Coinbase

Product Model






Coinbase is a digital currency wallet diversifying its product business model to offer buying/selling/storing services for digital currencies to consumers and merchants. The company presents also some elements of a market matchmaker, connecting consumers and merchants for their transactions and providing access to a huge range of products and services. Since the customer groups contract directly with Coinbase, the core business is a product business model.

Consumers can purchase and sell Bitcoins, and many other cryptocurrencies, and hold digital currency using their wallet. Merchants or businesses that are willing to accept digital assets for their transactions (Coinbase Commerce) can benefit from different services provided by the fin-tech company.

Also, Coinbase is selling a platform as a service (PAAS) for both B2B and B2C users and charges them for the amount of usage. As of 2018, the company offers trading facilities in 42 countries and a cryptocurrency wallet in 190 countries worldwide.

COINBASE HISTORY

Coinbase was founded in June 2012 by Brian Armstrong and Fred Ehrsa, in San Francisco. Coinbase launched its services to buy and sell bitcoin through bank transfers in October 2012, followed by the launch of Coinbase Exchange, in 2015. The startup company also added bitcoin payment processing capabilities to the traditional payment companies–Stripe, Braintree, and Paypal. By March 2017, Coinbase received BitLicense to trade in Ethereum and Litecoin.

In the same year, Coinbase has raised $100 million in Series D funding, with an evaluation of $1.6 billion, making it the first startup in the world of crypto assets to become a unicorn company (i.e. startup companies that had succeeded in growing and attracting international investments). In December 2018, the company has raised a total of $525.3 million in funding over 10 rounds through 53 investors and it was valued at $8 billion.

COINBASE CUSTOMERS – WHO THEY ARE:

Coinbase has two main customer groups: consumers that use Coinbase for buying and selling digital assets using the wallet provided by Coinbase (B2C), and merchants who use the platform provided by Coinbase to store their digital assets (transferred by consumers) as a type of payment from their customers (B2B).

COINBASE ENGAGEMENT – VALUE CREATION PROPOSITION:

Both consumers and merchants create value from the low transactional cost of cryptocurrency payments, compared to the high transaction fees charged by a credit card. The use of virtual token payments also eliminates dependence on exchange rates.

How Coinbase creates value for consumers:

Coinbase offers buy/sell, send/receive, custodian and wallet services for all the major cryptocurrencies. Cryptocurrencies stored with Coinbase (Wallet and Custody products) are fully insured and consumers can use it to pay 2000+ merchants registered with Coinbase. There are network effects since the more merchants accept cryptocurrencies as a payment option, the more consumers will be interested in using cryptocurrencies, and vice versa.

How Coinbase creates value for merchants (Coinbase Commerce):

Coinbase Commerce integrates with a merchant’s checkout workflow or can be added as a payment option on the shopping portal. Any cryptocurrency payment made by a consumer gets credited to the merchant’s Coinbase Commerce account from where it can be transferred to the desired wallet using a set procedure. The merchants benefit by getting access to a global consumer base.

COINBASE AFFIRM DELIVERY – THE VALUE CHAIN:

How Coinbase works for consumers:

Consumers need to create an account on the Coinbase portal and link their wallet with a bank account or credit/debit card. Coinbase Wallet guarantees bitcoin payments that are irreversible and can’t be canceled fraudulently–by reducing the risk associated with any transaction for a merchant. There is no additional fee levied to either party involved in the transaction. Also, unlike traditional money transfer services offered by banks, Coinbase customers can send/receive fiat money across countries using cryptocurrencies without paying any additional fee.

How Coinbase works for merchants:

Any merchant/business can sign up for the Coinbase Commerce platform using a valid email address and a phone number. After the necessary setup, a merchant gets access to the Coinbase Commerce dashboard that allows to view and operate on the different cryptocurrency balances, payments, checkouts and other necessary details. Coinbase Commerce requires an API integrated into the merchants’ payment system.

COINBASE MONETIZATION – VALUE CAPTURE:

Coinbase makes money by charging fees for buying/selling services, and custody services to its customers. Companies are not charged any fees for using the Coinbase application. All the customer payments made through the Coinbase Commerce accounts are on-chain payments, which means that all payment transactions get recorded in real-time on the respective cryptocurrency blockchain, avoiding the possibility of any fraudulent transactions being executed. In 2018, the fintech company generated an estimated annual revenue of $520 million.

COINBASE DIGITAL TECHNOLOGY:

Coinbase relies on artificial intelligence using machine learning tools from Amazon Web Services (AWS) to secure the buying/selling and storing currencies for cash. Coinbase developed a machine learning-driven system that recognizes mismatches and anomalies in sources of user identification, allowing them to quickly take action against potential sources of fraud. For example, a face-similarity algorithm automatically extracts faces from IDs that are uploaded and then compares a given face with all of the faces across other IDs that have been uploaded. With this face similarity algorithm, the company can quickly detect the forgery.

Sources:

https://www.crunchbase.com/organization/coinbase#s...

https://en.wikipedia.org/wiki/Coinbase

https://www.cbinsights.com/research/report/coinbas...

https://www.coinbase.com

https://www.forbes.com/sites/laurashin/2017/08/10/...

https://www.coindesk.com/coinbase-generated-520-mi...

https://www.investopedia.com/terms/c/coinbase-comm...

https://aws.amazon.com/it/machine-learning/custome...

Disclaimer:

Written by Francesca Hueller under the direction of Prof Charles Baden-Fuller, Cass Business School. This case is designed to illustrate a business model category. It leverages public sources and is written to further management understanding, and it is not meant to suggest individuals made either correct or incorrect decisions. The information contained here should not be used for investment advice and is simply indicates the individual’s understanding of the company’s business models as of November 2019. © 2019


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