The Gray Hair Speaketh

A core consumer fundamental driving the success of Uber and Airbnb

Over the last couple of decades, where the world has seen many unicorns emerge, these have pursued different fundamental business models, as a path to their success.

There have been many that created new paradigms that did not exist, and got people to behave differently, and yet had them hooked to this different behavior. A Facebook that connected all of your known contacts at one place, and enabling you to literally bring together various aspects of your life (childhood, work, student days, family, etc.) and interact with them, all at one place, was unheard of. Although the desire to stay in touch with your various contacts, was probably more intuitive to human behavior and which is why, the model worked.

Or perhaps how a Twitter goaded us to communicate in short form or an Instagram proposed that we talk through pictures, etc. These are all examples of a ‘new way’ that didn’t quite exist before, and which people embraced and stuck on to (beyond the fad value), due to some inherent connect with what humans like to do, anyway.

Then there are business models that enabled us to do things we were already doing offline, but brought immense efficiencies and scale, thanks to being on the Internet.

A jobs site than enabled job seekers and recruiters find each other, or a matrimonial site that connected prospective brides and grooms, are examples of these.

In fact, these sites are also examples of what are called as ‘exchanges’, which at the most fundamental level, play the role of matchmaker, while taking a small sliver of a fee, in return.

So coming to Uber and Airbnb, at one level, these are also matchmakers or exchanges, connecting vehicle owners / drivers to those seeking a ride, or home / room owners to those seeking an overnight stay.

So what is it that Uber and Airbnb are doing, BEYOND being matchmakers, and what in particular, has led to their amazing success?

Yes, sure they have great software behind them, and the mobile phone has been instrumental in driving rapid adoption, especially in the case of Uber.

But here’s something that is even more fundamental, and which has contributed to their big successes, as per my reckoning.

Both of these services are using assets that people own, and which are grossly underutilized (and hence, there is spare capacity) and putting these to use!

Take Uber first.

Many, many people in this world own cars. To go from one place to another.

And yet, for most people, the actual “use time” of the car, is no more than 10% of their waking hours. For the rest of the time, that asset is sitting idle in a garage, or a parking spot (maybe, even COSTING money, to be parked there!).

Uber finds a way to put that to use.

Likewise, take Airbnb.

Here again, a very large number of people around the world own homes which are somewhat bigger than their immediate needs. Now there’s nothing that one can do about the extra room or two in your own home, except continue to maintain it, pay taxes on it, or pay rent on it, if it’s a rented property.

Airbnb put that to use.

What you can see as a pattern here is as follows:

There are assets that you own (car / home), that you need to use partially (the car for limited time, the limited number of rooms in the home), and whose excess “capacity” could seemingly not be sliced out and offered to anyone.

Until Uber and Airbnb found a way to do so!

There have been other manifestations of this same core consumer insight.

For example, shared vacation ownership businesses. Where you “own” a week of a vacation home, but the rest are “given out” to others. As against you investing into your own vacation home, using it just for a week or two, and the asset being wasted for the rest of the year.

While vacation ownership businesses of this kind have been successful, the secret of Uber’s and Airbnb’s success is because of its usage of a far more prevalent asset around the world, a far more day-to-day usage of the same (and one ‘one week in a year’) and the flexibility of offering the slices of the asset for others to use, and for you to generate some value from the same.

The one more use of an “asset” that people have space capacity of, especially in the case of Uber, is “TIME”.

So you’re a student or work part time or even work full time, but still have a few hours of waking hours on hand. And these are a different number of hours, perhaps a different time each day, which you have free.

It was not the easiest thing to find a productive use of such excess hours.

Till Uber gave you the option of using them (along with the available unused time of your car) productively, while driving around passengers from one place to another, and make some money out of it too!

In some sense, the original model of Ebay, when it started out as a pure P2P service, was also around a similar insight.

People had excess of stuff at home. Clothes they had grown out of. Toys that the kids had gone beyond. Gfits received that were not likely to be used. Or simply the excess that one sometimes piles up, due to impulsive shopping binges.

Over time, when the basements start swelling up, or when you get fed up seeing stuff all around, you want to get rid of those things.

Before Ebay days, one used to do garage sales, and such, to get rid of such excess at home. And sure enough, one would find a buyer, most of the times, but also because you were selling at next-to-nothing.

Then came Ebay, and it enabled you to sell off such stuff more easily, and almost always at better value. This was also accomplished by the auction model then, as it allowed “water to find its own level”, in terms of getting the right ‘market price’ for any product that you put up for sale there.

So again, while the simplistic Ebay model was one of person-to-person buy-and-sell via the auction model, more specifically, it thrived on the fact that people always had excess of assets (see the connect to earlier explained Uber and Airbnb models), which they wanted to sell off.

And in all these cases, there was a connected demand, for sure.

Ample number of people looking for rides (Uber), ample number of people travelling to different places and needing overnight stays (Airbnb) and ample number of people wanting to get into that size of T-shirt that you have outgrown, or having younger kids who can use the toys that your child has grown beyond etc. (Ebay).

Are there other “unused or underutilized assets” that you can identify, that people have, and which you can find a way to monetize?

Hey, you could be on your way to creating the next unicorn!!

Think about it!

🙂

February 27, 2016 - Posted by Sanjay Mehta | Uncategorized