The hype around Bitcoin is largely speculative; as The Washington Post stated in its article, “12 Questions about Bitcoin You Were Too Embarrassed to Ask,” the price of Bitcoin is “extraordinarily volatile,” also noting, “It lost more than 90% of its value between June and October 2011.” Since then, the currency has gone from $0.30 in 2011 to $600 today. It’s definitely a speculator’s market. The currency may continue to increase in value, or it may fall.
Some argue that Bitcoin’s story could mirror that of the Internet—a technology waiting for a few “killer applications.” As a result, there are numerous startups raising venture capital funds to build businesses and applications around Bitcoin.
Bitcoins are used to buy real goods as well as services and virtual goods. In September 2013, BitPay Inc. (a Bitcoin payment processor) announced that over 10,000 merchants in 164 countries are using Bitcoins. While that may sound impressive, the use of Bitcoins is not yet at the point that most businesses need to start considering them in their digital strategies.
The challenge, to paraphrase Peter Weill, Chairman of the Center for Information Systems Research (CISR) at MIT and Senior Research Scientist at MIT Sloan School of Management, is to understand at what point “your customers are leaving you behind digitally.” If more and more consumers start to rely on Bitcoin, then companies must incorporate the virtual currency into its digital experience. “If your company doesn’t offer a great digital experience, many customers, particularly younger people, will move to industry competitors,” said Weill in an MIT Sloan Management Review article.
The Future of Bitcoin
It is possible Bitcoin will go the route of mobile money, which is rapidly transforming the developing world’s economy. A previous post on this blog detailed the rise of mobile money and highlighted research from MIT Sloan Professor Tavneet Suri on the successes of the currency. But just because one new currency is showing promise does not mean another will be as successful.
For example, Kashmir Hill, a writer on the staff of Forbes experimented with Bitcoin this past spring. Her mission was to live on just Bitcoin for one week. Even though she lives in San Francisco, her challenges were many: just two restaurants (a sushi restaurant and a cupcake shop) near her accepted Bitcoin, and she had no options for using Bitcoin for transportation.
Hill’s piece makes it clear that currently there are few options to use Bitcoin on a day-to-day basis. But the day may come when consumers embrace this now-controversial digital currency. And when that day comes, businesses will need to determine if and how to include Bitcoin in their digital strategy. Weill’s research shows that “organizations that were in the top third in terms of digital customer experience had 8.5% higher net margins and 7.8% higher revenue growth than their industry competitors.”
What should merchants do? Ignore the hype around speculation and pay attention to how customers feel about Bitcoin.
Peter Weill is a Senior Research Scientist at MIT Sloan and Chairman of the Center for Information Systems Research. He teaches in the Revitalizing Your Digital Business Model and Essential IT for Non-IT Executives programs at MIT Sloan Executive Education. Tavneet Suri is a Maurice F. Strong Career Development Professor and an Associate Professor of Applied Economics at MIT Sloan. She teaches in the Advanced Management Program (AMP) at MIT Sloan Executive Education.