8 min read

Christoph F. Strnadl of the Software AG

Christoph F. Strnadl of the Software AG

[Interview by Mart]

DD: You have been vocal in your support of the breadth of offerings the IF has developed (streams, stronghold, identity, etc.). What is your opinion of the IF’s announcement that they will be spinning off these entities?

CS: We fully support the IF’s strategy to concentrate on the core protocol — for us that is foremost Stardust (IOTA Smart Contracts) and Coordicide. Succeeding here is the conditio sine qua non for any further development of the whole ecosystem; potentially its very existence depends on this success. We also understand and support the rationale to spin off (selected) successful projects into separate entities especially as the IF is complementing this move with a suitable governance institution (i.e., the Tangle Ecosystem Association) to avoid fragmentation and divergence in this new fluid structure of the overall IOTA ecosystem (also don’t forget govern.iota.org!).

Does this carry some risk? Of course it does — but that holds for any strategic decision which is not a no-brainer. I am confident (and will surely contribute) to make this work as I have been supporting IOTA governance very early (some of you will remember our first attempt with Tangle EE) and will certainly be available in the future as well. Our role here has not been fixed yet so stay tuned!

DD: How does Shimmer fit into Software AG’s development plan? Will you build / test applications on Shimmer or wait for feature availability on the IOTA mainnet?

CS: We currently have two running funded research projects, iECO and Gaia-X for Advanced Mobility Services, where Shimmer may play an important role. Both are in the architecture and design stage as of this point in time, so it is too early to tell how exactly these projects will utilize IOTA technologies. That also depends on the availability of certain higher-level capabilities such as identity and smart contracts which will play an important role in the project. Furthermore, the immediate access to a variety of tokenized assets (such as NFTs) gives us an opportunity to think beyond traditional forms of digitalization in these projects. For instance, in iECO we need to digitize the transfer of physical ownership (or possession) of moving parts on a construction site: Imagine window panes (the glas) which need to be delivered to a large construction site by truck, then moved to the correct building (some local storage area) and finally mounted into the correct window frame: Why shouldn’t we also model this using the NFT abstraction of “transfer asset”? For evident reasons, it needs to be feeless.

For the projects this essentially means that we follow a use-case and business-driven approach: We will utilize the network which best fulfills our functional and non-functional requirements.

DD: Does the new storage deposit requirement present any challenges for the applications that Software AG is developing?

CS: Not at all and, actually, to the contrary: As a PaaS/SaaS provider we deeply understand that every piece of infrastructure including running software on a node or sending messages over any network has its associated costs. Eventually, someone has to pay the total costs of these elements — which results in us developing ever fine-grained pricing models e.g., for our IoT platforms using device types, average message size update frequencies, and many other parameters. Staking Shimmer just adds a real-time price element to one piece of the overall solution with the interesting twist that one gets its deposit refunded once the output is spent. Evidently, now someone else has to stake her deposit. This mechanism then lets us easily track these costs from the initial creator to the final user of output and also ensures that the overarching business model is able to absorb these costs in order to be sustainable in the long run.

DD: Are there any EBSI updates that you can share?

CS: Unfortunately, I have not heard any news on that. The European Commission is still evaluating the final reports of the five Phase 2A participants in order to decide who shall be allowed to commence with Phase 2B (12 months): Initial plans foresaw three or four finalists. My personal expectation and hope is that they will announce the finalists before X-mas (this year) but one never knows.

DD: What happens with Software AG’s relation to IOTA after the pre-commercial procurement process of EBSI ends? Are there other projects to collaborate? Do you think you can even collaborate closer with new projects in the future?

CS: We have collaborated with IOTA well before EBSI PCP, for instance in the AUDIo project (calibration of complex machines in situ at the end user) or SynErgie (exchange platform for flexible electricity trade in a B2B context) and continue to do so with the aforementioned Gaia-X 4 Advanced Mobility Services (Gaia-X 4 AMS) and iECO projects — both of which will run for the next couple of years well after the time EBSI PCP Phase 2B will have finished.

Actually, once EBSI PCP Phase 2B ends, the real evangelization work will have to start. I am poised to discuss European-scale use cases such as product passports or European identity schemes on IOTA 2.0 then.

We are also currently exploring some other possibilities in the financial area such as asset-as-a-service (AaaS) models using sophisticated IoT-based pay-per-use metrics. This would allow the lessor to calculate the real-time residual value of the leased asset, for instance (which is a really cool thing). It is too early to talk about concrete projects as we continue to follow a co-innovation strategy here. In this approach we need to find an ambitious customer who is willing to co-finance our common development project because of the competitive advantage the (new product/DLT) features will bring about.

DD: Could you provide an update regarding Software AG’s Asset Tracking solution that incorporates IOTA? Is it still on track for the end of this year?

CS: Sadly, that’s the only project from my (infamous ;-) list which will not materialize — at least not in the initial form (and we have no idea about an alternative approach yet). The reason is that our own views and the expectations of our partner regarding the underlying commercial model could not be mutually reconciled. IOTA as supporting technology has always been accepted (well not always: I did have to convince a few critics here and there).

While I am certainly the last one to be happy about this (having spent a considerable amount of energy on it), these things do happen and will continue to happen (and I won’t be able to change anything). That’s a constant if you are working at the innovation side of things (it’s called the “bleeding edge” because we essentially are pioneers. For sure, we need to control blood loss, but that’s part of a CTO’s daily life to negotiate this) — but I have already (almost) forgotten this as an incident and am running full steam ahead. If you look at my employment history you will notice that occasional side-steps or not totally successful projects (think of my first large project in the screen telephony area back in 1994–95 which was simply vaporized by the emerging WWW) are not really able to stop me.

DD: The community oftentimes discusses the possibility that IOTA 2.0 might be too late, what do you think about it? Can it be too late if it offers a solution several orders of magnitude more effective than large parts of the market?

CS: If we can translate this effectiveness improvement into tangible business or, even better, direct financial advantage, then a later than expected IOTA 2.0 will be able to prevail as well. However, I am cautious as I have seen many second-best solutions taking market share at the expense of the technically best solution because buyers and users did not evaluate the technological benefits in the same way as the provider. Just think of the VCR industry (VHS versus Betamax) or, in an unrelated area, microservices and the OpenAPI 3.0 standard versus classical service-oriented architecture (SOA) and the WSDL standard.

We also must not forget lock-in effects of any earlier platform which the new offering will need to additionally overcome before anyone is even thinking of switching. At Software AG we continue to win customers who have to change from their previous IoT platform to ours because of the total economic advantage including all switching costs. If everything gets implemented as envisaged in IOTA 2.0, though, I am convinced that we will be able to overcome this hurdle as well.

We should not, though, underestimate the other EBSI PCP proposals (and other highly scalable DLT solutions): They compete in the very same area where IOTA has its sweet spot thereby reducing the magnitude of our effectiveness advantage.

In essence: the larger IOTA 2.0’s competitive advantage, the longer the delivery delay we will be able to overcome.

DD: Many IOTA investors think that it has the capabilities to change the world, do you agree? Do you think DLTs will be as influential on the revolutionary scale as the internet?

CS: I agree with the first proposition..

I am more cautious regarding the second claim as I don’t think that this will be as revolutionary as the internet (or, rather, the World Wide Web). The reason simply is that DLT — including web3 — is no direct infrastructure for the masses, i.e., B2C (business to consumer) like the Web (or Web 2.0) was (or still is).

DLTs will be ubiquitous in the form of self-sovereign identity (SSI) concepts such as EDI (European Digital Identity) of other decentralized systems of records (think of supply chain tracking or CO2 footprints) — but for the average consumer this will be reduced to carrying a suitable wallet and for the average application it will simply need nothing more than a suitable DLT adapter which companies such as Software AG will be happy to provide on premise or XaaS (I am oversimplifying a little bit here).

Web 1.0 satisfied the information and transaction needs of billions of people on a single uniform HTML/HTTP client/server paradigm where providers simply had to put information on their servers resulting in trillions of web pages and millions of web servers.

Web 2.0 focused on another core need of humans (I’m not going to mention this for the umpteenth time here ;-) and its success, measured as the percentage of penetration of the total world population, was extraordinary. Achieving this, however, was magnitudes harder to realize than Web 1.0 resulting in the succinct concentration (if not monopolization) of a few social media platforms capturing 90% of the total market.

Web 3.0 now will have to fan out to all the myriads of individual industries and use cases with millions of different DApps. This development effort will slow down any revolutionary expansion power, I expect. I am also skeptical whether a single killer DApp other than Bitcoin does even exist (such as ERP for classical computing of social platforms for the Web 2.0) as decentralization, honestly, is neither a universal requirement for IT systems nor for us humans.

Don’t get me wrong: In a medium to low trust environment, DApps will be inevitable to support ecosystems beyond linear and point-to-point chains, but that is not as universally needed as the information or communication needs which fueled Web 1.0 and 2.0. We need to be a little bit more careful in choosing DLT use cases and projects where the true and unique features and capabilities of web3 cannot be supplemented economically by other technologies.

DD: Unfortunately, we need at least one question about the price, though. So, let’s try to keep it sophisticated: Do you think IOTA’s price can rise significantly, even in a bear market, with widespread real-world adoption?

CS: Yes.

I think this is possible but not likely to happen because of the collective behavior of investors. Investors — including those trading at stock exchanges — do not value shares (or tokens) in isolation but also factor in overall market conditions including its expected evolution. But because (i) estimating the future is such a hard thing to do in all generality and (ii) they understand that the share (token) price — allegedly — includes all expected future profits properly discounted, they are tempted to look at compound indices as a proxy to the current and future market. This is why a falling TecDAX index will bring down many if not all tech shares as well — even though an individual company (and, hence, its shares) might not be affected at all.

On the other hand, the situation the question describes is an almost perfect investment opportunity for the long-term value investor who is committed to a strategic investment into IOTA: One just needs to prepare oneself to hold on to the assets longer than the bear market persists. Yes, this requires patience but “widespread real-world adoption” should give you sufficient confidence that this — somewhat artificial investment — sentiment may be overcome sooner rather than later.