Both Web3 and Partnerships are hot topics in the tech industry right now. They are very innovative fields and most experts agree that they will be relevant in the future of technology. But is it possible to combine them? If so, what are the benefits of doing so? Nick Anthony, Business Development, Partnerships and Ecosystem Leader at TaxBit, shares the possibilities that smart contracts could bring to the Partnerships table.
Juan: Let’s start with a basic question: What is a smart contract?
Nick: To keep the idea accessible, just think of it as a contract or agreement that contains code that executes automatically and lives on a blockchain. Just like an ordinary contract, a partner agreement for example, it consists of rules and data. In other words, smart contracts are algorithms. They are a collection of data and process-as-code that, when triggered by a specific input, automatically executes that code and emits data.
Juan: I think I get it but could you share a metaphor to drive the concept home?
Nick: Sure. The first guy who coined the term, Nick Szabo, has a great one. According to Nick, a smart contract is like a vending machine where you insert money, make a selection, and the machine automatically dispenses your selection. This analogy demonstrates that with smart contracts, you can automate some of the overhead out of the transaction (in this case, the cashier) and make the process more simple and streamlined for the buyer (provided your snack doesn’t get stuck).
If you’re familiar with modern, API-led automation platforms like Workato or Boomi, then this is probably a pretty simple concept for you to follow. The key difference is that they live on a blockchain like Ethereum or Solana, which are decentralized, distributed public digital ledgers. The smart contracts themselves, and the transactions that occur through them, are accessible to anyone, transparent, auditable, and permanent.
Juan: Ok I get it, smart contracts are really useful. But how do you connect them with the partnerships world? What’s the value that a smart contract can bring to a Partner Program?
Nick: Great question. The value of leveraging smart contracts in a partnership program becomes most obvious when you think about the nature of partner operations. Partner agreements and Partner Programs are algorithmic: they’re often a simple collection of if-then statements. For example:
- If a partner refers n qualified opportunities, then they qualify for x $$s in MDF.
- If a partner refers a lead that closes, then they are due a referral fee.
- If a Platinum Tier partner fails to satisfy requirement A, then they are non-compliant and their benefits revert back to a lower tier.
Today, we have all manner of CRMs and partner tech that help partner teams make sense of which partners qualify for what, are due referral payments, are in/out of program compliance, etc. Partner Ops will typically leverage multiple tools to run reports and facilitate the necessary back-office operations to hold up their end of a partner agreement. Whether that be with Accounts Payable to dole out referral bonuses and MDF, IT to provision or deprovision a partner sandbox account or upgrade the feature set based on partner Tier, etc. If you think about it, each of these activities are governed by the Partner Program and the associated agreements or “contracts” executed by the joint parties.
Today, all this back-office work is pretty opaque and takes considerable time to complete. Partners on the receiving end of a benefit rely heavily on the trust they have in their partner to deliver what was promised. They trust that their partner will indeed follow-through on the promises made in their agreement and that their partner will execute diligently and timely on those promises. That trust is a great starting point but, while the best of intentions can be assumed, reality is a combination of intention and action.
Juan: Definitely, trust only gets you so far. What real problems could smart contracts solve?
Nick: For example, if you find yourself constantly nagging for updates on the benefits owed to you, the trust you have in your partner will begin to erode over time. As a Partner Manager, you’re the face of your business to your partnered organizations. It’s awful to have to constantly relay to a partner who’s been waiting for their referral fee to come through for months (or quarters) that Ops has once again said that the check’s in the mail… for the 3rd time.
In the most awful cases, I’ve witnessed horror stories where boutique SIs, who partnered with a behemoth ISV, actually go out of business waiting on hundreds of thousands of dollars in referral fees that don’t get paid out on time for quarters, or sometimes years. While those fees were rounding errors for the ISV, they were the difference between success or failure of the SI’s small business.
The beauty of a smart contract is that they eliminate the need for that trust. By nature, smart contracts are trustless mechanisms that execute automatically once a condition has been met. In doing so, they also cut expensive overhead to facilitate manual back-office processes. With smart contracts taking the heavy lifting out of the back-office operations, those expensive Partner Managers and Partner Ops professionals can now focus on driving Partner and Ecosystem strategy instead of spending countless hours monkeying around every quarter chasing down referral statuses and auditing their partners for compliance.
Juan: And what other uses or benefits could Web3 technology have in the partnerships world?
Nick: Well there are many. For example, in theory, an on-chain Partner Program could have an incredible leg-up in democratizing than a traditionally administered program might. There’s a governance structure in decentralized finance (DeFi) called a Decentralized Autonomous Organization, or a DAO. In a DAO, each member shares in a common goal and is incentivized to operate in the best interest of the organization.
DAO members have the ability to influence decision making for the organization, offer up improvement proposals, and vote on which of those proposals to implement. That influence is typically weighted as a function of the DAO’s governance token distribution and there are some interesting ways you can incentivize and disincentivize selfish actors from taking control over the organization. Part of that lies in the transparency of a DAO. Because all actions and votes are posted on a blockchain, they are viewable to all the participants of the DAO.
Juan: Partnerships democracy sounds great! Would it be possible for smart contracts to connect multiple Partner Programs?
Nick: Definitely. An Ecosystem DAO could consist of a set of Partner Program DAOs or of the key stakeholders responsible for running their respective Partner Programs. There are a number of ways they could be administered, just as in a Partner Program DAO. Obviously these need to be architected with great care to ensure that the organization’s governance structure is set up in such a way so that it doesn’t incentivize individual actors from behaving in ways that are not in the best interest of the organization as a whole.
Juan: This all sounds promising for the future of partner programs. Any thoughts for readers new to these concepts?
Nick: So, blockchain, web3, digital assets…these are all emerging technologies and an emerging market it’s being built around them. With that in mind, the concepts I discuss above are also emerging. It will take time for the market demand of solutions and products to develop and it will be a game of iteration. No one has done this yet, so there will be a lot of trial and error in terms of what works and what doesn’t.
Are you curious about how this could work for your organization? Stay tuned for the second part of this series where Nick dives deeper into the mechanics of Partner Programs and smart contracts.
In the meantime, feel free to connect with Nick on LinkedIn or share this article with your network.
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