Blockchain-as-a-Service Downsizing: A Sign of Market Failure or Maturity?

The two top Blockchain-as-a-Service (BaaS) leaders in the market have made some significant internal changes to their blockchain services in the past months. The first was IBM, which effectively merged its (private) Cloud Blockchain Service and the (public) Hyperledger Fabric team with the IBM Sterling Supply Chain Service (which is home to the IBM Food Trust project). The other announcement was from Microsoft, which has stated it will be discontinuing its Azure Blockchain Service in September 2021.

There have been all sorts of speculation and discussions as to the impact of such changes. Some initial public reports stated that IBM had downsized the team during the merge, but this appeared to be only partially true. While some of the management and marketing jobs might have been cut, the development teams appear to have remained intact. There can be any number of reasons for this, some possibly attributable to the merger (redundant staff) and others to company-wide job cut policies, rather than anything specific to the blockchain team in itself. Taking into account Microsoft’s service closure, the two announcements certainly make for a bleak prognosis of the state of the enterprise blockchain market.

However, it is clear that the BaaS market is undergoing consolidation, a sure sign of the market maturing. The pruning of non-revenue generating platforms is a testament to that. On the one hand, there is the IBM internal merger. This means that the target market for BaaS has become more defined. IBM has had the most success with supply chain applications, and so streamlining blockchain operations for this use case makes business sense. The question remains around Hyperledger Fabric however; as a public project, it seems odd to bundle it in with IBM Sterling. However, IBM developers are the core team supporting Hyperledger Fabric projects, as there are almost no outside developers meaningfully committed to projects there. As such, there is little impact on project participation, and IBM developers can fall in line with IBM’s blockchain strategy to focus on supply chain. Admittedly, this could also potentially dampen enthusiasm for wider developer support, which is key for greater ecosystem adoption of Hyperledger.

This last point is important, because to date, enterprise blockchain developments have largely focused on two platforms: Hyperledger and Ethereum (notably Quorum). Microsoft is throwing its support behind Ethereum. Not only will Azure Blockchain Service’s sunset mean the termination of Hyperledger support, but Microsoft is recommending clients migrate to ConsenSys Quorum Blockchain Service (which is Ethereum based). While Ethereum may not have the clout of IBM’s enterprise and its broad partnership support (especially with its Food Trust project), it does have a richer developer ecosystem (and now Microsoft’s support). The enterprise BaaS market is at a turning point, and the blockchain hype herd is being thinned out by market forces. This is a sign of market maturity more than it is a sign of market failure, even though some use cases are clearly not going to make the final cut.

The BaaS market is transitioning into a more mature position, but there is still a long way to go. Ethereum is working on upgrading its infrastructure to the 2.0 version, which will offer a number of expanded features attractive to enterprise adoption, including security, scalability, and capacity. A full transition is estimated to be complete in 2022. For Quorum, Microsoft’s support will mean some additional and significant expansion of its infrastructure. Certainly overall, the private/permissioned blockchain is set to continue in an upward trajectory, with overall revenues forecasted at US$2.3 billion by end of 2021, growing to US$9 billion by 2025. In large part, this growth will be dominated by infrastructure service provisioning and financial services revenues for blockchain implementations. As such, there is strong double-digit growth opportunity going forward for the enterprise sector, and plenty of room for both Hyperledger Fabric and Ethereum variants to expand (alongside financial and banking platform favorite Corda). And certainly, there is also room for one infrastructure to start dominating the rest. It remains to be seen which one will take the helm.