The curiosity and frustration of Jagannathan Venkatesan and Rohit Amberker played a key role in Microsoft recently announcing that it will be using blockchain to manage the royalty lifecycle of video game payments.

Venkatesan, who works in Microsoft Core Services Engineering and Operations (CSEO), and Amberker, who works in Microsoft Finance, are the key players behind a blockchain solution that the company shared publicly in late June. It’s one of the first internal uses of the technology at Microsoft.

Noting that it currently takes a lot of painful manual processes and many days to tell video game publishers and developers how much royalties they have earned, Venkatesan, a principal software engineering manager, and Amberker, an operations executive, started exploring whether blockchain could shorten that time window, automate processes, and build transparency in the royalty calculation process.

Blockchain is a shared ledger that records transactions of any type in a secure and transparent way. It’s an emerging technology that weaves the power of the internet with cryptography that makes sharing and verifying key information within confidential boundaries and establishing trust occur faster. At its core, blockchain is an electronic method of submitting and verifying transactions using a distributed network of computers, or nodes. Because of their distributed nature, blockchains can provide a secure and transparent way to establish and track ownership of transactions between companies without a need for a trusted third party.

“Rather than solving inefficiencies just within the trust boundary of a single company, we can help customers transform across corporate boundaries. As a global cloud provider, we are in a unique position to better enable this workload in the enterprise across all industry verticals.” -Brent Truell, principal program manager

“Blockchain is real,” Venkatesan says. “This is one of those technologies that has so much untapped potential. We are committed to using blockchain as we engineer solutions to applicable scenarios.”

Microsoft Finance decided to test using blockchain to calculate earned royalties for thousands of game publishers and developers in an automated, secure and transparent manner. They tested a blockchain solution built by Venkatesan and his team (a collection of Microsoft employees and blockchain experts from outside consultant EY) on data from January 2018.

“Our test worked,” Venkatesan says. “Everything checked out.”

Microsoft was able to show how much it owed to its partners within seconds, and, securely, confidentially and transparently. “We demonstrated that only the partners that we wanted to have access to our data had access,” he says.

Transparency is everything

And about transparency—that’s the big key to blockchain.

Everyone who is supposed to see their portion of the data (royalty payments and royalties contract details) can, and it can’t be changed without everyone involved knowing about it because the data is placed all over the network.

“This takes the concept of ‘one version of the truth’ to the next level, to ‘one shared version of the truth,’” Amberker says.

The big potential here is that a blockchain will allow everyone in an end-to-end scenario like royalties payments to see all transactions that apply to them—say if Microsoft sells an Ubisoft game, not only will Ubisoft see that immediately, but they can also provision delivering relevant transaction data to their partners, whether it be a subcontractor doing dev work, a graphic design firm crafting animations, a photographer taking the images used in the game, or a writer crafting the language used by game characters. Everyone who gets a cut of game profits will see that Microsoft sold a game and will immediately calculate how much of a royalty payment they have coming. Each partner will see only the parts of the blockchain that applies to them and the royalties’ contract that he or she signed.

“As Microsoft, I say, ‘hey, in this month, 100 units were sold for a revenue of $1,000 for your project,” Venkatesan says, walking through simple blockchain scenario. “You’re going to get $600 because our contract says I pay you 60 percent. And you get to use this data to pay your subcontractor—who might get say 50 percent of your royalty—$300.”

All those contracts will be documented on the chain, with full transparency for the contracting parties.

Right now, the Microsoft blockchain solution is limited to tracking gaming royalties, but eventually the goal is for it to evolve as an industry wide utility for ‘Royalties and Digital Rights Management,’ and for it to be used for end-to-end scenarios across industries with similar business scenarios.

Blockchain on Microsoft Azure

The internal Microsoft royalty solution is built on Microsoft Azure’s blockchain platform, which makes it easy to spin up a blockchain presence in the cloud, says Brent Truell, a principal program manager on the Azure engineering team. Because of its dispersed nature, blockchain is a great cloud play, he says, which is one of many reasons the Azure engineering team is excited about its potential, especially in the enterprise space.

Bitcoin, Ethereum, and other public blockchains natively expose source code and transactions details to everyone. As a result, thus far there has been very little use of these networks in the enterprise. Private, permissioned blockchain networks enable participants of the network to maintain confidentiality and privacy, and to select what transaction information they wish to make available to other participants, which allows companies to reimagine how they do business with their counterparties.

Truell says he is seeing exponential growth in the appetite of enterprises to deploy production blockchain solutions.

“We’re a very customer-driven organization,” he says. “We spend tons of time with our customers trying to deeply understand the challenges they face. Digital transformation is clearly on everyone’s mind, and blockchain takes this one step further. Rather than solving inefficiencies just within the trust boundary of a single company, we can help customers transform across corporate boundaries. As a global cloud provider, we are in a unique position to better enable this workload in the enterprise across all industry verticals.”

That’s why trying out blockchain within Microsoft is so important.

“With the royalties project, we are building a blueprint for anybody who wants to move onto a blockchain,” Truell says. “It’s an opportunity for us as an engineering team to learn from a first-party customer.”

The royalties project will help the Azure engineering team answer all sorts of questions.

“What are the challenges going to be,” Truell asks. “How can we help consortiums form? What are the regulatory considerations? How will you handle bad actors on the network? What incentive structures are necessary? The work that Jagan and Rohit are doing will help us answer these kinds of questions.”

Tags: Azure, blockchain