Written by: Piotr Tamborowski
The invisible technology
All in all, I do not consider myself highly technologically savvy, but just today I realized that I was woken up by the “Sleep Cycle alarm clock” application on my phone that got me up in the lightest phase of my sleep. Then I thought about how I had followed my morning routine – obviously I ate breakfast while checking up my e-mail, reading news and occasionally looking at facebook. Meanwhile“Google Maps” told me how much time I still had to catch my bus and not to come late to a class. On Saturday night I would use “Uber” to get to the restaurant and plan vacation stays some other time using “Airbnb”. When did all happen that so many online businesses have emerged and successfully base their existence in the virtual locations?
From technological changes to social changes
The internet technology usage data from smartinsight.com (2015) did not come to me as a surprise. The amount of time spent by an American adult a day has increased from 2.7 hours in 2008 up to 5.6 in 2015. What I found interesting is that composition of devices used to browse the net has changed significantly. In 2015 the hours spent online on mobile phones was 50% of the entire time (recalling 5.6) compared to only 12% in 2008 (Smart Insights, 2015).
What else has happened that the changes in the society occurred and thus allowed creation of new, internet technology based businesses? Social media, first and foremost, with its currently peaking usage. The exact number equals 65% of adults and results of a tenfold increase within the decade from 2005 to 2015 (Perrin, 2015). In addition, social media gave power to the society to express publicly individual thoughts. Hence people have realized that as a group formed on a social network they have a power to influence politics, business course of an action or government’s environmental agenda (Perrin, 2015). Simultaneously, social media have brought people closer to each other, and perhaps, enabled to shift the trust from big organizations to individuals (Rachelbotsman.com, 2016).
Moreover, people of today live in a highly globalized world. Most of us speak English as a lingua franca (Statista, 2016), visit more distant places from our homes, and notice global environmental problems. On the other hand, we need to deal with shortages, experience fight with global terrorism, and understand the risks of financial crises. We also started realizing that as more people inhabit our planet, we simply “can not have it all”. There are noticeable changes in the consumption behavior that ensue from all of the above. For instance, a decreasing trend of car ownership can be observed among young people in the US (Davis, Dutzik and Baxandall, 2012), while the opposite holds for using bike or car sharing systems (Moss, 2015).
It seems that the Sharing Economy phenomenon as such has been possible thanks to the development of the internet technologies. Businesses capitalized on the social changes that have emerged thanks to them, but also used the virtual environment as the only “physical” location of their business activity. One of the two most blatant examples of such businesses are Uber and Airbnb.
Come, share my car!
Besides the clearly functional goal of Uber to move people from point A to point B, its mission is expressed in words: “seamlessly connecting riders to drivers through our apps we make cities more accessible, opening up more possibilities for riders and more business for drivers” ever since launched in 2009 (Uber.com, 2016). It can be clearly inferred that what the company stands for is not the pure service delivery, but bringing people together in one place and giving financial benefits to both of the sides. The role of the business is collateral, and reduced to the transaction middleman. Originally, the concept behind the establishment of the company was the idea of sharing the same car if people were going in the same direction (Chafkin, 2015).
Intermediary role is definitely one of the business model pillars of Uber. Apart from that, the company applies a truly surgical pricing strategy as opposed to the traditional taxi business and treats each market as an independent startup (Chafkin, 2015). As far as the first one allows beating up the competitors and conquering the market fast, the second one gives possibility to adjust to individual needs of every single market and offer tailor made service. This is a highly differential strategy to the concept of global marketing management most of the MNCs apply (Ghauri and Cateora, 2014), which in turn allows for greater flexibility and special adaptation of the local Marketing Mix.
Walker Smith (2016) defines two elements as the most crucial for Uber’s business model. The first one is personal service, meaning “everyone’s private driver” (Uber.com, 2016) and treating customers individually thanks to the mobile application. The customers can see on the screen of their phones the details of the car that will come to pick them, driver’s image and reviews. The same works the other way around. On the top of that, the application enables to split cost of the fare among friends or estimate the price of a particular journey (Uber.com, 2016a). These are such an easy features, however, think about how many times you have wondered if getting to the airport will yield a reasonable price on Sunday or those moments when all of your friends are searching for change when the taxi drives you back home on the Friday night. Without a doubt, transparency and emailed receipt at the end of the journey both add value to the service. This is in line with another claim made by the researcher (Walker Smith, 2016) – contemporary goods need to be converted into services and already existing services need to go beyond their current functions and provide added value to all customer touch points.
The second component of the business model identified as service on demand (Walker Smith, 2016). Thanks to the omnipresent technology, the service can be requested anytime and anywhere. Eventually, we, the customers, are multi-screen users, impatient, our attention gets easily distracted and Uber knows it. In addition, the online presence allows for occasion-based pricing and tailor made promotions.
In terms of financials, within six years from the launch the company is aiming at USD 68 billion valuation and thus surpassing the market value of the biggest multinational automotive manufacturers like GM or Ford (Chen, 2015). This data shows an incredible potential of the online start-ups and the pace of their market growth.
Moreover, Uber wants to do well for the society and local communities. This “doing” is not limited to bold statements in the credo, but actual actions. The business nurtured nightlife expansion in Los Angeles, enhanced real estate construction in San Francisco and reduced drunk driving (Chafkin, 2015).
Finally, and perhaps the most importantly, Uber constantly looks into the future of the transportation industry. The company simply cannot claim to be an innovation company if it does not invest into innovative solutions, thus news about Uber researching the possibilities of driverless cars seems to be highly adequate (Chafkin, 2015).
Vacations with a true local spirit
It could be argued that the pillars of the Airbnb’s business model lie within the scope of the disruptive innovation theory, where the disruptive product changes the market and offers unique set of benefits as well as cost-effectiveness (Guttentag, 2015). What seems to be the most important is the fact that Airbnb allows users to experience the feeling of staying at foreign house with all its benefits. As the consumers require more “personal touch” not only with respect to the marketing communication, but also in the product itself, Airbnb gives a unique chance to feel the spirit of the local culture, live just like the locals do and all that without paying money to heartless Hilton or Marriott (Chafkin, 2016).
In fact Airbnb has already managed to outgrow most of the big and heritage based hotel chains. Just now it owns more hotel rooms than Marriott (Chafkin, 2016) and all that with Airbnb‘s balance sheet asset section unaffected by depreciation of lands and buildings. What makes, however, that people accept strangers in their homes and strangers are not afraid to rent from them? The trust issue here again is a substantial component of the sharing economy businesses (Botsman and Capelin, 2015; Guttentag, 2015). Users get a chance to rate hosts and guests publicly and directly on the Airbnb‘s webpage. The organization needed to provide people with a sense of being human, local and exceptional (Botsman and Capelin, 2015). Hence, the credibility is built online and thanks to the other’s users experience, the company is yet again, just a platform, filter and service provider. Its role is reduced to the absolute minimum.
Airbnb has a clear reason being, there is a story that lies behind its business model and the company does incredibly well on conveying that message to consumers. The Airbnb‘s marketing is meant to address the most passionate hosts and eradicate the wrong ones, who cannot carry through the company’s raison d'être (Chafkin, 2016). In fact it is not the guests who are at center of marketing activity, but the hosts. That ensures continuity and uniform service standard.
Moreover, Airbnb has used a business strategy planning technique that enabled the company to grow within the segment it has independently created. It was not a wide horizon plan development but a set of factors (“truths”), describing the appropriate Airbnb experience (Botsman and Capelin, 2015). That resulted in the establishment of clear priorities, sensitive consumer touch points, crucial for the business growth in the peer-to-peer economy. As a matter of fact planning is based on the soft components of the business model.
On the top of that, Airbnb has managed to achieve valuation of USD 24 billion (MacMillan, 2016) since its launch in 2007. Similarly to Uber, the company pays a great attention to the future development, currently in form of home-stay packages with a meal, airport shuttle and day trips for a fixed price (Chafkin, 2016), thus somehow transferring into something more than just an accommodation intermediary.
What makes the digital businesses work?
One of the common traits for Uber and Airbnb is that they both appeared almost out of nowhere and conquered substantial market share shortly after the launch. The brands dared to attack the Red Ocean industries, highly cluttered and dominated by big and old companies. It is worthwhile mentioning that both companies have experienced attacks from the side of giant industries (Chafkin 2016; Chafkin 2015; Guttentag, 2015), and lack of proper regulations hampering the diffusion of the business based on the concept of the Sharing Economy (Dyal-Chand, 2015).
At the same time, both of the discussed digital-collaborative economy business models seem to have common other features. First and foremost, they have emerged thanks to development of modern technologies and changes that those technologies had on the consumers globally. Apart from that, they address the need for efficient application of unused assets, increased environmental care, efficient usage of natural resources, personalized service, cheaper alternative solutions, the great story behind the brand (no more purely product brands), and supporting local communities.
Moreover, it seems like the start-up businesses of today are also an “applied” CSR. They do not just talk about corporate social responsibility; they seem to be its pure application, be in accordance with all its dimensions. On the top of that, people need to feel the story behind the business, the values, raison d'être that all make the organization credible and different from the traditional ones. Finally, in the era of fast technological changes and powerful start-ups pooping up at the speed of light, no big MNCs can feel save anymore. Neither is it the substantial capital base, nor the high investments that make the business flourish these days.
REFERENCES:
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Chafkin, M. (2015). What makes uber run?. FastCompany.com, (199), pp.110-142.
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LINKS used in the text:
- Sleep Cylce alarm clock
https://itunes.apple.com/us/app/sleep-cycle-alarm clock/id320606217?mt=8
- Facebook
www.facebook.com - Google Maps
http://www.maps.google.se - Uber (also used further in the text, unless specified differently)
https://www.uber.com/about - Airbnb (also used further in the text, unless specified differently)
https://www.airbnb.co.uk - Internet technology sage data – smartinsight.com
http://www.smartinsights.com/mobile-marketing/mobile-marketing-analytics/mobile-marketing-statistics/ - Social media usage data (65% of adults)
http://www.pewinternet.org/2015/10/08/2015/Social-Networking-Usage-2005-2015/ - Trust shifted from big organizations to individuals (Rachelbotsman.com, 2016)
http://rachelbotsman.com/thinking/
- English used as a lingua franca (Statista, 2016)
http://www.statista.com/statistics/266808/the-most-spoken-languages-worldwide/
- Decreasing trend in car ownership among youth (Davis, Dutzik and Baxandall, 2012)
http://www.uspirg.org/sites/pirg/files/reports/Transportation %26 the New Generation vUS_0.pdf - Increasing trend in preference for car sharing systems (Moss, 2015)
http://www.theguardian.com/cities/2015/apr/28/end-of-the-car-age-how-cities-outgrew-the-automobile
- Sharing Economy phenomenon
http://rachelbotsman.com/thinking/ - Uber personal service (Uber.com, 2016)
https://www.uber.com/about - Uber app features (Uber.com, 2016a)
https://www.uber.com/features - General Motors (GM)
http://www.gm.com - Ford Motors
http://corporate.ford.com/homepage.html - Hilton
http://www3.hilton.com/en/index.html?ignoreGateway=true - Marriott
http://www.marriott.com/default.mi - Sharing Economy business components (Botsman and Capelin, 2015)
http://rachelbotsman.com/wp/wp-content/uploads/2016/01/OxfordSB_AirbnbCase_vf_posted_final.pdf - Airbnb valuation of USD 24 billion (MacMillan 2016)
http://www.wsj.com/articles/the-secret-math-of-airbnbs-24-billion-valuation-1434568517 - Red Ocean industries
http://www.blueoceanstrategyaustralia.com.au/what-is-bos/red-vs-blue/ - CSR
http://www.wbcsd.org/work-program/business-role/previous-work/corporate-social-responsibility.aspx