Thursday, March 27, 2014

"Airbnb Is Worth $10 Billion Because The Sharing Economy Is a Farce"

"First you talk about how much you're helping the little guy, then you break the rules and launch everywhere, then you're indispensable, then regulators shrug, then you win...."
-Valleywag on another 'sharing economy' poster child, Uber.

There is a profound point that Izabella Kaminska has been making for a while now, that as much as she wants to believe in the sharing economy, the way it's being done means there is no there, there.

She's gone into a number of the issues, from intellectual underpinnings to the pseudo-competitive advantage highlighted by the pull-quote. Here's her latest at FT Alphaville: 

Unscaling is made possible by the number of Internet-based platforms and cloud-based services and tools now available to startups and small businesses in general. New companies can now be launched without a massive investment in personnel and IT infrastructure. They can quickly get to market, and compete effectively with far larger companies. Mobile Internet platforms, in particular, make it easier and cheaper to experiment in the marketplace. While most such experiments will likely fail, some, like Airbnb, will succeed and can then quickly scale up their capabilities as their businesses grow.
That’s from the blog of former IBMer Irving Wladawsky-Berge[r], who is riffing on the back of a Newsweek piece by Kevin Maney on the “end of mass production”.

The basic premise is that information technology is enabling the niche and the unique to find a market like never before, and as a result the end of mass production is nigh.

Airbnb is used as a key example of the “unscaling” or “decentralized production” process. The piece argues that the only reason impersonal hotel chains grew to prominence in the first place was because there was a lack of information in the marketplace about smaller, more personal offerings.
As Maney writes:
In the middle of last century, cars and highways made the world far more mobile. Many more people traveled to towns they didn’t know, and they needed places to sleep. They had no way to know which hotel or boarding house might be nice or offer amenities they wanted. Travel guides, like Mobil’s, popped up in the 1950s, but for the most part information remained scarce. Chains took advantage of that data deficit. If you knew a Holiday Inn in one town, you knew the Holiday Inn in the next town would be roughly the same. The brand’s motto played off this: “The best surprise is no surprise.” The uniformity and comfort of a chain trumped the risk of an unknown, independent place.
Much of this reasoning neglects a key issue.

It’s not so much that internet platforms are revolutionising the production process. It’s that the scaled up production process has oversaturated the world with perfectly reasonable but impersonal services, and in many cases supply has simply outpaced demand....MUCH MORE
See also her comments on her personal blog, Dizzynomics, one of whose posts we linked to in last week's "On Airbnb's $10 billion Valuation and the 'Sharing' Economy in General".