Universal Product Ownership Database - UPOD A Blockchain Project - Executive Summary

Universal Product Ownership Database - UPOD

A Blockchain Project - Executive Summary

1. Problems and True Pain Points
   Have you ever been in a situation before where your phone or another valuable product got stolen? You did not know how to find it – and even if, how could you have proved that it is really yours?
   Now you really need a substitute quickly. Brand new? - too expensive. Used? - uncertainty whether the product really is “brand new and only opened once,” as the seller promises. It might not work properly or be a fake. Especially with electronic goods, most users do not have the technical expertise to check whether the promises are true. Lastly, it could be stolen. You do not want to support these activities in general, but especially not in this current situation.
   All of these doubts neither make the life of the seller (the first hand user) simpler. And what if then even the receipt is lost? Now, the second hand user will not have any trust left and the first hand user might have sell the product under market value. This does not only lead to distrust and dissatisfaction on both sides but might also lead to having to throw a still functional product away. This reduces the product life cycle tremendously and does not support our planet earth either. Finally, the manufacturer does not benefit from this situation either, because his reputation and his sales will suffer with both counterfeit or bad quality products on the market.

2. Vision
   When looking deeper into the first and second hand market of products, especially electronic products, many pain points for all stakeholders can be identified. It is our vision to track the product history to increase customer trust in (electronic) products. To realize this vision, we invented UPOD, the first Universal Product Ownership Database.

3. Value Proposition
   To carry forward the vision of UPOD, we believe that for running our business plan successfully, stakeholder management is essential.
   Through our product, the second hand customers will have a greater trust in buying second hand products, in terms of fakes and functionality. The first hand users will have an easier selling their used products and less trouble with guarantee, due to a receipt free transaction. For the manufacturers, we are protecting their brand image by fighting against counterfeiters. Also, we are assisting them to analyse which products are the best-selling ones in the market and provide a better after sales experience.
   With our UPOD platform, it is not only our direct stakeholders benefiting, moreover we are thinking and creating value for the society at large, by increasing the product life cycle. Furthermore, we will mitigate theft by making it more difficult for the crooks to sell the stolen products anonymously.

4. Solution: Why Blockchain?
   Blockchain as a technology is not only expensive to implement, but also time consuming as well as complex. Not all problems involving a lack of transparency should be solved by blockchain. However; In our case we try to test our pain point against 3 criteria:
   ● Who has an incentive to cheat the system that we want to participate in?
   This question can be solved by only looking into figures about the amount of smartphones or any other smilar device stolen worldwide per year. Protecting people from those responsible about the increasing amount of scams and fraudulent products is the focus of our project. We want to make it harder for thieves and people wanting to cheat others with wrong information to develop theis illegal activities. The worth of products traded in this black market is the incentive for the people mentioned in this criteria. Which by no surprise, is quite huge (the biggest Amazon fraud in EU costed the company 300.000 € (“Así estafó James a Amazon: devolvía la caja con tierra, recibía el reembolso y vendía el móvil,” n.d.)
   ● Who or what are we getting rid of by implementing blockchain?
   This criterion has both an explicit and an implicit component. Explicitly we want people to stop keeping their receipts for months or years, to the point where they are barely readable. As soon as they purchase an object they may want to re-sell or protect it to be stolen and illegally sold again, this object should immediately be registered into UPOD. Implicitly, we are happy to leave all the lawyers and police entities involved on every ecommerce scam with less work to do by preventing it and warning the customer in the first place.
   ● Which parties are not trusting each other?
   Different surveys that we conducted during this project showed that almost half of the interviewed people did not trust the seller in the first place. And who can blame them? Fake comments and reviews are leading to less trust when buying a second hand product (or even a new one). Thus, what better way to have a complete traceability of products you want to purchase than being able to track them back from when they left the manufacturer, to every third party it has been sold through or owned by, to be certain about the information that is being given to you.

5. Why Now?
   When scanning the newspapers, many headlines regarding frauds, scams and counterfeiting can be found. It is a present topic these days. According to Afridi (2019), online shopping is referred to as the 21st century dilemma, because a high amount of so called “wow deals” have proven to be scam later on.
   This problem might have existed for a longer time already. However, the technology is now at a point to provide new solutions. Klaus Schwab (2017), the founder and executive chairman of the World Economic Forum said that “Blockchains are at the heart of the fourth industrial revolution” and therefore, can provide new solutions to many old problems.

1. Prototype
   UPOD is an application for electronic items, to create and display product history and to buy or sell products. At preliminary stage, we introduced a prototype with graphical design of the application. This design helps people to understand the application components (users, manufacturers, products, keys), basic features (registration, buying and selling).
   The initial screen requires users to enter the basic details for registration. This screen differs slightly for customers and manufacturers. Once the registration process is complete, users receive the private and public keys for authentication. The manufacturer is now able to register products by either scanning them or putting the information in manually (further adaptation for mass production is required).
   The transfer of ownership is done in 2 steps of exchanging keys. The selling party must transfer the ownership by entering the buying parties public key. The buying party must then input the seller's public key, in order to accept the transfer. Then, the ownership is confirmed, and the buyer is the new owner of the product.

2. Technical Requirement and Value Capture
   For simplicity, several assumptions were made in order to analyse the technical feasibility of this idea. First of all, we assumed that the easiest way to start implementing our solution is from the manufacturer itself. This means that each manufacturer must create a digital asset for each physical product that is made. This process of course shall be integrated according to the production rate of the brand, which brings immense challenges and cost at time point zero. The current rate at which digital assets are created can deal with the mass production of iPhones for example, as long as we base the implementation on Ethereum (“An iPhone’s Journey, From the Factory Floor to the Retail Store - The New York Times,” n.d.). Each new block will be generated when the ownership of certain product goes from A to B, requiring a private key for the account access and 3 public keys as mentioned before. In that way, communication is always guaranteed. Every time somebody use our platform, an automatic payment from their Ethereum wallet is transferred to us. We only (at first an according to the economic development) charge for the transfer of ownership, not for the accounts creation.

3. Local Market Overview (Germany)
   Currently, products are being tracked in the supply chain via radio frequency identification (RFID). However, this does not guarantee clear identification in the post supply chain, because it goes into public space where it can be hacked easily (Toyoda, Mathiopoulus, Sasase & Ohtsuki, 2017). This opens all doors for business with counterfeiting or stolen products.
   The German Bundesministerium für Sicherheit und Informationstechnik (Ministry for security and information technic) published numbers of 600 stolen phones per day, which adds up to 219,000 stolen phones a year. Hence, our first focus will be on phones as it’s a huge market for us, but also on other electronic goods.
   In 2017, 90,000 hull insured cars got robbed. The focus was on navigation systems, steering wheels and airbags. Currently, we focus on electronic goods. However, this number shows that non electronic goods also offer a great market opportunity. Furthermore, Jürgen Zöls, Police commissioner of Passau (2018), states that 90 % of the stolen products, which are mostly electronics, are sold on Ebay. This being a prominent second hand platform, we expect them to be an important partner.
   When looking at the counterfeiting products, the German customs withdrew 4 million products from circulation in 2015 adding up to a value of 132,2 million €, those being only the ones found. Hence, also this number strengthens the necessity of action (Loesche, 2016).

4. Global Market Overview (Worldwide)
   To get an idea of the market size we looked at the Total Addressable Market (TAM), the Serviceable Available Market (SAM) and the Serviceable Obtainable Market (SOM). Additionally, we conducted a survey to have an even clearer understanding whether our product is wanted.
   In 2018, there were 5.13 billion smartphone users in the world (TAM) (Leftronic, 2018). However, the market we want to address for now is Germany. Hence, our SAM are the 57 million smartphone users within Germany (Statista, 2018). Lastly, to find out our SOM, we made use of the survey. 69% of the respondents said that they would pay for our service. Hence, we assumed that 69% of the 57 million smartphone users would in the long run be our customers, adding up to 39 million users.

5. Business Model
   As previously mentioned, counterfeiting is one of the biggest issues in the retailed business, and yet, the companies are not reacting in the same speed as the market evolves. UPOD emerged in this scenario to uncomplicate the transactions between all the parties involved (Manufacturer, Retailer, Online Platform and Users) through a trustful technology.
   So, how exactly does UPOD work? We are a Universal Product Ownership Database platform that allows the registration of the chosen product starting from the manufacturer until the final user. The blockchain technology is our secret key that assures transparency through the whole process.
   Manufacturers will be able to register the serial number of the products, which facilitates all supply-chain activities starting with the tracking and as a consequence leads to drop in the counterfeiting number and an increase in the brand reputation and customer satisfaction. Those benefits are also applied to the retailer, who will not need the receipt anymore to validate the transaction - everything will be stored in our platform.
   This takes us to the final, and probably most interest person in our business, the consumer. Who more than anyone benefits from all the steps previously implemented. The final user will be sure about the product origin and quality but will not worry about receipt and the best way to close the deal. Everything will be handled by the UPOD platform and it can be accessed anywhere and anytime.

6. Finances
   UPOD expects to earn a modest profit by year two based on projected transactions. Our projections are based on the following key assumptions:
   ● Initial growth has been calculated based on the potential shared of the market, as identified in the survey, associated with rate of electronic device purchase and the technology adoption life cycle;
   ● There will be a high implementation cost related to the smart contract purchase and application implementation;
   ● Marketing costs will not exceed 10% of the actual revenue;
   ● Initial equipment purchase and infrastructure costs will be higher in the first quarter due to implementation costs, after that period it is already considered a maintenance cost that should be revised every year;
   ● It is considered a value for each transaction cost and account registration;
   ● Residual profits will be reinvested in expanding the product and service line.
   We project the first year revenue 391,876 € and a 13.5% growth rate for the next year, based in the product adoption curve. Direct cost of transactions is projected to average 20% of the revenue, not considering the infrastructure costs. Net income is projected to reach 352,113€ in the second quarter of year two as transactions increase and operations become more efficient.

7. Advisory and Partnerships
   For more blockchain expertise, we are seeking advice from the consultants of blockchain Alliance Europe. Also, we seek for a partnership with second hand platforms as e.g. ebay, to have a direct integration of a ownership verification button. This will appear next to a product in case it is verified via our platform.
   Furthermore, no business can run without the financial capital, therefore we are looking for investors in Germany like APX, Signature Ventures and Catena Capital who encourages blockchain based projects in the early stages. (Florian Huber,2019) Also, since the manufacturers will have a large benefit from our product, we will try to get their financial support in developing the entire infrastructure.

8. Outlook into Future
   In order to attract the customers initially, we provide account creation and verifying the ownership of the product for free. After receiving first product feedback from customers, the product is continuously improved in iterative processes.
   It is our goal to register products in UPOD right after the manufacturing, so they will be tracked throughout the life cycle. Hence, we will work on many collaborations in the future.
   From 2025 onwards, UPOD plans to expand across other countries in the European and the Asian market, to increase the customer base. Our initial focus is on Smartphones, however, once we have more experience, we will put our focus on other electronic products as well as non-electronic goods.

9. References

Afridi, S. (2019, November). The News International. Retrieved from https://www.thenews.com.pk/magazine/us/574680-online-shopping-a-21st-century-dilemma

An iPhone’s Journey, From the Factory Floor to the Retail Store - The New York Times. (n.d.). Retrieved December 21, 2019, from https://www.nytimes.com/2016/12/29/technology/iphone-china-apple-stores.html

Así estafó James a Amazon: devolvía la caja con tierra, recibía el reembolso y vendía el móvil. (n.d.). Retrieved December 21, 2019, from https://www.elespanol.com/reportajes/20190723/estafo-james-amazon-devolvia-recibia-reembolso-vendia/415709507_0.html

Bürger-CERT. (2019). Bundesamt für Sicherheit in der Informationstechnik. Retrieved from https://www.bsi-fuer-buerger.de/SharedDocs/Newsletter/DE/BSIFB/BuergerCERT-Newsletter/18_Sicher-Informiert_22-08-2019.html;jsessionid=0F88C39A7182353F7123AD8A01618BFC.2_cid341?nn=6722622#doc12900208bodyText12

Brandt, M. (2016, April 15). Infografik: Die meisten Plagiate kommen aus Fernost. Statista. Retrieved from https://de.statista.com/infografik/4661/produktpiraterie-markenfaelschung-zoll/

Huber, F. (2019). Chain Europe by Signature Ventures. Retrieved from https://www.chaineurope.org/blockchain-investors/

Smartphone-Nutzung in Deutschland bis 2018. (2019, November 5). Statista. Retrieved from https://de.statista.com/statistik/daten/studie/198959/umfrage/anzahl-der-smartphonenutzer-in-deutschland-seit-2010/

Striapunina, K. (2019, May). Statista Digital Market Outlook – Market Report: FinTech Report 2019. Retrieved from https://de.statista.com/statistik/studie/id/44591/dokument/fintech-report/

The Fourth Industrial Revolution, by Klaus Schwab. (2017). World Economic Forum. Retrieved from https://www.weforum.org/about/the-fourth-industrial-revolution-by-klaus-schwab

Toyoda, K., Mathiopoulos, P. T., Sasase, I., & Ohtsuki, T. (2017). A Novel Blockchain-Based Product Ownership Management System (POMS) for Anti-Counterfeits in the Post Supply Chain. IEEE Access, 5, 17465–17477. doi: 10.1109/access.2017.2720760

Zöls, J. (2018, November 14). Bis zu 90 Prozent der gestohlenen Autoteile landen auf Ebay. GDV. Retrieved from https://www.gdv.de/de/themen/news/-bis-zu-90-prozent-der-gestohlenen-autoteile-landen-auf-ebay--37008

29 Smartphone Usage Statistics: Around the World in 2019. (2019, December 15). Leftronic. Retrieved from https://leftronic.com/smartphone-usage-statistics/

90.000 Navis, Lenkräder oder Airbags aus Autos gestohlen. (2018, November 14). GDV. Retrieved from https://www.gdv.de/de/medien/aktuell/-autoteileklau-36996