Almost everyone reading this piece has either used or heard about companies like Uber, Airbnb, and Kickstarter. The idea behind these companies is that there are people out there who have assets which they are not consuming to their full potential, so they let others use them in return for some money, and these companies provide platforms in order to facilitate the trade. However, not a lot of people know that such companies come under the umbrella of Shared Economy.
These companies shot to fame in the first decade of 2000 because the volume of ‘movement’ has increased, and it is interesting to see how. What we mean by ‘movement’ is that people have started staying farther from their workplaces and hence, there was a need for affordable transport which could take them from Home to Work and back. Uber and its competitors have solved that problem. People have also started traveling more and staying at Hotels is neither affordable nor an authentic way to experience the local life; Airbnb takes that piece of the pie. P2P (People to People) Lending, another major sub-section of shared economy which lets people directly give out loans to other people without having a bank as a mediator. And the other brands in this space have used the same principal – find resources that are not being fully utilized and make them available to people who could rather use them.
The companies in this sector sure solved problems while ensuring a strong technical backbone. Any company that is working in this space must use customer data in a very tactical manner to understand how to balance supply and demand. For example, Airbnb needs to continuously look at areas which Customers want to travel to so that they have enough supply in those areas while also ensuring that there is a demand for their suppliers or else, they are at risk of losing them. Managing all of this without a strong tech could be a nightmare for any company and that’s why they focus so much on that. Uber uses their data to see where their customers might want to travel to and ensure that there are enough cars to support that demand.
TECHNOLOGY & ACCESSIBILITY:
While ensuring a strong backbone, these companies have also made the face of their applications smart – the customer journey. They have been continuously putting a lot of thought into how they can create a process that takes minimal effort from the customer to buy a service from them. That is also the reason why we keep noticing mild changes in the application because moving a button by 5 mm to the right may not be a noticeable change but if a customer can handle the whole journey on their smartphone with one hand, there’s a higher probability that they will book more often with that company because of the sheer ease of access. For instance, Uber changed their customer journey in South-Asia from predicting the cost of the journey at the end of the trip to right at the beginning so that the customers know whether they want to pay that much or not. The company had to adjust with the mindset of the local population which is very price sensitive.
However, while improving accessibility of these resources, there were some cracks which were left open. For instance, when these companies started operations, there was no process to check whether the Uber driver is a criminal or if your Airbnb host has a negative legal history. However, with time and learning from bad experiences, these companies have come around. They have put in significant measures to verify their suppliers/service providers at the time of onboarding. For example, Criminal backgrounds and ID verification have become a norm for most companies in this space. Another reason behind these verifications is to offset any money-laundering activities that may happen via these services. Moreover, such companies are using significant AI models that predict the possibility of a probable fraud and flags such cases.
THE STARTUP AND GROWTH:
While these companies have been able to ramp up their volumes and achieve Billion-dollar valuations, they have done that with barely any tangible assets. The major assets for these companies are their technology and the brand, which are both intangible. This is also the reason why a lot of people have been skeptical about their valuations because they are entirely based on their revenues and not profitability. To explain this situation a little better, consider the fact that Uber owns no cars of its own and neither does Airbnb own any of the accommodations on its portal. Even though they have been able to build a business around these offerings, most of the companies in this space are not profitable yet. Uber is a prime example of that. The major reason behind that is that they had to firstly focus on capturing market share and in order to do that they had to either match or undercut the current market prices of substitute products. This meant selling at losses on most occasions.
However, fortunately for these companies, some investors believed in their model and gave them millions and billions of dollars to build the business for a share of the pie. And that is how these companies have been able to survive amidst all the competition. However, what this flow of money has done is given them extreme power to sell products at very low prices, which a local retailer can not do. For instance, the Taxi prices in general in any European city are very high, but the reason behind that is the taxes and all the other expenses that a Taxi driver must incur. However, when Uber entered these cities, they started undercutting the Taxi rates and this led to the local Taxi drivers going out of business. This eventually led to a lot of countries taking away Uber’s license to function in these areas. Such is the power of these less than decade-old companies that the national governments have had to intervene.