Will algorithm patents replace economies of scale as the most critical barrier to entry?

Manufacturing scale matters less as we pivot to a knowledge economy

Economies of scale as a barrier to entry have been a fundamental precept taught for years in economics classes worldwide. Capital had to be invested ahead of being able to create value, and then people could be hired to staff the capital equipment to produce goods. Having both capital assets and existing volume gave companies a distinct competitive advantage. It drove both vertically integrated companies as well as horizontal holding company models, with the latter made famous by Jack Welch’s oversight of U.S. blue chip company General Electric.

Technology today has greatly reduced scale as a competitive advantage. Virtualization and abstraction have led to business theorists talking increasingly about asset-lite business models and asymmetric competition. Clouding this pivot is the emerging discussion around consumer scale. This is a competitive edge gained not necessarily from capital scale, but by capturing consumer brand loyalty that generates the scale. This concept is often discussed as the “force multiplier” or the network effect of the ecosystem. It is giving rise to additional new terminology, such as multi-enterprise business networks, in which partnering and the joining of complementary assets enable all participants to benefit from the aggregation of intellectual property, which is fed to the entire ecosystem of loyal customers.

Humans have the big ideas; curating those ideas into scalable advantage requires technical skills, automation and patent protection

When consumer loyalty generates cash, that cash can be deployed to fund projects, such as small-scale, smaller-dollar-volume projects akin to becoming an internal venture capital (VC) arm for any future product and service innovations. This concept manifests itself in the notion of fast failure and rapid iterations that are anathema to scaled manufacturing best practices. Being successful requires having people who are insightful about what businesses or consumers want and how to turn those wants into an automated piece of software — in short, algorithms.

As virtualization and software abstraction move the economy ever closer to utility computing, first discussed in the late 1980s by technology futurists, and as quantum nears economic advantage, the mission-critical business competency will be writing algorithms to apply against the ubiquitous data traffic being generated and stored throughout the computing utility network. Faster compute leads to faster exploration and discovery. Faster discovery leads to shorter product and service cycles and therefore shorter competitive advantage windows.

As such, algorithms that generate these new insights will increasingly become the way enterprises generate wealth, as well-skilled individuals push the limits of conventional wisdom and then deliver these new insights. Preserving that ever-shortening advantage will come from increased vigilance in protecting intellectual property. Thinking and creativity provide the advantage. We hear time and again at analyst conferences about how skills are in short supply and how people are a firm’s greatest asset. TBR expects to hear more frequently about the patent protections around these automated ideas.

Clean blockchain data fed to quantum will accelerate the value of algorithm patents

Accurate data will be available in real time for these algorithms to run against to generate real-time decision-making guidance. As automation removes more and more human toil from the economy, only individuals at the point of creation or the point of consumption will be critical to the business, with the algorithms mining the consumer demand to test against the next big idea to come from well-skilled humans and converted into competitive advantage through an automated algorithm run against real-time, accurate data.

As explored further in TBR’s Quantum Computing Market Landscape, in the quantum computing realm, where insights and actions can be obtained exponentially faster, the IP advantage is also exponentially greater. Think of the traveling salesman example that comes up regularly in quantum conversations: If a delivery company can patent an algorithm that speeds up delivery rounds and makes deliveries more efficient overall, that could swiftly create extinction events in the delivery market. If we extrapolate this, emerging technology has the potential to fundamentally alter competitive landscapes by generating faster and more accurate insights.

TBR analysts will be attending the Quantum.Tech conference Sept. 10-11 in Boston. Please contact your account executive to coordinate a conversation with TBR analysts at the event.

In its third annual blockchain summit, EY calls this ‘Year 0’ for blockchain

EY lays out its digital blueprint as ‘now, next and beyond’ with blockchain use cases easily fitting into the construct

This fundamental playbook repeated in many of the use cases discussed in breakout sessions at EY Global Blockchain Summit:

  • Early efforts focus on cross-collaborative business entities establishing business rules.
  • The rules become the digital contracts.
  • The first use case is either low-dollar-value or intracompany; the sponsoring enterprise working with EY becomes “customer zero.”
  • Once fully operationalized, EY and the client partner look for ways to enroll additional participants to:
    • Broaden the use case into an industry utility
    • Extend the underpinning business logic into adjacent industries for the repeatable capability to build out industry utilities

Gaming: The editors for the EY-Microsoft playbook

Much of the content shared at the 2018 event revolved around EY’s ongoing collaboration with Microsoft to deliver a blockchain royalty payment system to track developer community activities in the gaming space. This year, EY and Microsoft touted the collaboration on many different levels that easily fit into the “now, next and beyond” construct.

EY Tesseract: A clear view not to be confused with a short distance

The Tesseract-like aspirational objective is autonomous vehicles; period. To achieve the objective requires prototyping the IoT sensoring and business rules ahead of when specific technologies and revised public policy regulations have been hardened. Interim steps revolve around building out the ecosystem participants required to allow autonomous vehicles to be serviced absent human accompaniment as the vehicles course through the physical world based on their digital instructions.

The third annual EY Global Blockchain Summit gave an indication of the rapid acceleration in adoption that had EY describing this as “Year 0.” With hockey stick charts for the number of proof of concepts (POCs) and live applications, blockchain appears poised to deliver on its anticipated promises to transform business interactions and greatly reduce operating expenses while creating new business services networks. The event was held at 32 Old Slip in the heart of New York’s financial district with several hundred attendees and 28 breakout sessions organized in four tracks consisting of blockchain business applications (where TBR spent most of its time); blockchain assurance, tax & compliance implications; financial services and the token economy (where TBR attended a session on decentralized finance); and blockchain technology.

Thoughts from the blockchain intellectual junk drawer

“We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next 10. Don’t let yourself be lulled into inaction.” Bill Gates

I think about this statement from one of our industry titans often in the course of my work, and I am starting to think it might need updating. This struck me hard listening to EY blockchain lead Paul Brody give a quick flyover of EY’s blockchain activities during the EY Global Analyst Summit held in Boston April 10-11. The event was very much a teaser for the upcoming EY Global Blockchain Summit.

General ledger history and blockchain as record keeping 2.0

Blockchain is a distributed ledger. It is a multienterprise business ledger and an evolution of the general ledger that has underpinned independent business record keeping for centuries. I consider the rate and pace of change and Gates’ quote above in that context when comparing general ledger adoption to blockchain adoption. Here are my log length — or rough cut — guidelines for calibrating the time it took for ubiquitous adoption of general ledger accounting, all sourced one evening for my idle curiosity on Wikipedia and Investopedia.

Luca Pacioli gets credit for creating the concept of double-entry bookkeeping in 1494 in Italy. As one would expect on Wikipedia, there’s debate about the timing, with some saying it was earlier. Log length the date to 1500.

The bigger challenge for me was searching for when general ledger accounting saw ubiquitous, global adoption. There is much written about public policy activities in the early 1900s in Brazil, which was not an economic powerhouse at that time, so one I would consider to be a laggard. In 1914 Brazil’s legislature sought to move its government to double-entry bookkeeping. However, that initial move did not really become codified until 1924. Log length that date to 1900.

In my opinion, based on this casual research, it took roughly 400 years for the general ledger to reach global adoption as a business and regulatory best practice. Throughout those 400 years, we had business cycles. We had disruptions. We had public policy leaders in deliberative bodies reacting to disruptions.

Are we overestimating or underestimating blockchain?

Blockchain has been around a little more than a decade. IBM has made big splashes with food trust, shipping and finance networks and now talks about the network of networks. In 2018 I attended EY’s global blockchain event and listened to what EY was doing with Microsoft around what is now called the Xbox network. I returned from this and other emerging technology events around quantum and been told to “lay off the caffeine,” that these technologies are years away. I regularly temper my timetable, thinking I am overestimating the two-year horizons and not heeding Gates’ prescient advice from the ‘90s.

And then I stand in the back of the EY main event with about 15% of the other attendees and get blown away by Brody as he speaks in a cadence reminiscent of the iconic Federal Express commercial to run though the progress EY and its customers have made in a year. I wonder in the moment if I am underestimating how soon blockchain will be delivering real business value to major enterprises and the small business partners with the technology vision and managerial agility to adjust their business models to these new record-keeping efficiencies.

The only thing I am certain about is uncertainty in an industry I’ve thought intensely about for over 35 years. The digital age is here in its embryonic form. It is more than a business rebirth; it is a societal rebirth in that digital changes business, government and daily human activities. Birth can be a wonderful thing, but labor can be a very painful process. Change management, as we hear time and time again at analyst events can, likewise, be a very painful process.

It took 400 years, multiple business boom and bust cycles, and countless public policy iterations for economic regulatory activity to stabilize, for the most part, after the great depression of 1929. Business models can now change far more rapidly than our deliberative bodies adapt their regulatory oversight practices. I used to think blockchain would spread at 10 times the rate or be ubiquitously adopted in 40 years. But I’m beginning to think that is a gross overestimation given how badly I underestimated what I thought was possible in a year. It makes me wonder if the signature Gates quote is ripe for refinement.

I look forward to learning more from Brody and the rest of the EY Blockchain team on April 16 in New York.

IBM helps customers extend IP ‘inside out’ to anyone, anywhere

TBR perspective

After shifting the format from multiple events in years past to one major customer event in 2018 at a single venue, this year IBM (NYSE: IBM) moved its massive customer event, IBM Think 2019, from Las Vegas to San Francisco with far fewer logistical glitches than last year. Analysts were guided by a reinvigorated analyst relations team due in large part to IBM’s decision to shift Harriet Fryman from overseeing internal marketing functions to serving as VP of analyst relations.

In many ways shifting an IBM executive from internal marketing to this external-facing role aligned with the overarching theme of the event that coursed through CEO Ginni Rometty’s keynote speech. The theme last year focused on how the “axis has flipped” on business best practices, while this year the theme cascading throughout the sessions was “inside out.” IBM noted that until recently, much of the transformative power of technology had been dictated from an outside-in perspective in an effort to redesign customer-facing engagement. This, IBM asserts, is why only 20% of the data under management has been transformed to better inform enterprises and why the heavy work ahead will be from the inside-out perspective as enterprises choose which assets to transform beyond just sales and marketing elements. This theme plays well with IBM’s best-in-class reputation for building trust and for understanding the complexities large enterprise IT instances cause in terms of technical debt in need of refinancing and redesigning as enterprises strive to become true digital businesses, beyond the influence of outside-in feedback.

The theme last year focused on how the “axis has flipped” on business best practices, while this year the theme cascading throughout the sessions was “inside out.” IBM noted that until recently, much of the transformative power of technology had been dictated from an outside-in perspective in an effort to redesign customer-facing engagement. This, IBM asserts, is why only 20% of the data under management has been transformed to better inform enterprises and why the heavy work ahead will be from the inside-out perspective as enterprises choose which assets to transform beyond just sales and marketing elements. This theme plays well with IBM’s best-in-class reputation for building trust and for understanding the complexities large enterprise IT instances cause in terms of technical debt in need of refinancing and redesigning as enterprises strive to become true digital businesses, beyond the influence of outside-in feedback.

To address inside-out innovation, IBM’s marketing message tagline of “Anywhere” flows throughout its management control planes, analytics enablement technologies, and the emerging blockchain technology. Many businesses are now capable of transforming from the inside out, or from (oftentimes) Z-based on-premises instances out to the multicloud world. IBM’s “Anywhere” mantra is a big bet that resonates with existing accounts, and the challenge will be to simplify the access and interaction potential new accounts will have with IBM IP assets to prove that IBM understands all elements of the customer experience on a persona-by-persona basis, beyond trust, security and market making for emerging technologies.

IBM Think 2019 brought together tens of thousands of IBM partners, customers and employees to showcase recent portfolio expansions and updates that underscore the company’s continued innovation in cloud-based emerging technologies.

The IoT market has begun sorting itself out in 2019 — a vast improvement from its disorganized past

It has been a wild and chaotic ride for Internet of Things (IoT) vendors, with many placing big bets on IoT in the past and entering 2018 largely disappointed by the results. While IoT will likely never meet the expectations placed on it in 2015 and 2016 — the peak of hype — IoT’s contribution to IT vendor revenue will increase, with IoT ultimately becoming a core revenue driver. IoT, as a technique to solve business challenges through the assembly of technology to drive results, such as predictive maintenance, resource efficiency, value-added services or generally, increase insight, is not going anywhere.

The good news for vendors is IoT is getting a lot easier as the ecosystem sorts itself out. The increase in portfolio focus and partnering is making the market easier to navigate for vendors and customers. Offerings are becoming easier to implement and integrate as vendors begin to converge on architectures and standards, as well as orient go-to-market strategies toward coopetition rather than “winner takes all.” Customers are coming to market with a greater understanding of what they are looking for thanks to efforts by vendors and early adopters educating the market and cutting through the hype pays off. TBR believes 2019 marks the emergence of “go-to-market 2.0” as an evolved strategy for both IT and OT vendors seeking to better profit from IoT.


The 1Q19 Commercial IoT Market Landscape looks at technologies and trends of the commercial IoT market. Additionally, TBR catalogs and analyzes by vertical more than 450 customer deals, uncovering use trends, identifying opportunities, examining maturity, and discussing drivers and inhibitors.

The pendulum swings: Customer demands reshape how infrastructure vendors do business

Insights from TBR’s 2019 Data Center Predictions

The data center remains an evolving pillar of the enterprise ecosystem. Emerging technologies such as 5G, NVMe, quantum computing and blockchain are reshaping how these technologies work together, while rapidly rising demand for the cloud is causing data center vendors to rethink strategies such as go to market and investment.

Join Geoff Woollacott, Stephanie Long and Catie Merrill as they take a deep dive into how infrastructure vendors will support their clients’ digital transformation plans and the new strategies that will emerge.    TBR’s analyst team will provide a snapshot of how the data center market will evolve during 2019.

Don’t miss:

  • How infrastructure partnerships will enable rapid transformation
  • How R&D will shift as evolving customer demand pushes infrastructure vendors to the edge
  • What new technologies and trends will shape 2019 for infrastructure vendors


TBR webinars are held typically on Wednesdays at 1 p.m. ET and include a 15-minute Q&A session following the main presentation. Previous webinars can be viewed at anytime on TBR’s Webinar Portal.

For additional information or to arrange a briefing with our analysts, please contact TBR at [email protected].

ICO as a ‘medicine show’: EY finds abysmal performance in wild west of initial coin offerings

Last December, EY Global Blockchain Leader Paul Brody recognized the breakout market for initial coin offerings (ICOs) and launched a longitudinal study, centered on class of 2017 companies that is fueled by this new way of raising money for software startups. One year later, as detailed in EY’s report published today, market valuations for the top 10 ICOs were off 55% — abysmal performance by any standard. Buried in the bad news for almost all the companies, one can find a few bits of success, particularly with companies providing blockchain infrastructure. The incredibly poor performance around incubation makes a strong case, to use a “Deadwood” metaphor, that snake oil salesmen made up most of those 2017ers. As this year comes to a close, around one-quarter of the initial ICO-backed companies have a product in the market, further evidence the breakout included a number of outright frauds. In addition, of the 25 companies that had products, seven devalued the use of utility tokens by allowing payment in fiat currency, facing up to enterprises’ persistent reluctance to conduct business transactions in anything but hard currencies. Curiously, paying in tokens, according to Brody in a discussion with TBR prior to today’s announcement, came across as only the second-biggest obstacle to commercial adoption, with the first being the desire for transaction privacy — a desire pure public blockchains cannot satisfy. In EY’s previous report on ICOs, issued last December, the firm anticipated the third-greatest objection, concerns over full regulatory compliance, an insight that tracks closely with EY’s tax and audit credentials.

Today’s report includes a few nuggets revealing the depth of EY’s study:

  • “Companies that have made meaningful progress toward working products only increased by 13% in 2018. 71% have no offering in the market at all. Typically, within one year of a traditional venture-backed software startup, you would expect to see a significantly higher percentage of the companies with a functional early stage product.”
  • “Seven out of 25 reviewed projects accept other currencies, rendering utility tokens less valuable. Some projects have altogether dropped their utility tokens to focus on functionality. To become a means of payment, utility tokens have to be stable. If it remains stable, the token is of little interest to speculative investors.”
  • “Globally, sources of funding will likely shift away from retail investors toward entities that can understand and manage the downside risks, such as venture capital and digital asset-focused investment funds.”

Will next year be better? The blockchain infrastructure companies will likely be surpassed by a second wave of ICO-funded companies, with most of these taking an asset-backed approach to token issuance, essentially creating a product that is enterprise-ready at a time when buyers are not convinced of the benefits of placing all their assets on the public blockchain domain. This then raises the question: Do new wave ICO-funded companies need to rip pages from Ethereum’s playbook or simply play within its orbit? Ethereum is not a one-size-fits-all solution, but it certainly provides a solid foundation for many to learn from, especially around its “smart” contact functionality. Further advancing along some of the must-do steps EY pointed out in its December 2017 report, this second wave will more adequately address the need for clear justifications for blockchains and tokens; an ICO process more closely aligned to the initial public offering (IPO) process; enhanced security; and something close to legal compliance, or the regulators will simply begin enforcement substantial enforcement. In short, privacy trumps transactability.

The regulatory aspect piques my interest, in part because of the know-your-customer (KYC) aspects of post-ICO-linked financial transactions and recent efforts of EY, among others, to better incorporate emerging technologies into anti-money-laundering and KYC operations.

In this wild west, with its unregulated moral hazard, where does EY fit in?

My initial thoughts had the consultancy as the “Deadwood” preacher, known to all and trusted, but neither the law nor the bank. My colleagues convinced me EY will be more like the General Store, providing certified, trustworthy services and goods, helping clients mine for gold without shortcuts and faulty equipment that bring down the whole operation. Now imagine artificial-intelligence-enhanced, blockchain-powered resupply brought into Deadwood.

It’s time to stop calling IoT a technology

Yes, we all do it. Every analyst, vendor and customer has referred to Internet of Things (IoT) as a technology. I have done it countless times, and so have my extremely talented and informed peers. However, it’s a misnomer, a shortcut, and a cop out, and if we actually think of IoT as a technology, it’s ultimately harmful to the adoption of IoT. IoT is actually a technique for solving business problems using a combination of technology components and services, rather than a technology in and of itself.

No one vendor does IoT alone ― it’s not a deliverable, self-contained technology solution. Rather, it often involves a “leader” company, generally a consulting company or an ISV, assembling a solution sourced from software, services and hardware components from partner companies. My colleague Ezra Gottheil likes to use a construction analogy. A general contractor will shop at Home Depot (the wide and increasingly saturated IoT marketplace) for all the components he or she needs to build a structure. The general contractor will also hire subcontractors (partners and specialized vertical ISVs) who have certain expertise. Even as we move closer to prepackaged IoT or shrink-wrapped solutions, multiple vendors will continue to be involved in delivery.

Some of these components can be grouped into the “new technology” bucket. As TBR closely monitors use cases and fills our use-case database, which currently has more than 360 entries, IoT projects are increasingly linked with augmented reality/virtual reality, blockchain and analytics. All of these new components, including IoT, are enhanced when used in cohesion.

But many of the components, such as servers, routers, mobile devices, sensors, connectivity, IT services and business consulting, have existed for decades. IoT is a new shiny label slapped on a technique IT companies have been using for decades: pulling together IT components to build solutions and help customers achieve their goals.

TBR believes when a vendor tells a customer “you should adopt this new transformational technology,” it is usually met with eye-rolling. IoT is no different. As soon as the “new technology” discussion comes to the table, customers instinctively rock back on their heels. It sounds like a large and long-lasting commitment, which leads to rip-and-replace cost fears, technology lock-in consternation due to a rapidly evolving market, and a general lack of understanding about the benefits.

TBR believes vendors should change the message. Begin with discovering what a customer’s business problems are, then suggest using the technique of IoT to begin strategically solving them in a stepwise manner. It’s not a rip-and-replace approach; it’s seeing where improvements can be gradually made to increase connectivity throughout an organization and ultimately deliver improved insight. It might mean adding sensors to legacy equipment, using IoT components and new analytic tools to tie together legacy data and create new insight, or implementing tangential technologies such as blockchain to better inform customers on their supply chain. Eventually, it could mean all of these combined.

At a recent vendor event, the CEO of a Boston-based IoT solution vendor asserted that IoT is now passe. True customer evolution, including problem solving comes from the bigger picture ― using the technique of IoT, tangential technologies, and internal and external data sources to supercharge efficiency and gain insight.

IoT as a technology is a lazy oversimplification. Let’s start messaging how the technique of IoT ―a new way of thinking about and applying technology ― can help solve current business challenges in an agile and cost-effective manner.


EY blockchain strategy: Betting on public chains with EY advisory for risk mitigation

Blockchain sits firmly ensconced in the hype phase, but appears poised in 2018 to move, as EY described it, into live industrial applications. Even in this industrialization phase, the applications are minimum viable products with potential extensions available if public policy can take a leadership role on fiat currency guidelines, if regulators can find ways to automate and tokenize trust, and if trading partners can agree upon the basic operating parameters for their commercial transactions conducted via blockchain.

Underneath the business value of blockchain, however, is a rather significant bet to be placed on either deploying public (ethereum) or private (hyperledger) blockchains. At the core of this debate rests two issues: the speed of innovation, and the level of security and trust that can be ensured. Innovation, EY argues, happens faster on public networks even if that innovation ameliorates what bad actors inject into the network. In theory at least, even bad actors have a role to play in accelerating innovation by essentially forcing the issues and speeding the time to resolution.


Blockchain: The virtual trust backbone for digital commerce

Given the past several decades with the internet, cloud computing and ubiquitous access to data, we are getting closer to frictionless flows of communication and commerce — and getting there faster every day that blockchain permeates financial services and supply chains. But as value flows less from bricks and atoms and more from clicks and bits of digital information, our governance policies and record-keeping systems have not kept pace. Quite simply, humans have been slow to adjust to Moore’s Law, but we are nearly well-conditioned enough to operate faster, and blockchain is the treadmill that will whip into shape the human contribution to supply chain verification and management.