R3 CEV – the fintech company that leads the R3 financial services distributed ledger consortium – has been in the news a lot in recent weeks, though not always with the most positive spin.
The negative news broke last month that a number of the banks that joined as early members of the consortium back in the fall of 2015 have decided to pass on participating in a funding round, and some are also pulling completely out of the group’s Lab and Research Center (LRC) activities, headed by former UBS executive Tim Grant. Those leaving the consortium are said to include Goldman Sachs and Banco Santander, and possibly Morgan Stanley, J.P. Morgan Chase & Co, US Bancorp and others.
To date, R3’s funding has come from subscriptions to its LRC services, which cost each participant $250,000 per year. Those services include access to restricted research as well as participation in various technology and application PoCs, some of which have been requested by members.
With 70+ members, that amounts to annual revenues of $17+ million, which is a useful seed sum to fund operations ahead of the Series A fundraising that’s now taking place. News reports suggest that R3 is looking to raise $150 million (apparently down from an earlier target of $200 million) and that so far the initial group of member banks have committed only about a third of that.
So it’s clearly going to be a challenging time over the coming weeks for R3’s top execs to steady the consortium ship and pull in further funding from its members, and some wonder whether it will need to look outside its membership, perhaps to technology firms, in order to reach its goal.
While some observers are suggesting (a few of them with glee) that these happenings spell the beginning of an early end for R3, that’s not a likely scenario unless a large number of its members quit. It should be remembered that R3 membership can cost a lot more than the subscription fee when one adds in staff and operations costs of participation in PoCs.
More positively, R3 has now made good on its promise to open source its Corda distributed ledger platform, submitting its code base to the Linux Foundation’s Hyperledger Project for future incubation and community development. For more on Corda in the open source world, visit the platform’s new website.
The next step for R3 is to get the development community excited over Corda. “Our intention is to encourage other people in the community to contribute to it, to build on top of it, to drive its design and adoption,” said Richard Brown, R3’s CTO in an interview with Fortune. “We want a large number of people downloading and using it,” he said.
R3 is also looking to push Corda adoption along through the creation of a partner ecosystem to build so-called CorDapps. The first partner to be announced is Calypso Technology, an established developer of trading support and risk management systems. Calypso has built a trade matching application on top of Corda.
That R3 is looking to fintech application partners to give Corda a wide reach is no surprise. It’s an accepted go-to-market strategy for technology providers looking to establish ubiquity in the financial markets. One just has to remember how in the 1980s, the Sybase database became entrenched across trading firms as a result of being the database of choice for financial software developers.
But R3’s partner strategy also represents a risk in the longer term. With LRC revenues likely to decline over time as blockchain technology becomes more commonplace, and with limited revenue prospects for Corda and associated services and middleware offerings, the company will need to create and sell its own applications to boost revenues.
One can imagine a scenario a couple of years out where R3’s own application offerings face strong competition by CorDapp partners that can boast the same Corda technology underpinnings but may well have deeper application knowledge and business relationships. Product and partner management are going to be important disciplines for R3 to embrace as it moves forward.
As it happens, R3 isn’t the only distributed ledger vendor looking to build a partner ecosystem. IBM just announced that it is beginning to build one to leverage IBM’s blockchain technology, which is based on the original Hyperledger incubation, known as Fabric.
IBM’s early ecosystem partners include cloud middleware vendor Cloudsoft, IP tracking service Everledger, professional services firm EY, loyalty/rewards platform Loyyal and trade finance vendor Skuchain, among several others.
News of IBM’s partner push came as a large contingent of Hyperledger project members – representing most of the now 100 members and focused on a number of different projects – met last week in Brooklyn, NY to take stock of the project’s different activities.
By all accounts, the gathering was one of much early holiday goodwill and enjoyed a collaborative spirit, which will be important to continue to offset the impression that some observers have formed that the project is in reality controlled (or at least heavily influenced) by Big Blue. Equally important will be delivering 1.0 releases of key projects so that production – at least pilot – implementations can be rolled out.
Finally, JPMorgan continued with the low-key rollout of its Quorum project – an enterprise-focused version of Ethereum – by open sourcing it via GitHub. The investment bank also created a web microsite to describe its offering, and gave a demonstration of the platform’s smart contract capability at a New York City women’s blockchain meetup.
Despite the lack of fanfare surrounding its release into the open source wild, one should not underestimate the potential for Quorum to become widely adopted in the future.
With its close technology ties to Ethereum, Quorum should benefit from the popularity of the original permission-less platform that has remained high, even among corporates, despite debacles like The DAO and subsequent hard forks.
It’s also worth remembering that JPMorgan has some history in creating open source software that has gone on to be widely adopted. In 2003, it created the Advanced Message Queuing Protocol (AMQP) for low-level data messaging. It has since become an OASIS standard that is supported by many enterprise vendors. Interestingly, AMQP is a core component of R3’s Corda – a fun fact learned from the recently published Corda technical white paper.
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