Microsoft and R3, a consortium of 43 financial institutions, have formed a strategic partnership to accelerate the use of the blockchain technologies. Microsoft chief executive officer Satya Nadella announced the deal at the company’s Envision conference on Monday.
Blockchains—basically online ledgers for recording transactions—first gained popularity with the digital currency bitcoin. But now financial institutions are experimenting with them as well to run their businesses more efficiently.
The first commercial deployments of the blockchain could go live in about a year, David Rutter, CEO of R3, said in an interview, adding that it’s “three to five years until significant commercial adoption.”
In preparation, providers of cloud-based services that can run blockchain software for other companies are already jockeying for an early lead. But Microsoft’s preferred vendor relationship with R3 could give it a leg up in winning business from banks.
“Microsoft continues to take a leadership position in integrating blockchain technology into its product roadmap,” said Gil Luria, an analyst at Wedbush Securities. “The relationship with R3 provides Microsoft access to R3’s high-quality collection of the largest banks in the world, which is the most likely group to make early investments in implementing blockchain technology.”
Microsoft will first provide its cloud services and tools to R3 labs worldwide. And as R3 member companies—which include Barclays Plc, Credit Suisse Group AG, Wells Fargo Securities LLC and UBS Group AG—begin their blockchain deployments, Microsoft hopes to win their business, too.
“The R3 partnership will help us to see what technology actually works, what combination actually works,” Marley Gray, director of technology strategy at Microsoft, said in an interview. “It actually increases our focus here at our highest levels. We see it as a tremendous investment for Microsoft.”
Microsoft is dedicating a team of five people to the project, but “it could scale up to 50,” Gray said. R3 will “have half our staff touch this project at one point or another,” Rutter said. R3 has 52 employees and continues hiring lab and research staff.
Rivals like IBM aren’t asleep at the wheel, either. IBM is a part of the Hyperledger Project, an effort to standardize the blockchain technology for various industries.
“It’s certainly a feather in Microsoft’s cap, marquee banks lining up to run their blockchain projects on Azure,” said Roger Kay, president of Endpoint Technologies Associates Inc. “It’s probably more important from a prestige than from a revenue point of view, at least in the near term.”