Though there are a lot of use case scenarios for implementing on the blockchain, these are often met with the common refrain of "but why?" So, using the instance of a supply chain solution, I am going to compare and contrast cost considerations of building a App/dApp across different infrastructure options:
- an in-house server you run yourself (or your IT team)
- hosted servers like Google/AWS, etc
- and L2 blockchains. I chose Polygon as an example because it seems (and comment if you disagree) that it is a bit less expensive than an EVM.
I am also going to cross-reference these across various sizes of companies as they scale up through the lens of Blitzscaling's five growth phases (Family, Tribe, Village, City, Nation). While pinpointing exact dollar figures can be challenging, so I'm going to use industry averages and estimates. Okay, let's go.
First, the company phases based on size. You could use revenue but I don't think that will change the important bits. Coined by Reid Hoffman and Ben Horowitz in their book "Blitzscaling," this framework outlines five growth phases for companies:
- Family: Early stage, small team, limited funding. 1-10 people
- Tribe: Building core product, establishing product-market fit. 10-99 people
- Village: Scaling operations, acquiring users, and expanding market share. Hundreds of employees.
- City: Refining efficiency, optimizing processes, and entering new markets. Thousands of employees.
- Nation: Global dominance, industry leadership, and continuous innovation. Tens of thousands of employees. Here the costs for in-house servers and hosted servers don't matter because these are companies like Microsoft, Amazon, Google, etc.
Analysis:
Family & Tribe:
- In-house server: Cost-effective initially, but scalability and security challenges emerge quickly.
- Hosted server: Offers flexibility and scalability at a moderate cost, suitable for early growth.
- L2 blockchain: May not be ideal due to higher development complexity and potential gas fees. May also have impacts on brand reputation depending on your audience.
Village & City:
- Hosted server: May become expensive at larger scale. Consider managed services for efficiency and consult cost calculators.
- L2 blockchain: Gains traction with higher transaction volume and potential cost savings through scalability. Emerging tech like ZK rollups have the potential to lower gas fees. These may even be their own L2, such as Scroll.
Nation:
Using our example of a supply chain solution, this gets really interesting for luxury and frequently frauded items. According to Interpol, counterfeits are on the upward trend and already account for $500 billion to $2.2 trillion annually.
- L2 blockchain: Offers optimal scalability, security, and potential cost advantages for global operations.
Industry Averages & Best Guesses (based on company size and complexity) in Dollars:
- Family: In-house server: $10,000-$50,000 setup, $2,000-$5,000/month maintenance.
- Tribe: Hosted server: $5,000-$20,000/month, L2 blockchain: Development costs $20,000-$50,000, gas fees variable.
- Village & City: Hosted server: $20,000-$100,000/month, L2 blockchain: Development costs $50,000-$100,000, gas fees variable.
- Nation: L2 blockchain: Development costs $100,000+, gas fees potentially offset by scalability gains.
So, should you jump on the Web3 wagon or stay in traditional tech? I am a big proponent of blockchain but, using the supply chain App/dApp as an example, we can see that the best choice really depends on your growth stage, budget, and specific concerns.
While in-house servers offer initial cost savings, hosted servers and L2 blockchains offer scalability and security advantages as a company grows.
What do you all think? Is the promise of blockchain accessible to smaller companies? Or, is the choice also affected by the category and industry you're in?
