Not Yesterday’s Economy

FILE - In this Feb. 22, 2018, file photo, Airbnb co-founder and CEO Brian Chesky speaks during an event in San Francisco. Airbnb says it will spend the next year verifying all 7 million of its listings as it works to improve user trust. Chesky said the company is also launching a 24-hour hotline for guests, neighbors and others to report problems. (AP Photo/Eric Risberg, File)

In today’s marketplace, there are some growing trends when it comes to business leadership.  The largest and most successful companies are not one in the same.  In every business era, there are key takeaways that typically follow some sort of major innovation or revolution. 

The industrial revolution brought innovation through mass transportation of people, goods, and services, with increased production, and later on automation, which was expanded with computer technology and learning.  The technological and data revolution has expanded knowledge, access, and the speed and efficiency where business and life is done.  The recession of 2008 (along with technology and increased distribution channels) also encouraged the gig and what was to become the shared economy. 

There are three trends as a result. 

1. Shared versus Owned

When someone cannot afford to purchase something, they borrow or share the something.  This is what Uber and Lyft are as companies.  “Ride share” allows for people who do not own or have need or access to cars to be connected to people who do and the exchange is a financial one.  Airbnb is one of the largest hotel companies in the world and yet does not own any properties.  It currently brings in more revenue than Hyatt, has more “properties” through its application users, and has been around for less than a decade.  (See Ismail, Salim. (2014). Exponential Organizations: Why new organizations are ten times better, faster, and cheaper than yours (and what to do about it). Singularity University Press).  Moreover, it is currently less expensive in many industries (if not all of them) to share rather than own.  The old model would have encouraged ownership or leasing to increase scaling and distribution of a business.  In many industries that is no longer needed.

2. Network to Scale

The power of a company can be seen through its network.  It the past this “network” would have been customers that led to sales.  Today, a network’s power in many industries is through crowdsourcing, data, digitalization, and the shared economy and platform.  The power of Facebook, Instagram, Twitter, YouTube, studios (see Warner Bros. use of artificial intelligence to help with the decision-making process in green-lighting projects), and Streamers all rely on their networks.  Information collected from customer data that is run through algorithms, artificial intelligence, and analytics programming to help with business decisions (e.g., knowing and delivering what the customer wants and when the customer wants it). 

It is also about freely shared information by users on platforms that encourages engagement on the various applications and platforms.   More engagement means more eyeballs and advertising dollars.  A powerful network (that is not owned, but managed) by the company has replaced a traditional scaling of business based on tangible size.  Scaling is important, but because it is digitized, cloud through server storage may become the only physical property that is required for growth of a business. 

3. Experience and Control?

When someone cannot own something, they look for a (un)controlled experience.  Think about this, when someone watches Netflix or Amazon Prime, etc., they do not own the content they are consuming, but are paying a fee to watch it.  They do not own a DVD or video of that movie or television series. 

The next stage of the gig-to-shared economy, however, has also allowed for more control.  Meaning, as long as a person pays the fee, they can have access.  For example, anyone can “hail” an Uber, reserve an Airbnb (with new locations offered everyday), or watch reruns or their favorite movie, at really any place or any time.  The user does not own the thing, but they are being encouraged to share through a platform-based company that connects owner to user. 

There is now clear evidence that the gig-to-shared economy is becoming or has become the experience economy.  Meaning, experiences are valued above ownership by consumers.  Therefore, consumers look for things that add value to their lives in the experience column versus purchases for the sake of ownership.  Interestingly, the more information one gives up or shares through a crowdsourced platform network, the less control they have over their privacy and choice because a computer program is likely to make suggestions to what you should watch, use, etc.

One closing thought on this subject for now.  Some of the most successful companies in the world derive significant revenues not from producing something, but from selling advertisements on their crowdsourced platform networks.  For example, in 2019, YouTube ($15.1b), Amazon ($10.1b), and Facebook ($17.1b) reported the aforementioned in advertising revenue.  In comparison, Netflix reported $20.1b in subscription revenue for 2019.  Importantly, “advertising” companies brought in nearly more money than Netflix, who does not advertise on its platform. 

Today’s economy is definitely not yesterday’s economy. 

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