Airbnb and Uber – From Batch to One Piece Flow

Some of the more interesting internet-driven companies these days are the likes of Airbnb and Uber. They call themselves part of the “sharing economy.”

But let’s take a look at the word “share.” From the MacMillan dictionary, share is “to allow someone to have something you own.” Is that what’s happening here? Not really. It’s not free.

There is a small unit of demand in the form of a single room or a single car ride, and there’s a small unit of availability in the form of a room in a house, an apartment, an empty cab, or even someone with a car going in the same direction. The are matched, a value is being transferred, and there’s also a financial transaction representative of that value. That’s really micro supply and demand management.

Previously such small units of supply and demand were never taken advantage of, let alone optimized, unless aggregated. Now internet connectivity and computational power can dynamically and efficiently track, match, and transact such small units.

The results are rather astounding.

Since its founding, in 2008, Airbnb has spearheaded growth of the sharing economy by allowing thousands of people around the world to rent their homes or spare rooms. Yet while as many as 425,000 people now stay in Airbnb-listed homes on a peak night, the company’s growth is shadowed by laws that clash with its ethos of allowing anyone, including renters, to sell access to their spaces.

Over 400,000 rooms – on a single night. That’s the equivalent of over 3,000 average size hotels. Empty space that was being wasted, now going to good use, eliminating the need to build 3,000 hotels. Think about the positive impact on the environment, urban sprawl, energy use, and so forth.

Similarly, in March 2014, seven months ago and a lifetime in the timescale of a hypergrowth company, Uber was providing 1.1 million rides per week. In this case it is only partially displacing the required capacity of the old business model, taxis, as many taxi drivers are switching to the Uber platform. Still, think about the impact of that optimized micro capacity and demand utilization on the required supply of taxis – and hence steel, plastics, and gas.

I happen to be a big fan of Uber, and use their service almost every time I travel. The speed, convenience, and ease of transaction creates significant value.  Yes, their business practices may make me hold my nose a bit.

Other companies are looking at similar concepts. Amazon is looking at using micro units of delivery capacity in the form of taxis and Uber competitor Flywheel to provide same day – and perhaps same hour – delivery.

Very large numbers of previously wasted supply units being matched with demand in a very efficient manner. The batch unit of a large delivery truck, a bus, or a hotel is being broken down into units approaching one.  Obviously any change like this doesn’t come easily, and cities – often dependent on bed taxes – are pushing back on Airbnb while traditional taxi services are pushing back on Uber.  But value is being created in an efficient and popular manner, therefore change will occur.

Where have I heard about that concept before?