Kevin Meyer

Life and leadership at the nexus of lean and zen.

The Value of Uber and Airbnb

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The following is not an advertisement, even if it sounds like it. I will admit I am a big fan of Uber and use the service pretty much anytime I travel. Now that they’re in my relatively small town, I might start using the service instead of paying for airport parking, especially on longer trips.

After dozens of rides I have yet to have a negative experience. The cars are new and clean, the drivers well-dressed and polite, and the cars arrive on time and within minutes of being requested. In Seattle a few weeks ago the car was a new Tesla, a few weeks earlier in Jacksonville it was a BMW 7 series. The convenience of having the financial transaction handled by the app eliminates the need for cash and negotiation. Sound like any taxi ride you’ve had? Ever? Nope. Welcome to disruption.

This misnomer of “sharing.”

Services like Uber, Airbnb, and others are often called the “sharing economy.” That’s an incorrect characterization. No one is sharing – both parties are out to obtain value. Micro-scale demand is being matched with micro capacity. Such demand and capacity has always existed, however it took real-time computational power to match them in a dynamic fashion that creates value for both parties.

Instead of a batch of taxis prowling the streets in search of fares, a single limo driver with an hour to kill between assignments can now fill that gap – that capacity. Hence why you often get nice rides like Teslas and BMWs with drivers in suits. At peak times fares go up, incenting an increase in capacity to match the increase in demand… instead of making the demand wait for hours in the rain.

The value to our environment.

The impact of this micro-scale demand and capacity matching is huge – and one that should be embraced by capitalists, socialists, and environmentalists alike. Uber, as of six months ago, is providing one million rides per day (yes, per day).  Airbnb has over one million rooms in its portfolio, and is doing 37 million room-nights per year of bookings. More that some of the world’s largest hotel chains.  And that’s last year’s data.

How many fewer cars, guzzling gas and expelling fumes, are on the streets because of the short-term capacity of unused limos and even private vehicles being freed up?  One million rides a day equates to a lot of cars.  How many fewer hotels, consuming utilities whether empty or full and contributing to urban heat islands, have been built because of the micro capacity of unused private rooms being freed up?  37 million room-nights is a lot of hotels.

The value is growing, but isn’t all roses.

New such services are being created every day.  You’ve seen all of those cranes and other pieces of construction equipment that sit idle for days at a time?  No longer, thanks to Yard Club.  Tutors, house cleaners, private aircraft. You name it.  Have a short term availability?  Match it to someone that needs it now.  Sometimes it can go even deeper, such as with same-day delivery services partnering with the likes of Uber and Lyft to further improve their efficiency and reach.

Sure there are issues, although many of those are more political than real.  Uber’s background checks are more extensive than taxi drivers… except in some key states  and countries like California and South Korea.  Airbnb does pose an issue for cities resting comfortably – until now – on hotel room tax receipts.  Those problems will eventually be resolved, just like they have been in the past when innovation disrupts the status quo.  Sometimes it won’t be pretty, at least for a while.

The potential value to you and your organization.

But let’s take the concept of matching micro capacity and micro demand to an even more immediate, direct level.  Where do you have a few minutes of potential capacity in your day that can be filled by creating value – recognizing that value is sometimes the mindful pleasure of just sitting on a beach or enjoying a long lunch?  Where can what seems to be larger chunks of demand by a group in your organization be divided and filled by smaller chunks of capacity?

How do most meetings, CYA policies, ego, and lack of training or even trust affect your ability to match internal organizational demand with capacity?  Does your organization look like a batch of beat up taxis driving around in search of demand, or smartly-dressed drivers in BMWs efficiently filling a few minutes of available time with a person willing to pay above par for that value?

Airbnb and Uber – From Batch to One Piece Flow

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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?

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