The Economic Baloney of The Sharing Economy

The sharing economy is one of those phrases that make it very difficult to be mean. Who could diss it? It’s nice. The fact is, the sharing economy does not stand up to a whole lot of scrutiny. No doubt you will have seen the graphic explaining the sharing economy  (it has morphed a little into an “asset light” economy):

  1. The world’s biggest taxi company that owns no cars
  2. The world’s largest accommodation provider owns no real estate
  3. The world’s most populous content owner creates no content
  4. And so on

A year ago Fast Company said it was dead. Rightly, they pointed out, that when it began the sharing economy was all about sharing things like garden tools, or renting the car to a neighbour. In fact, as FastCo points out, the power drill became the symbol of sharing and “bringing humanness back”.

The baton though has passed to companies like Uber and Airbnb, hence the snappy list above

The funny thing about this “trend” -whether it is sharing or asset light – is that it is not new.

Airbnb is built on the same principles as couchsurfing – expect that couchsurfers pay no money. Airbnb has been experimenting with more of the couchsurfers’ ethical approach with “experiences”. Experiences allow people to hook up with locals and see something of a city through local eyes.  It doesn’t seem to be sticking. Having said that, Airbnb is a great business and very skilled at managing trust. It has other characteristics that make it novel and attractive but I’ll come to those.

In essence though Airbnb is a booking service. It has liberated people to make money and brought real estate that might have been used for long term dwelling into the short term market. But the idea that it is new as a business model is a stretch. It is a booking service just like booking.com (with one essential difference, below) or Expedia.

Just to add a little spice to the argument, didn’t InterContinental Hotel Group  (IHG) sell off most of its hotels anyway, deciding its business was in hospitality not physical asset management? This is their strategy:

We focus on strengthening our portfolio of preferred and differentiated brands, building scale in key markets, creating a long-lasting relationship with our guests and delivering revenue to hotels through the lowest cost, direct channels. Our proposition to owners is highly competitive and drives superior returns.

It is asset light and asset light has been around a while. When the Baltic States went into recession in 2008 it turned out that the majority of fleet vehicles in these countries were owned by the banks – most transportation companies leased rather than bought. Many golf courses and resorts around the world are made up of apartments owned by a member and rented out by the club or resort.

Companies like Expedia, though, have innovated the online business model significantly. Five years ago Expedia turned its affiliate network (remember affiliates? They are what got Amazon up and running) into an API community. It now partners with 8,000 companies who run independent travel businesses through the Expedia platform. That’s a strong platform strategy.

TechCrunch has an interesting proposition that the essence of Uber and Airbnb is that they own the user interface, via their apps. A short while back Facebook won plaudits for doing something similar – Facebook Home in effect took the Android/Google, interface away from the handset operating system and maker and made it Facebook’s. The user interface is undoubtedly an important asset in mobile devices, and is very limited screen space.

But the sharing economy/collaborative economy argument misses some essential points. That IHG strategy I mentioned above has the benefit of allowing the company to scale and to manage its brands more effectively. Executive bandwidth goes into these activities – finding hotels to secure a management tole in, building and projecting brands, scaling the business, finding ways to build deeper relationships with customers, working up the price premium.

One of the points Nick and I have made in The Elastic Enterprise (IHG Is a great example) is that externalising previously core functions (like asset management) frees management up to do other tasks, like seeking scale and value. We also pointed out that this allows a completely new approach to adjacencies, a point taken up recently by Deloitte. Adjacencies are now back in fashion in M&A.

A second point we have made is that the essence of the platform is the transaction engine. Booking.com does not take money from you – the hotel does that. Perhaps that was Booking.com’s missed opportunity. Airbnb takes the cash and settles with owners. Uber, likewise. In theory both can control rates (Uber certainly does) and have just to flick a switch to change the fees going to the centre as opposed to the operative/owner. Apple, Uber, Airbnb do control cash.

That is a very important distinction to make. It means that they have scaled cashflow from across the world. In a world starved of liquidity, being a liquidity business is an incredibly powerful position to hold. It is the distinction between highly scaleable platform businesses and non-platform businesses. The platform is a transaction engine. Companies that control liquidity have the means to scale. It is not the only distinction but in the cold calculations behind the “sharing economy” it is a very important one.

A Platform’s Role is to Reduce Friction, so Say Hello to Stripe Atlas

The platform is the single biggest agent in the economy for reducing business friction. It’s also a strategy for market domination because of the advantages a platform can offer to customers. We said this in Edition 1 of the Elastic Enterprise, and now Nick and I are busy figuring out an update to the book, we think this is the single most interesting persistent feature of platforms, and one to focus on. That thought struck me when I started to hear about the new Stripe Atlas service.

atlas

I hadn’t quite clocked what Atlas was about until I read DC Cahalane’s post on LinkedIn Pulse. Here’s the full skinny for Irish companies – in fact for any company – and this is the pitch for winner-takes-all, friction free, business startup and expansion:

Through its new product, Atlas, Stripe, already the payment platform of choice for the majority of new Irish startup companies has now enabled a new Irish company to cut through the red tape and set itself up as a US based, Delaware corporation from day one….Your Atlas account comes with a fully functioning US bank account from Silicon Valley Bank, thrown in. It’s an incredibly well thought out product offering.

You can see the implications. Right now I am finishing off a study on millennials and the disruption of Chinese banking. Thousands of miles away and yet a similar theme. China tech platforms are offering services highly integrated services. That includes, taxi booking, ride booking, travel booking, payments, ecommerce, logistics, wealth management and so on. As we said in Elastic Enterprises stretch horizontally across industries. They refuse to recognize old industry barriers. Their main thrust is to reduce business friction.

Here’s Stripe’s version of what it is offering:

With Stripe Atlas, entrepreneurs can easily incorporate a U.S. company, set up a U.S. bank account, and start accepting payments with Stripe. Starting today, it’s available to developers and entrepreneurs globally.

Today’s business world knows no boundaries, neither geographic nor vertical because the platform raises the capability of a company beyond old ideas about core competency. That’s the meaning of platform elasticity. Does it have other implications? Platforms tend to be a  winner takes all strategy.  Atlas will put Stripe in prime position for winning the business of any born global (and that means high growth and multi-currency) enterprise for the next decade.

The Case Of Fidelity And Platform Services

Most of us think that banks lack true innovative power. I guess that’s true in a structural sense – they have huge legacy systems and to release any kind of integrated applications have to do a lot of work on Cloud or other intermediary platforms.

But yesterday I had a long chat with Sean Belka who runs Fidelity Labs, the innovation arm of Fidelity, the fund managers.

Fidelity Labs is experimenting with a number of user interface and user experience technologies like Google Glass.  Sean made the point that Fidelity is interested in working out how it can differentiate itself in all the major social platforms. Social is a must-have but it can also provide some competitive advantage.

It’s interesting to see such a powerful player with a strong interest in social as a channel but more interesting still is the story Sean tells about Fidelity as a platform company (I’m going to write elsewhere about how we define platform. In short I think we call many things “platform” but the term covers a lot of different activities).

In the case of Fidelity their funds platform has all the characteristics of an extensible platform of the type we saw emerge in different sectors like mobile from about 2008 onwards.

It is similar to a two-sided marketplace in some respects but it is also a rich information market, a facet you don’t see in two-sided markets; and it brings in intermediary as well as primary players in the market. Thousands of funds and brokerages and other third parties do business through it. It is often called a “supermarket” but supermarkets do not have rich information markets.

This type of platform is, however, now working its way into retail as competitors grapple with how to compete with Amazon.

Sean was making the point that the platform has been around for nearly 20 years and provides a continuous source of durable advantage.

That advantage is “utility-like”. It is both a source of low-cost competition and a differentiator – the significant convenience of a single shop for investments.  And Fidelity can now make more of the differentiation as it increasingly turns to social channels like Facebook and LinkedIn, increasing the usability of services and improving UX.

These improvements defy traditional low-cost competitor rules – they don’t lead to lower qualities of service. Better UX leads to better service and fewer hurdles for making trades or taking other actions.

This platform-platform strategy is also picking up. While Facebook is currently about social communications it must surely edge its way towards taking full advantage of its audience reach.

The fact that fund managers have developed incredible platforms – Fidelity’s serves over 5,000 partners – is an oversight in most accounts of platform business. We tend to think of the tech-first examples like Apple and Android and Amazon.

But like eBay, Fidelity predates both. And next steps: Cloud, deeper personal service and service integration, allied to AI, all on the platform. Financial services could, in fact, be a pace setter.

Connection

After the first edition of The Elastic Enterprise the idea of connectors, one of the five dynamics we identified,  took root in the business community. In the space of a couple of years new ideas around connectors emerged and developers, start-ups and not-so-young companies began creating new, friction-reducing products as part of the new business infrastructure. It also made me realize that is the real back story to the elastic enterprise: the creation of the new business infrastructure.

One of these is Ping Identity. I wrote about Ping and identity recently on Forbes:

Identity is the new universal connector, the technology that is making seamless, friction-free business happen. It invites companies to become adaptive and nimble. Previous (and continuing) examples include RSS in content and APIs more generally.

But there is also another area, billing. I got talking recently to the folks at MetraTech whose billing solution is being used by airports like GRU in Brazil to stitch together new business models and incentive schemes for a broadening community of concessions. I’ll be writing about that soon for GigaOm research:

Without a billing partner that can help deploy a settlement system across the whole partner base, the airport (GRU) will have to rely on manual monthly transaction management – old ERP. In place of that it uses Metra Tech’s relationship billing system.

The billing system is in fact built on its own abstract or metadata model rather than being specifically designed for airports or any vertical. That makes it highly adaptive and explains why Metra Tech can function with a small organizational footprint. Vertical service integrators can quickly adapt the platform to a specific client in a specific sector.

Translated into an abstract operating model, the billing metadata model becomes the key connector, enabling a wide range of business relationships at variable settlement rates. It reduces friction, meaning none of the business partnerships needs to be managed on a day-to-day or month-to-month basis. And it enables the partnerships to maintain flexibility.

Enterprises can improve their performance and flexibility by adopting connector technologies. The context for that could be the idea of federation or simply universal access. Companies can federate services between multiple partners providing customers with one single signon. Or they can provide their own workforce and partners with single point of access to a wide variety of cloud services.

Either way the idea is to take pain and friction out of connection. Something similar happens when platforms like Apprenda provide customers with a way to migrate assets quickly to the Cloud. Sounds complex but it simply means providing enterprises with a way to unlock information silos by moving the assets into a space where they can be made accessible.

Connectors look like the unsung heroes of innovation. They are not glamorous but they are part of the new infrastructure of business, rapidly being constructed by companies like Ping, MetraTech and Apprenda. Do you have a connector strategy?

The Role of Social In The Future Enterprise

Social media is like search engine optimization. It is easy to self-educate, it is slightly complex, but it is also game-like. In both cases the market or audience gives you feedback – you get likes or Tweets or analytics that tell you how many readers you got and who liked what. You know where to go next with it.

What it also does is distract you from the real purpose of communications – figuring out something valuable to say and laying it out for people to make a judgment or a contribution.

Are social media activities the best ways for an economy or an enterprise to market products? A low friction economy would rely on individuals to communicate their preferences to friends word of mouth. Continue reading

Glaxo Smith Kline Hoping To Become More Elastic

GSK is one of the biggest drugs companies in the world and like all big pharmas faces paradigm completion. That is to say their R&D paradigms have nowhere to go in a world where cost reduction is the overwhelming priority.

The company took a big chance a couple of years back by appointing a 40 something CEO, Andrew Witty. Witty has brought a little humility to GSK. Like GE’s leadership, he is now saying, publicly, that some of the problems of medicine are too big for a company to solve. Continue reading

Facebook and the Rise of Universal Connectors

In the run up to the Facebook IPO a number of commentators on social networking have made the point that the pre-eminent social networking site is actually not good at mobility. The consumer rush towards mobile devices left Facebook ill prepared with effective mobile ad inventory. That made me think of our “universal connectors” concept.

Universal connectors needs to be seen as the dominant trend in business, forcing behavior and strategy change onto companies. Continue reading

Pebble Technology and its “Watch” — A Start-up Surging with Elasticity

With thousands of others, I just became an official backer on Kickstarter of the Pebble, a watch, really a wearable computing device that interfaces seamlessly, conveniently, and wirelessly  with Apple’s iPhone and Google’s Android OS phones.

The Pebble / Pebble Technology
Source: http://www.getpebble.com

Over the past two months I’ve written twice about wearable computing – coming from mainline firms, Nike (the FuelBand) and Google (Google glasses). Nike and Google are well-established elastic enterprises and benefit from the elasticity that they have built into their companies. Their wearable devices add new levels of engagement and options for  their huge base of customers.

But Pebble Technology, the maker of Pebble, is a startup.  It also has a noteworthy distinction: it raised over $1 Million dollars from supporters on Kickstarter in 28 hours – for a product that is not yet in production.   But a snappy video and a low-key pitch inspired thousands to make an “investment.”  The Pebble folks also smartly provided “investors” with various contribution options, from a minimum of $99 to a high of $10,000, but each level will receive 1 or more Pebble watches when they are produced sometime in the fall of 2012. Continue reading

Salesforce.com Relishing Its New Elasticity

Salesforce.com is one of the companies we write about in the Elastic Enterprise. CEO Marc Benioff believes Wall St doesn’t quite understand what he’s achieving (though his P/E is 90). He added 2,500 employees over the past year, mostly in the U.S., an increase of 47%. He also delivered 37% growth.

The complaint is that Salesforce.com is not delivering the margins. But listen to how Benioff responds to this. Continue reading

Competition and the Elastic Enterprise: Business Platforms, Personal Biometrics and Strategic Options: Nike and FuelBand

How does a sports shoe manufacturer grow?  Well if it was the 1980s or 1990’s, you would get sport celebrities, use high technology materials, create great designs, diversify your merchandise, and go global with sales and manufacturing.  Nike did exceedingly well with that model.  Today you still do all of that but you do more…

If you’re at the top of your game, you “just do it,” differently.  You do it as an elastic enterprise.   Nike is well on its way to becoming an elastic enterprise.  And it’s already reaping the benefits of an elastic strategy with a robust strategic options portfolio.

Nike’s FuelBand, a recently launched high-tech electronic wristband, is another component in Nike’s elastic journey that highlights its strategy. Continue reading