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“There are only two ways to make money in business: One is to bundle; the other is to unbundle.”

- Jim Barksdale

Does Blockspace Belong in a Bundle?

Much of business history can be framed in terms of either bundling or unbundling — and often both.

Sometimes it’s an entire industry: Record companies bundled music into albums, iTunes unbundled music into singles and now Spotify has rebundled music into subscriptions.

Sometimes it’s upstarts taking down incumbents — and then becoming incumbents themselves: Oracle and Sun Microsystems unbundled the offerings of IBM and DEC, respectively, and later came to look much like those same incumbents as they vertically integrated (i.e., re-bundled) their offerings.

Sometimes, the entire bundling cycle is executed by the same company: Microsoft Office was started as a bundle of productivity products, each of which was then offered for sale individually before being bundled back up as a subscription service.

And sometimes it's a business just trying to survive: ESPN was first the anchor of the cable TV bundle, then it was unbundled into ESPN+, and now it’s being re-bundled into a package with Fox and Warner Bros sports.

These all make for great case studies in both business and technology, much discussed in places like the Harvard Business Review. 

The next great one might come from crypto.

Crypto’s current modular vs. monolithic debate is the same bundled vs. unbundled debate we know from MBA case studies.

Show me the economics

The catalyst for unbundling is usually a change in the underlying distribution technology: MP3 files unbundled music, e-readers unbundled book distribution, streaming video unbundled cable and SAAS both un- and re-bundled software.

Similarly, advances in blockchain technology have prompted the current unbundling of Ethereum into its component parts of data availability, settlement and execution.

If history is any guide, a re-bundling may follow: “Insurgents often end up reforming themselves into a version of the [incumbent] they took down,” according to Marc Andreessen.

In the case of crypto, Ethereum is both insurgent and incumbent, which is awkward — it’s fighting a two-front war against the monolithic alternatives (like Solana) in one direction and the modular alternatives (like Celestia) in the other.

It might win!

Emerging tech around "universal synchronous composability" and “shared sequencing” will allow the Ethereum ecosystem to provide “the exact same if not better user experience than Solana today,” according to Ethereum researcher Justin Drake. 

Is he right then in his prediction that unbundled modular chains will win out over bundled monolithic ones?

That would seem to require that modular chains linked by shared sequencing can provide equal decentralization, better performance and cheaper prices than monolithic chains.

The technology behind shared sequencing is far above my pay grade, but just as a matter of common sense, is there any reason to think that a sequencer that’s shared would be either cheaper or better than a sequencer that’s not shared?

If not, there’s no economic reason for the end state of blockchains to be modular — and it’s economics, not technology, that should ultimately decide it.

Cutting to the chase

On his podcast this week, Benedict Evans explained that unbundling is most significant when it “cuts through a fake pricing structure.”

He cites, as an example, Skype, which used the new technology of VOIP (voice over internet protocol) to offer phone calls at a much lower rate than phone companies could.

This forced phone companies to adopt VOIP as well, and that’s how most international calls are now made.

In other cases, however, unbundling does not change the underlying economics of the service being offered. 

WhatsApp, for example, made texting free for consumers, but it didn’t change the cost of sending a text message.

Mobile carriers incur data costs when you send a WhatsApp message, so they have to charge you for it.

Before WhatsApp, they may have charged, say, $10 a month for SMS and $10 a month for data — now they just charge $20 for data.

The service changed, but the cost of providing the service did not, so the cost to us did not change, either. 

This, I think, will be what determines the outcome of modular vs. monolithic blockchains: Does unbundling change the underlying economics of providing blockspace? 

Or does it just shift the cost from one part of the bundle to another?

Round and round we go 

If modular blockspace is cheaper simply because the bundled offering is a product of outdated tech (or because it was overpriced), you’d expect unbundled blockspace to be re-bundled and provided at the same, lower price.

A service should only remain unbundled if it’s cheaper to provide the component parts separately.

By that logic, you’d expect the modular vs. monolithic debate to play out in one of three ways:

• Bundled Solana proves better than an unbundled Ethereum ecosystem.

• New tech makes unbundled Ethereum better than Solana.

• The unbundled parts of Ethereum re-bundle into something better than both Solana and Ethereum.

The technical questions involved are complex, but the economics are not: Spotify re-bundled music because the economics work; Kindle has not re-bundled books because the economics don’t work.

Crypto’s big debate should be resolved along these same lines — we will soon find out whether blockchains are more like long-distance calls, SMS messages, Spotify or Kindle.

But that won’t be the end of the story.

“Of course, you always are bundling and unbundling,” Jim Barksdale notes. “You can’t stand still.”

― Byron Gilliam

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