Retail today is Amazon. The efficiency, ease of use and selection for Shoppers has afforded Amazon an unparalleled dominance in modern Retail. Additional marketplaces such as Flipkart and Walmart rely on centralized processes to create and deliver internal value returns. This value creation requires the maintenance of running marketplaces at a substantial cost of capital. With these costs comes an expectation of increased value to Shoppers over time, but where does this value come from? The current centralized ecosystem creates an inescapable obligation to continue to extract margins from Brands, the products they bring to the marketplace, and those most vulnerable upstream.

I believe a Retail marketplace can only be healthy and sustainable if it provides valuable economic engagements for both the Brands and Shoppers. The current landscape of Retail does not reflect this.

With an obligation to external shareholders driven by economically incentivized humans, these centralized marketplaces have developed a business paradigm that drives value extraction by leveraging the exchange that occurs between Brands and Shoppers in order to increasingly consume Brands’ margin and a Shopper’s time and money.

The combination of these strategies driving the centralized system and Brands’ unfortunate tolerance for margin extraction will eventually cripple the ability for a Brand to participate in the marketplace altogether. With this impending reality, existing retail marketplaces have enacted a strategy of margin extraction combined with the leveraging of all data concerning product and related shopper interaction. Holding a superior position in understanding what products will serve the demand Shoppers have, they bypass the Brands they claim to serve by manufacturing private line goods based on that data.

Once Brands have been removed across key segments, selection decreases, price manipulation strategies begin, and the trust that the marketplace once brokered is eroded.

In short, all seems lost for the Brands creating the experiences we desire and for the Shoppers looking for the style, quality, and selection a free market should offer.

WHY RETAIL NEEDS TO DECENTRALIZE.

As someone who’s contributed to this problem personally over the years through my work in eCommerce, I’ve since developed a personal drive to help reverse this trend. To that end, my team has begun building a new open-source blockchain-based protocol (The SHOP Protocol) that will help restore balance to the system by providing a collaborative digital commerce data exchange that supports the transfer of value across Retail, Grocery, and Services supply chains in the following ways:

1. Control Over Their Data: Introducing yet another centralizing marketplace would be extremely fatiguing Brands. Another entity collecting their data within a far too recognizable system of looming fees or alternative monetization tactics would leave them listless and disempowered. We can’t re-centralize their data for our independent intentions and benefit. The opportunity to standardize and organize their data within a co-op environment, one that is built on principles providing them the ability to monetize said data at every step, would only work within a decentralized ledger of data they own and control. Here, Brands maintain their existing independent systems while we maintain interoperability with those systems, allowing for them to move towards unleashing their data within our decentralized framework.

2. Control over the Marketplace: Committing to the scale of building a consumer retail marketplace would be irrational for us to pursue. There is a substantial difference in the level of effort it would take for a centralized entity to create all of the rules, business logic, product determinations and moves necessary to deliver on par with Amazon. However, if Brands have an incentive structure matched with permissioned control over their data, they can dictate said logic, determinations and rules via ‘smart contracts,’ and a reward-bearing complementary governance, thereby removing the need for a centralized organization to fund the humans and processes needed.

3. Product Lifecycle Management: Brands need to better understand a Shopper’s interest in their product to effectively optimize downstream change in subsequent product or product line development. Once they enjoy the benefit of owning their data and understanding how that data moves through physical and digital commerce experiences to reach Shoppers, these Brands will be well positioned to respond with more agility and accuracy as they grow. Practically, this enables brands to intuit to what products to produce next for greater success.

4. True Market Diversification: If we’re left with commoditized Brand value and generic product designs made by the broken retail marketplaces of Amazon, Costco and Walmart, we will continue to see people wearing Kirkland jeans. With the SHOP Protocol we’re not moving Brand and Shopper data down into a new database environment so that they can access it better. By storing their data in a distributed ledger where those who need access to it will be forced to operate off of permissioned datasets rather than ripping off and centralizing the value in the data. We’re shifting the leverage in the equation back to the key participants: the makers (Brands) of the products and people (Shoppers) who want them.

[But how exactly are we going to bring decentralization to the market? We find out in the forthcoming Part II of why retail is broken.]