that network of start-ups, we can begin to share their different services throughout the IBM blockchain startup community.
How do you categorise your blockchain?
Our solution is a blockchain platform ready for business which means it's scalable, permissioned, and has all the necessities to execute smart contracts, business provenance and data visibility. So it’s a distributed database - that's really all it is - but it's also permissioned and immutable.
Some of the conversations we have with people who think they understand what we mean when we say blockchain for business and permissioned capability still jump to asking who is mining as if it’s public... no. We're talking about a permissioned network and there is no mining. We help the players within a given business network understand what we mean by permissioned - then they realise they can see this part of the database that others can't, or vice versa, or that control lies with the network owner. There’s a central management capability by which the founding members, for instance, manage the governance and the permissions within that network.
What sort of business intelligence can a Tier One bank really expect from blockchain in the future?
First, I like how you’re asking about enterprise blockchain and not about ICOs like we saw this morning (in the conference). Your question is more in line with where people should be thinking in terms of blockchain.
Overall, banks and fintechs will look dramatically different in the way they run and operate. If you can shore up the time-consuming processes for, say, mortgages, how much more time can a bank dedicate to finding value in their true service of exchange of value? If they take trade finance onto the blockchain, pretty quickly, insurance will also join and then you have a tree of subsidiary services around those two. From there, new previously unimagined products can be built upon newly collected and richer data. What do all those things mean? It means dramatic shifts in business models.
Certainly, addressing the ICO hype has been a big theme of this event. How are you looking for actual blockchain use cases?
The Deloitte study in collaboration with Github found that, of some 86,000 projects that were started, only 8% were still active. 92% of those projects were just an experiment, a PoC. That's where you use the phrase blockchain tourism.
Our active networks are real enterprise business networks. We stopped making partnership announcements that add to hype because it’s not constructive. For instance, we didn’t announce our JV with Maersk until it was real enough. There was the same thing with Walmart and food safety; we did not announce until there was actually real data running into a network, tracing a real product in this case, mangoes.
ICOs seem to be all the rage at the moment, but it was interesting when an investment banker asked the panel how they could justify raising capital through ICOs.
For sure, and I would agree with that investment banker. There are 1400 cryptocurrencies out there and that’s a lot of noise. We get asked all the time about what we think of ICOs, but we’re blockchain for enterprise.
The market will let ICOs play out, but regardless, enterprise blockchain will be there developing people, processes and papers; cut out those handshakes and enrich your data and you give more value to the end-user and greater brand reputation and credibility to the enterprise. If that process increases costs, you can charge more because the end-user is getting a truly organic product; conversely, if cutting down the process results in lower costs you have real value in the market. That's all the value that's trapped in this value chain right now.
This dramatic business model shift sounds quite Utopian but I really think this is the reality we’re looking at for the future. Look at ride share - we were all warned about ‘stranger danger’; Uber added visibility and culpability, enabled by technology and they’ve blown up in a big way.
How would the future ‘network of networks’ look?
We recently announced a partnership with Maersk which is a good way of describing a network of networks. The Maersk ecosystem of shipping can be tied into the food production ecosystem of Walmart and that could tie into the food safety ecosystem. So eventually you build ecosystems within ecosystems that sit very closely together, sooner or later they’ll converge. Where they meet, whole new ecosystems and networks will crop up.
The future big picture is not blockchain but this concept of the network of networks. Blockchain is answering the question, how do we provide that seamless integration and connectivity among networks? On top of that function you’ll also need end-to-end security and computing power - who’s going to provide that and manage it? You’ll need a pretty robust business design and that’s where IBM can take advantage of its established organisational structure as well as its full stack technology platform (that’s before we mention our quantum computer).