Lan Xiaohuan from Fudan University once discussed a classic case about BOE Technology Group and the Chinese panel industry in 'Involved' (置身事内).
For a long time, our country's display panel industry relied entirely on imports, and the cost of this core component once accounted for about 70% of the total machine cost.
Due to the core technologies and production capacities being held by Japanese and South Korean companies, Chinese manufacturers not only have to pay high technology premiums but also face the risk of supply chains being cut off at any time.
If you only act as a low-margin assembler, you will never escape the fate of being taxed by upstream suppliers. BOE Technology Group has broken this situation through heavy asset investment and the integration of the entire industrial chain.
The story of BOE reveals a core logic:
When a company can control the entire chain from underlying components to front-end products, it has the initiative to redefine the distribution of benefits.
Coincidentally, I saw the same viewpoint in the description of the project by Backpack (@Backpack) founder Armani Ferrante (@armaniferrante).
Although Armani most likely hasn't read this book and doesn't understand BOE's history, his thoughts on vertical integration highly coincide with the economic laws revealed by Lan Xiaohuan.
❚ The integration logic that eliminates business friction.
Most Web3 projects, due to only focusing on one component of the industry chain, are forced to charge unreasonably to survive.
The fragmentation of functionality has led to extremely high transaction costs, with each operation having to go through multiple layers of markup from third parties.
Meanwhile, Backpack chose a full-stack layout, internalizing the wear and tear costs that would originally flow to third parties.
When a wallet has its own exchange and compliant payment system, it no longer needs to survive by paying tolls through the UI layer.
Vertical integration allows project parties to make choices that are most advantageous to users, specifically achieving zero fees at the most sensitive operational layer for users.
❚ The shift of profit focus downwards and the profit-sharing model.
Armani mentioned that Backpack has implemented a comprehensive zero-fee strategy on front-end components, which is backed by its deep financial capabilities.
This strategy is not simply a price war; rather, it shifts the profit focus from surface-level interactions to underlying financial services.
This competitive advantage under the full-chain model is manifested as:
- The profit center shifts downwards: When the industry generally relies on UI transaction fees for survival, project parties have already shifted their profit margins to lower-level liquidity execution and borrowing spreads, making revenue sources more diversified through this structural adjustment.
- Strategic zero-margin competition: By implementing zero fees at wallet exchanges, cross-chain, and fiat in-and-out stages, it can quickly establish attractiveness to the existing market, and this low-cost customer acquisition capability is hard for single-component projects to imitate.
- Long-term cost optimization: This is not a short-term subsidy, but rather an efficiency improvement brought about by the full-stack architecture, internalizing external transaction costs to maintain sustainable business growth while ensuring user experience.
❚ The base value of infrastructure.
Just as BOE endured years of losses to build its own panel production line, Armani emphasized the long-term value of infrastructure.
In the Web3 field, compliance licenses and full-stack engineering architecture serve as this foundational base.
The laying of these bricks needs to take several years, including the compliance of fiat in-and-out transactions, self-research of underlying trading engines, and compliance access in various regions globally.
These investments do not yield high returns in the short term, but once established, the systemic barriers they create are difficult for mere UI competitors to cross.
When all links in the entire industry chain are connected one by one, vertical integration not only reduces external procurement costs but also improves internal collaboration efficiency.
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The competitive logic of BP’s full chain actually converges with BOE's industrial path.
This is all through mastering the core links of vertical integration, and companies no longer need to exploit front-end users to gain survival space.
This transformation from parts to ecology enables Backpack to redefine the cost structure of services, just like BOE reshaping the panel industry.
This is precisely the industrial upgrade logic emphasized in (being part of the situation):
Through the construction of a base integrated across the entire industry chain, it ultimately achieves a leap from passive dependence to active definition.
From this perspective, the attempts made by Backpack are actually an upgrade of the industrial architecture in the digital world.
