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airBnB

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Google, Facebook, Uber and Airbnb: four companies, which became dominant market players in their segment in a very short time. Uber, for example, grew in seven years to the world’s biggest logistics company. Platform-expert Martijn Arets unravels the success formula of these services.

1. Facilitation in stead of control

During the industrial revolution the trend was to centralize both people and resources. To the effect that maximum efficiency could be reached. It used to be he ideal formula, as at the time most products and services where produced by the dozen. Or like Henry Ford stated, “Any customer can have a car painted any color that he wants, so long as it is black.”

The downside of this decentralization was a lack of flexibility; changing existing processes went slow and was burdened by big inventorial investments. When we look at a platform like Airbnb, we see the opposite. Airbnb as a company itself doesn’t invest in property, though connects (private) owners of existing property (which may be rented out for leisure purposes) to people who see the need to rent it. The platform works as an intermediary with a client base, which may grow exponentially, through a (relatively) non-capital-intensive strategy. Facebook, Airbnb, Booking.com and Martkplaats.nl work all in the same way.

The great challenge of a platform is the need for two sides: the demand and the supply. The art of starting a platform is to realize a healthy balance between them. Uber does a smart job. The taxi platform governs the deployment of drivers by using dynamic tariffs. When the demand outgrows the supply, fares are raised. This motivates drivers to get their car started and demotivates the clients to task for a taxi right now. Thus, the supply increases and the the demand decreases, which immediately restores the balance.

Key learning point: Go back to the core of your company and see how you may set up your service as a platform.

2. The innovation process upside down

A second obstacle to platforms is their way to turn innovation processes upside down. Professor in Innovation Studies, Koen Frenken, calls this ‘reverse technology assessment’. He explains, “Normally speaking, an innovation is first studied scientifically, second a public discussion about its desirability takes place, then politics come up with regulations, and finally an innovation is marketed.”

This is process in place with new medicine, airplanes, food or farming methods: first research, then safety tests, next regulations, and finally market introduction. Though with the sharing economy the process is reverted. Companies launch their new platforms first, which will consequently be follow by a normative discussion, and only then scientific research.

The problem is that platforms, by doing so, knowingly violate laws and regulations. Uber knew that UberPop, a gypsy cab service, was illegal. By applying the reversed innovation process, Uber created a satisfied market first, by which it was much harder for public institutions to prohibit the service.

Key learning point: Some impertinence from time to time doesn’t hurt. And sometimes it’s better to ask for forgiveness after the event, than permission up front.

3. Use the newest technology optimally

Many activities we perform by using platforms nowadays, aren’t new. Sharing has always existed. Platforms only lower the thresholds. For example, transaction costs are lowered, and strangers may be trusted, thanks to reviews and reputation scores. The added convenience fosters a rapid increase in usage.

Let’s take uber as an example. Where it used to be troublesome to get a cab, nowadays it can be done with 3 ‘taps’ on your smartphone. The fact that both the driver and you own a smartphone, makes it possible that many operations are automated. The algorithm matches you with the closest driver. At the end of the ride you rate the driver and the driver rates you. This reputation system filters out bad performing drivers and asocial clients in no time. Linking your credit card ensures you that you don’t have to give the payment process a second thought.

Key learning point: Use technology and algorithms to simplify processes and make them self-managing.

4. Extreme focus on creating convenience

One of the key agenda points in the development of online platforms is to create convenience for both the client and the supplier. Processes are becoming simpler and more and more services are being integrated in existing apps. It is even possible to directly order an Uber from Google Maps and also KLM has integrated the Uber API connection into its website.

The next step is to look ahead to the future. The now Uber app links to your agenda and registers your daily rhythm. This in order to give you the right suggestion to order a taxi at the right time.

A Mayor point of interest in this development is of course privacy. To what extent would you be able to trust a commercial party with your personal data? That is something about which start-ups can learn a lot and where existent companies are absolutely well ahead.

Key learning point: See how you may use technology to find ways to serve your clients proactively.

5. Think in categories, not in niche markets

Uber isn’t a taxi company, but a logistics platform, and Airbnb isn’t a renting out accommodations, yet offers “unique (local) experiences”. Though many people talk about Uber as if it is a taxi company, in the mean time they’ve started to deliver food (UberEats) and are developing the platform for self-driving trucks and cars. Airbnb is aiming at the complete travel experience and not only at accommodation; hence the platform newly offers tours. This way platforms embrace the opportunity to become the all-in-one solution in their category, and that doesn’t leave much space for competition.

Key learning point: Think outside your own niche market, but think of all-in-one solutions.

This blog was published in Dutch on Intrapreneur.nl

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Dear Brain, Joe, and Nathan,

What a crazy educational rollercoaster the last few years must have been: from an air mattress in a living room to a platform with accommodations in 34,000 cities spanning 191 countries. Your strategy has been different from other ‘disruptive’ organizations like Uber. Whereas they, for example, chose a collision course with the market from inception, not taking drivers’ interests or the rest of the market too seriously, you apparently decided to take a more social approach. The past years appear to the outside world as one big success story, sounding something like achieving the American dream, though like any entrepreneur and thinking person may understand, success didn’t happen overnight.

I say success, as I am convinced you have successfully connected millions of people, which would have never found each other otherwise. I myself, for example, stayed with Ayala in Helsinki in a room where Lenin supposedly slept once, and lodged in Tel Aviv with 63-year-old Mati, who told me all about the country. Furthermore, in Elodie’s apartment, I felt for one week a true Parisian.

This very success forces you to make the right choices; the greatest of all choosing between short-term exponential growth or long-term, durable raison d’être. Growth is an intentional choice, as I was taught once by a well-known businessman. Just like you, I’m well-versed in the discussion regarding the perils of city councils being less than thrilled with your growth. I see them struggling. On the one hand, they are happy with the new influx of tourists, but on the other hand, they are in office to protect the interests of the city and its inhabitants.

City councils have to find their way around modern policy with developments like Airbnb. Policy regarding housing affordability, public nuisance prevention, and fair processes in general. Whereas you deal mainly with three parties (yourself, the guests, and the hosts), the city councils’ playing field is completely different.

To get to the point where a community might functionally live together, rules are put into place. Amsterdam’s city council, for example, came up with three rules:

  • No more than 60 days out of a year
  • No more than 4 people at a time
  • Not in social rental housing

In an agreement with the city of Amsterdam, you defined these rules and rewarded the council by taxing tourists through the platform. Other cities were about to follow suit.

Lately, however, I’m reading more and more articles of cities where Airbnb rentals are getting out of hand. Pawn brokers withdrawing houses en masse from the housing market in order to rent them out as illegal hotels. Neighborhoods being impoverished by the uncontrollable stream of tourists. Municipalities creating cumbersome solutions like registration requirements and licenses, spending millions a year on never up-to-date inspectors, and commonly evicting unsuspecting tourists from their apartments. Complications even to the point where they see no other recourse but to ban your service.

Your reaction: ‘Sorry, we’re just an intermediary platform and out of respect for the privacy of our clients we can’t offer you any client details.” When I read your founding story and then this, I’m pretty sure something went horribly wrong. The excuse concerning privacy is –let’s be honest– right down nonsense. You don’t have to release data, as it can’t be too hard to program local regulations into the platform.

Do I live in Amsterdam and would I like to rent my apartment for the 61st day? Impossible. Do I live in social rental housing and would I like to host someone in my house via Airbnb? Impossible. With the in-house knowledge you have acquired, programming this into the site is relatively easy. Just think of what else it might offer you in addition to discussions with municipalities? You’ll be making friends. Everyone would be happy. Short-term, slightly less profit from ‘illegal’ hosts in exchange for a long-term raison d’être. Not that hard of a choice, so it seems to me.

So, in the case that you choose short-term profit, you will only create opportunities for your competitors. Success rises or falls on the trust users place in your services. The power of the Airbnb concept lies mainly in the careless stay, just like a local, in a complete stranger’s house. The power of your concept lies as well, in contrast with Uber (which strives to build a network of autonomous cars and hence their careless attitude towards drivers) in the goodwill of the community. Something you don’t want to risk. Do you?

Dear Sirs, after a turbulent growth, you’re facing two diverging roads: will it be short-time profit maximization and a quick exit strategy, or do you choose to stick it out for the long-term? I can’t imagine that extraordinarily penalized hosts, guests evicted from their apartments, and authorities banning your service, fit into your ideals. You choose.

Thoughtfully,

Martijn Arets

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“The Age of Communities creates more choices”. For me, that’s the most important lesson out of the first day of OuiShare Fest 2014.

By: Claartje Vogel

A big circus tent is set up next to the Canal de Saint-Denis in Parijs. It’s the setting of OuiShare Fest 2014, first destination for the Crowd Expedition team. A good choice, because this is were all renowned speakers and experts about the Collaborative Economy gather. Visionairs, researchers and entrepreneurs from all over the world share their thoughts on the question how organizations should adapt in what OuiShare thinks might be “the Age of Communities”.

 Check out our video

The first speaker comes from Brasil and he’s the founder of several sharing platforms in Latin-America. For example websites for independent journalists and several online and offline platforms to facilitate collaboration between government, businesses and civilians. Tomás de Lara seems an interesting figure, but I found his presentation disappointing. De Lara started with some kind of meditation session and ask the audience to hug and get to know eighother. It was nice that we instantly got to meet new people, but unfortunately not much time was left for De Lara’s actual presentation. His main message was that many collaborative initiatives don’t need a business model, because the fact that they exist should be important enough.

Don’t blame the crisis

That’s definitely not the case for AirBnb, a company in the sharing economy with one of the most successful business models. Blogger Liam Bogaar (Rude Baguette) interviews Oliver Grémillon, head of AirBnb Europe and Africa. Grémillon had two years of experience at the home sharing platform. Even before AirBnb had an office in Paris, ten thousands of people were renting out their homes in the French capital. “The community grew thanks to word-of-mouth”, tells Grémillon. “At the moment Paris is one of the top-3 AirBnb-cities, next to New York and London. The city has more than 25.000 accomodations. French people are very open to the concept of sharing.”

According to Grémillon, the success of the sharing economy is partly caused by a new way of thinking, not by the crisis. For the new generation, owning stuff is far less important than for their parents. That’s what makes sharing appealing. The new generation thinks it’s a shame to leave their house empty when they go on a holiday. Thanks to this new way of thinking, AirBnb’s success will not cease after the crisis. At least, that’s what Grémillon thinks.

Unfortunately the head of AirBnb doesn’t really go into the question about problems concerning cityregulation. There’s a big chance the platform will have to deal with mayor restrictions in San Francisco and New York. It’ll be fine, says Grémillon: “Ignorance is our worst enemy. We understand there are rules, but when we can explain all of the advantages of renting out houses, cities will come around.”

It’s about choice

I thought Rachel Botsman was this day’s most inspiring speaker. She gave a well substantiated talk about the changing economie. Botsman is researcher and writer of the book What’s Mine is Yours about the sharing economy (Collaborative Consumption). “Definitions are very important”, she explains. “If we, the pioneers, cannot agree on the fundamental principles, how can we ever explain it to the rest of the world?”

Collaborative consumption is a global concept that involves sharing, bartering, lending, trading, renting, gifting, and swapping goods instead of buying them. This concept has been in communities for thousands of years, but has recently gained popularity in the United States and Europe. TIME magazine has named collaborative consumption as one of the “10 ideas that will change the world.” Read more.

According to Botsman the overall similarity of collaborative initiatives is that they make power shift from institution to the people. “In traditional universities learning is bound by specific definitions and restrictions”, she explains. “Thanks to the new way of learning in communities, anyone can be a teacher. You can learn almost anything from anybody in the world.”

The most important asset is that everyone has access to knowledge thanks to platforms like Coursera. In the case of AirBnb, anyone can be a landlord and a tenant at the same time. Same goes for crowdfunding: anyone can be “the bank”, and anyone can get a loan. Botsman things banking is most vulnerable to the changing economy. “Banks are complex, provide limit access and people don’t trust them anymore”, she thinks. “But I don’t believe the old organizations will disappear completely. The most important thing is that people gain more control about what they really need: food, knowledge, money.” In short: “the Age of Communities creates more choices”.

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