The Evolution of Spending in the Sharing Economy

Change is a constant and it’s clear that the growth in the collaborative economy is going to reshape current spending patterns throughout many economies.

The actual impact is still hard to ascertain. But the evidence is stacking up that there are going to be significant changes in the near future. As Larry Fink pointed out in a recent article, the impact of technology can profoundly affect an entire industry, even if it only directly impacts initially on a small subsection.

Fink uses the example of hydraulic fracturing in oil production to make his point. As the demand for the supply of oil has continued to rise by around 600,000 barrels a day over the past year, the actual supply – in part due to new technologies such as fracking (putting to one side for this article the immense damage that fracking causes) – has increased by around 2 million barrels a day.

His argument here is that (as damaging as fracking is) the technology has affected the overall price per barrel in despite the fact that the majority of barrels are not produced using this method.

So when it comes to the sharing economy, what sort of changes are we likely to see as a result of the stellar growth of such businesses as Uber and Airbnb? For most younger people in the Western Economy, there are two common twin goals when it comes to acquiring significant items of property: the car and the home. Not surprisingly, these are in the crosshairs of both growing businesses.

So whilst both assets are fundamentally different (one being an investment, the other a depreciating asset), the question still remains. If significant sums of money are less likely in the future to be tied up by these big capital outlays at the start of young people’s lives, where will they be directed instead? Any ideas?

The Social Challenges of Peer-To-Peer Markets

There’s no doubt that Uber was one of the standout tech companies of 2014. Another year of incredible growth led to a staggering valuation – but also brought with it a range of far more unsavoury stories, the stuff of nightmares for most brand consultants.

But is this ‘take no prisoners’ attitude a driver, or a side effect, of Uber’s success? Or, to put it another way – if an innovative business is hellbent on pursuing such an audacious goal of overpowering and dismantling established business models, will it fail unless it adopts this mentality? My instinct (along with many others) is no. As Peter Thiel points out, there’s a clear difference between pushing the envelope (in the way that another peer-to-peer innovator such as Airbnb does) and just going too far.

A couple of days ago, the FT ran an article that introduces a further important consideration to be dropped into the melting pot for those pursuing such strategies of creative destruction. It was sheer luck that I found it, shared as it was on Twitter. I rarely read the FT as a result of the paywall – that’s likely to change if they ever restructure the subscription model to permit Bitcoin micropayments per article like other innovators of course.

The growth of peer-to-peer marketplaces

In the article, Yochai Benkler argues that, in general, the progression towards peer-to-peer models should be applauded. As an authorLegal Professor for Entrepreneurial Legal Studies at Harvard Law School and wearer of many other hats, Benkler has been involved in some very interesting work over the years that’s worth investigating further (as you’d expect from someone who got a lifetime achievement award from Oxford University in recognition of his “extraordinary contribution to the study and public understanding of the Internet and information goods”).

Benkler starts by discussing the modern trend for employees to detach themselves from their corporate employers in order to simply offer their services to customers directly. The driver here is clearly technology. A combination of mobile computing and ubiquitous connectivity has enabled greater discoverability (uncovering previously hidden demand) and spurred innovation to find solutions that use resources more efficiently (simultaneously releasing more supply).

As this evolution into an on-demand (or more accurately collaborative) economy continues, we’re seeing peer-to-peer markets develop. Individuals are now competing directly with the same companies that used to employ them, providing services that are more tailored and often far cheaper.

Transfer of power includes transfer of risk

This is all positive stuff. But, as Benkler warns, there is something else transferring here which is often overlooked. Risk. Stability and equilibrium in our world is an unnatural state of affairs so companies have traditionally acted as a buffer for employees against the rollercoaster of enterprise inside a market economy.

The role of the market here is also essential. Whilst Adam Smith famously explained how the division of labour enabled people who collaborated by carrying out their own piece of specialised work to create more value collectively, there is an assumption that individuals have access to a marketplace. For example, you may be the best sock-folder known to man but you need two more things over and above that admittedly niche ability:

  1. someone who values your sock-folding skill highly enough to reward you with ‘money’; and
  2. a market in which you can exchange that ‘token’ for the things that you truly need and desire.

If neither exists, you’re likely to starve.

Decentralisation in a technology-driven marketplace

So we’re seeing technology uncover new markets. Yet according to Nobel prizewinning economist Ronald Coase, these peer-to-peer marketplaces come at a cost. In an argument well-known to many in the Bitcoin community, the total cost of decentralisation (i.e. P2P transactions) is often higher than centralisation. As a result, rather than simply having individuals transact throughout history, we’ve developed companies – because trying to find 360,000 specialist individuals who can each produce the required components of an aeroplane, for example, would be prohibitively costly, almost impossible to organise and result in an end product that no-one could protect or market.

However,  as with many established theories, modern technology provides a challenge. Rather than acting as an inhibiting factor on the scale of the project, the early years of the internet saw the rise of collaborative projects that resulted in projects that became significant in size and competitive with anything produced by a commercial entity. However, these projects were driven for reasons other than financial gain – Wikipedia and Linux, both created and maintained by a community providing their time and skills for free.

Price directs any collaborative marketplace (not social interactions)

And here lies the crux of Benkler’s argument. With no money involved, these projects could progress without arguments over how those profits should be split. Yet today, we are clearly entering into an age of massive collaboration in which motivation is clearly ‘for-profit’ as opposed to simply for the collective good of others, both within that community and beyond.

With P2P marketplaces, we will undoubtedly see increased efficiency in many cases. But with such a shift in power and risk, we can also expect to see a more pronounced social impact by virtue of the fact that many individuals lack the shelter of employment which provided some form of buffer during previous periods of high economic growth.

To use Benkler’s example, Wikipedia and Linux impacted the publishing and software industries respectively. These were sectors that contained, for the most part, well-educated and adequately remunerated individuals. However, the currently growth of the new on-demand economy is likely to have an impact across far deeper levels of society that enjoy significantly less financial security and lack the educational resources to defend themselves against the coming disruption.

The challenge of progress

As Charles Dickens was so keen to point out, there is a risk that significant economic growth can also bring with it societal inequality. As these new marketplaces evolve within our modern economy, the promise of financial returns will invariably influence the areas in which individuals focus their time and efforts. Benkler’s view believes that some entrepreneurs have already identified that this will result in certain consequences for others within society. But others, however, have not.

Which, in a way, brings this post back full-circle.

It’s easy to be won over by the promise of new technology and the ensuing gains in efficiency. But it’s equally important to ensure that we spend time considering the necessary rules and standards that we need to maintain and, importantly, improve the cohesion within society today as such advancements inevitably take place in the near future. Otherwise we risk alienation that can only be the detriment of increasing numbers.

Collaborative Consumption

The Sharing Economy has really been gaining steam over the past few years. With Airbnb increasingly building mainstream awareness beyond purely tech circles and Uber’s rapid march towards a multi-billion dollar valuation in the short time since its inception in 2009 (despite being beset by recent scandals), it’s clear there’s a substantial societal shift taking place towards new business models.

I read an interesting article today by Rachel Botsman, author of “What’s Mine Is Yours” and thought leader in the field of Collaborative Consumption, in which she challenges a few of the myths surrounding the area.

I’ve always had an interest in watching the exodus from centralised organisations to technology-driven distributed networks of individuals (which partly explains Bitcoin’s appeal for me) and the ‘sharing economy’ clearly personifies one aspect of this. However, it was also interesting to read the argument that the terminology that we all use has, she believes, been twisted out of recognition. We all talk of the Sharing Economy – but the reality is that participants are not actually sharing at all (in the conventional sense of the word).

When we let people borrow our unused bedrooms, all that’s taking place is simply a rental transaction. This new raft of businesses is being built that use technology to connect supply and demand that would otherwise remain unfulfilled. But at its core, this activity is entirely different to the concept of ’sharing’, she argues. That word by itself comes with its own ideology and implied altruism. However, when we ‘share’ a room, we fully expect to get something in return.

Whilst she’s unsurprisingly critical of the values and culture at Uber, she also points out that pretenders with big plans to disintermediate an industry by simply providing an ‘on-demand’ service do not fall automatically within the classification of the collaborative economy. In other words, it’s not just removing the middle man – it’s more accurately about unlocking idle capacity.

In Botsman’s recent work, she’s identified five key areas with assets that are ripe for disruption together with the solutions for each area (here in brackets):

  • waste (efficiency)
  • complex experiences (simplicity)
  • redundant intermediaries (direct exchange)
  • limited access (shared access)
  • broken trust (transparency)

The explosive growth of the collaborative economy comes partly from the fact that it is replacing traditional asset-heavy business models with ones that are asset-light. The classic example from her talk mentions the fact that it took Hilton Hotels 93 years to get 610,000 rooms in 88 countries. Meanwhile, it’s taken Airbnb just 4 years to amass 650,000 rooms in 192 countries.

I love the example of Goodgym. It’s a platform that connects people who are seeking the motivation to go running with old people who would benefit from regular visits (albeit from lycra-clad sweaty visitors). It’s also fascinating to see that she has identified Financial Services as being an areas where so many of the drivers behind the collaborative economy are present. I couldn’t agree more. As an example, here’s a list of some of the areas that are developing fast, together with a few company names for context:

Botsman’s last point is, I think, key here. Whilst the inroads made by the collaborative economy are scary to many incumbents (statistics abound of the taxi industry losing two-thirds of its revenue to Uber and other upstarts in a period of less than three years for example), don’t forget the way that innovation inevitably plays out.

In the early days of Napster, the music industry tied itself in knots trying to restrict the competition by legal assault. By focusing on where the ball was, rather than where it was travelling to, they completely missed the fact that a new wave of demand has arisen from consumers who wanted to share and buy songs electronically. iTunes would never have had a chance of success if the incumbents hadn’t been asleep at the wheel.

I intend to write far more about the sharing, sorry, collaborative economy moving forwards. In the meantime, treat this as an early collection of ideas and go and watch Botsman’s talk.

 

Unleashing the Potential of Information

One blog I make a point of always reading is by John Battelle. I read his book ‘The Search: How Google and Its Rivals Rewrote the Rules of Business and Transformed Our Culture‘ about the early days of Google a number of years ago and found it a fascinating read given his access to some of the internal workings of Google as the business grew.

Like many of my favourite bloggers, he tends
focus on some of the bigger tech trends that are taking place in society and his post earlier this week is no exception.

In a world in which most of the population tend to forget just how much data records our every move (whether we’re leaking it as we access web services via third party authentication log-ins or learning a coue of weeks later that it was stolen, a result of our own blind trust in services and businesses that are amateurish about securing it), he talks about the concept of potential and kinetic data.

It’s particularly interesting to me because he frames the difference as explaining how some of the fastest growing modern tech companies are experiencing explosive growth precisely because of the fact that they’ve worked out how to release that potential. If you can build a business that focuses in unlocking that potential, you’re onto something that’s really valuable.

So for example Airb’nb, Uber and Nest have each discovered ways to release data that existed in what were previously ‘dumb’ environments and brought them into the structure of the internet. By building businesses in this way, they have unlocked potential information about:

  • merchandise (Amazon, eBay)
  • spare bedrooms (Airbnb)
  • transportation systems (Uber)
  • our home environments (Nest)
  • real-world relationships (Facebook)

And of course another great example is Google itself – a business which discovered how to convert potential information (links on the web) into kinetic information (search).

You could argue that it’s a subtle distinction – but I feel that it’s a key one. We’re all guilty of speaking confidently about how Big Data will change everything but for the most part, organisations are still flailing around trying to record everything possible in the hope that this will become somehow useful in the future (hello NSA…).

But if you’re looking for business ideas and want to make a real difference, think about one area and focus in on how you make that leap on converting potential to kinetic information. You might just stumble across a huge idea for a business.

photo credit: jah~ cc

Three Key Megatrends In Technology (And Society)

Binoculars
It’s not always that easy to see what’s ahead…

If you’re interested in technology, it’s very easy to be seduced by the hype that surrounds the new, shiny product or service that everyone’s talking about that month. And whilst that’s mostly harmless for the consumer, it can be fatal for a VC. Not only are the companies that you invest in risky but by paying above the odds, you now need your winners to succeed on an even greater scale to have a chance of repaying the people who trusted you with their cash.

So I always find it interesting to hear VC’s explain how they make the decisions about what to invest in given that they focus only on sectors that they believe have tremendous growth potential. Fred Wilson is both a top VC and daily blogger who’s particularly insightful and his recent talk at Le Web on three key megatrends in technology is no exception. You can check out the full talk in the video below.

 

You See Better From Further Out

Fred’s approach is to move one step back from focusing on so-called hot areas in general (such as machine learning and big data) to try to understand the bigger picture. Don’t attempt to guess which technology will be the most important. Look instead at how society is developing and the gaps that are being created. And it’s on this basis that he sees three ‘mega-trends’ driving business over the next few years.

1. Transition from bureaucratic hierarchies to technology-driven networks

Business traditionally functioned from the top down. Management orders filtered down the levels whilst customer feedback would usually go directly to front-line (and often junior) staff. When the system worked, that feedback would have to travel back up through the various layers until management made the decision about whether or not to make changes. Inefficient yes but justified by the high costs of communication.

But now these costs have plummeted, traditional hierarchies are being replaced by technology-driven networks. Think about the disruption to the newspaper industry: vast newsrooms with armies of reporters directed by a publisher with stories being edited to meet deadlines before the publication of a physical daily newspaper. Cue the entry of technology-driven networks (and the advent of Twitter and blogs in particular) and now everyone can be a reporter.

The crowd on each network determines what is popular (by retweets, follower count and the like) and the news that is relevant is delivered to us instantly via our mobiles. The same disruption can be seen in film/television (YouTube) and the music industry (Soundcloud).

Consumers now have the power to clearly signal what they want and find useful. But Fred believes we’re still in the early stages of this process which is only now starting to ripple through other industries like hotels (Airbnb, OneFineStay), creative industries (Kickstarter) and learning (Codecademy). Most industries will be affected by networks over the medium term.

2. Everything is being unbundled

It used to be expensive to get products and services to market. That cost meant that businesses tended to bundle things together that the customers had to pay for, even if they didn’t necessarily want the full selection (think of the Sunday papers with News, Holidays, Finance, Fashion, Classified Ads & Sports sections). Yet technology makes it cheap for new companies to be built to deliver single parts of these products, with the result often being that the bit you actually want is now both cheaper and of a higher quality.

Banking is a great example of an industry that’s being unbundled. It used to be very expensive to open and run a physical branch so the banks offered all types of products, including mortgages, credit cards, small business loans and working capital finance. Yet new businesses are now able to use networks of individuals to provide more efficient, specialised and more effective products – through peer to peer lending for example (Lending Club).

University education is another area where the high costs of traditional delivery – sourcing a building, lecturers, expensive academic books in libraries, face-to-face lectures – are being disrupted by MOOCs and mobile online learning platforms. The network model is also changing the face of research, both with the growth of Open Access publications and by enabling people to collaborate across different locations to enable researchers to share expensive, scarce research resources (such as expensive medical equipment).

3. We are all now a node on the network

The mobile phone has changed the game forever. Whilst those in the developed world still have the option of choosing to use a laptop or desktop rather than our phone, in the developing world, mobile has already won that race for dominance. With the cost of a desk computer too high in such countries for general adoption, people just moved straight to cheap (predominantly Android) smart phones. But regardless of the location, the result is that we are all now connected to each other all the time. Cue a wave of opportunities for businesses who are able to build upon that knowledge of people, locations and photographs across the network – in transport/logistics (Uber), payments (Dwolla, Square) and dating (Tinder).

Where The Three Collide

Fred goes on to identify four key sectors in which each of these three mega-trends are making their presence felt in particular:-

BITCOIN

It’s obvious that we’re heading for major change in the world of money. I agree with Fred’s view that Bitcoin (or similar) is going to be responsible for so much more than just innovation in payments. It has the potential to become the financial and transactional protocol for the internet that has always been missing. As the standard way in which financial value is exchanged across the web and one that is entirely free from the control of any one party, money will be able to flow as freely and easily as content does today. As a protocol, it will also act as a foundation upon which entrepreneurs can build a whole variety of products and services.

HEALTH & WELLNESS

Think of the growth of wearable technology with individuals wearing devices that can report back with details of their vital signs (Fitbit, Fuelband etc). In the future, some of this data will remain personal and private, some will be shared across networks and some will be exchanged solely between you and your doctor, caregiver or family member. Throw gamification into the mix (Fitocracy) and suddenly you’ve got a profound force for good with individuals making positive decisions about how to keep themselves fit and healthy.

DATA LEAKAGE 

When the industrial revolution arrived, the side-effect of such rapid development was the pollution that poured into our environment. By the time we realised and started the clean-up started, almost a century had passed and we faced a far harder task than it could have been had we dealt with it at the time.

Arguably we’re now facing exactly the same problem in the information age – only this time the pollution is data. Every digital activity we carry out leaves data exhaust which is, like it or not, letting other parties observe our activities. Fred’s view is similar to most people that I speak to: most of the time, he’s happy to let the government, Google, Facebook and others spy on him. However, sometimes the services that we’ve used end up recording our activities when we don’t want them to. Therefore, getting some control over this data leakage, both at an individual and a societal level is important.

TRUST & IDENTITY

Currently, many of us sign into services using our identities from other platforms (e.g. Facebook, Google, Twitter etc). Whilst it is extremely handy to use their authentication services, we are essentially giving these companies knowledge about everything that we do. Fred predicts the emergence of a standard protocol that will provide individuals with control over their own identity, trust and data which will be distributed (like Bitcoin, across many thousands of computers), free from any one party’s control and global.

Tick The Boxes

No matter whether you’re a VC, entrepreneur or just a citizen in the modern digital era, Fred’s talk provides plenty of food for thought. Using this framework provides a useful lens through which to watch just how the world will change in the next few years as a result of developments in the tech world.

We’re only just at the starting line: the pace of technological advancement can only accelerate from here on in as networks strengthen and the remaining friction that slows down the voluntary exchange of information between people anywhere across the world disappears completely. So if you’re looking to start up a new business or simply to future-proof the one you have, you could do far worse than take start to consider how to take account of all three.

photo credit: C.P.Storm via cc

A Deluge of Opinions On Uber’s Surge Pricing

Surging ocean waves
The storm continues online around Uber’s surge pricing model

As the weather starts to worsen for us Northern Hemisphere types, it’s been interesting to watch the debate develop around Uber‘s use of surge pricing during a particularly wintery snowy December weekend in New York.

Cards on the table, Uber fascinates me. Whilst I’m not quite as bullish in my assessment of their future as some who are confidently predicting that it’ll grow into a more significant company than Facebook, I’m convinced they’re on the cusp on something huge and far more important than simply providing high-end transport through a slick app that handles payment directly (see my previous post on the two-way feedback mechanism they employ for both drivers and riders). The moment they start to use that data to morph into more than simply transporting customers with high levels of disposable income, things could really start motoring (excuse the pun). To quote Shervin Pishever:

“Uber is building a digital mesh – a grid that goes over the cities. Once you have that grid running in everyone’s pockets, there is a lot of potential for what you can build as a platform”  

Like all modern businesses, there’s a potential goldmine of user data being generated. But it’s the current use of that data that’s the current hot topic. By using surge pricing, Uber relies on an algorithm that temporarily increases the price of a journey when the supply of cars gets tight. Relying on basic economics, a sharp increase in demand for rides (due to weather or infrequent events, such as New Years’ Eve) causes prices to spike upwards in order to entice more drivers out onto the roads to satisfy that demand.

It all sounds fine in principle, although there are plenty of suggestions about alternative models that Uber could be using. But the current problem is that every time they use surge pricing, Uber walks headlong into a customer backlash, fanned by the social media platforms that are so integral to the daily routines of their target customers. Many are now asking the question: is it worth making extra money out of your loyal customers during peak times if it means risking customer dissatisfaction over the longer term?

Of course, variable pricing as a concept is not new. Every time you fly, the chances are that you’ll end up sitting next to someone on the plane who paid a different price. Yet there are still a huge number of companies who leave their prices unchanged whilst supply and demand vary on a daily basis. Is it just the case that we as consumers need to catch up with dynamic pricing models as they become more common? To my mind, it’s not too far-fetched to imagine society moving towards an individual ‘e-bay on steroids’ style of commerce as we become increasingly connected and systems get better at accurately identifying demand.

But for that to happen, customers need to be comfortable about how the prices are being set. In Uber’s case, the app displays a clear message about the temporary price hike before any journey takes place. But it’s prompted a debate about how those prices are set – in this case, how transparent an algorithm can ever be that is used to identify high demand and power the price spikes. Once a company starts to build up significant data about you, it goes without saying trust becomes critical. What happens, for example, if a price rises simply because the data shows that the customer is a regular has always been happy to pay higher prices in the past?

Remember when Amazon tried charging a higher price to regular shoppers who hadn’t cleared their cookies back in 2000? Not their most popular move. Of course, there’s no evidence that this will be Uber’s chosen path. But in the wider scheme of things, it’s possible to see this question being asked more frequently as the market becomes increasingly frictionless, search more powerful and transactions faster to conclude digitally.

One thing that is certain is that Uber is a young business that is making enviable sums of cash. It’s clearly doing something very right by focusing on monetisation (as opposed to traction) far earlier than many other tech giants did at a similar stage. It’ll be interesting to see how it pans out over the longer term however as Uber becomes more ubiquitous.

photo credit: AGrinberg via cc

Filling In The Gaps With Tim O’Reilly

Halloween EyesTim O’Reilly is a guy that you should really pay attention to. He’s been a leading commentator around key technology areas such as publishing, Web 2.0, open data and the burgeoning Maker movement for a number of years. The organisation he founded, O’Reilly Media, lives by the mantra of ‘changing the world by spreading the knowledge of innovators’ and he’s viewed as something of a master at both identifying trends and amplifying them.

Despite this reputation, he claims that he’s not very good at predicting the future. Instead, he simply talks about things that are happening today that seem interesting to him. As William Gibson once said, “The future is already here – it’s just not very evenly distributed” and O’Reilly’s mission is to help smooth that process.

He recently gave a talk to the Stanford Technology Ventures Program which is well worth checking out. Here are a few key themes from the talk:-

DO LESS

The importance of mobile computing is clear to anyone looking at website analytics. Yet we’re still very much in the early days of mobile and the change that’s coming is much more fundamental than simply a shift in the way that people access your website whilst on the move. Why? It’s all down to that piece of technology that you carry in your pocket which increasingly knows more – and better – information about you as an individual.

Why do applications like Foursquare or Runkeeper, for example, still need us to take an active part? Why do you have to check-in or click a button to tell your phone that you’ve started running? It already knows this information. There’s a revolution coming as businesses get built on the foundation of information that individuals don’t even have to go to the effort of submitting themselves. It’s all being done for them.

You’ve probably heard of Square. Set up by Jack Dorsey, founder of Twitter, it lets users accept credit card payments on their mobiles. But the clever thing is that if you have the App open on your mobile, you can walk into a shop that’s using it and the cash register already knows that you’re there. That connection’s already been made – it’s live and waiting, ready for you to use it.

SOFTWARE ABOVE THE LEVEL OF THE DEVICE

Too often, we’re still thinking about software as being something that lives inside a device. A good example is Linux. For many, it’s at best some kind of mysterious operating system that tech folk discuss and has no relevance to the laptop they use for work. Yet if you’re searching on the web, the chances are high that you’re using Google – which is powered by Linux.

RETHINK CUSTOMER EXPERIENCE

Think about how to update the work of employees to make use of the fact that individuals will increasingly be connected with the internet in more powerful ways in professional settings.

Who doesn’t love the videos of skydiving prototypes of Google Glass? But whilst the current excitement (and concern) is currently focused on the consumer applications of this technology, once you start thinking about  how these technologies could potentially impact workflows, a new picture emerges. Give people ready access to the indexed knowledge of mankind and it’s fairly easy to imagine how certain low-level jobs can be turned into high-level jobs. After all, why train for years to learn something when you can simply follow live instructions?

MAN-MACHINE SYMBIOSIS

The phrase comes from a 1960 research paper by JCR Licklider that foresaw the development in cooperation between men and computers. The technology businesses (such as Google and Amazon) that survived the dot.com crash before moving on to further success did so, at least in part, because they worked out how to get their users to contribute to what they did. Take a bow, Web 2.0.

MORE (AND BETTER) DATA

Peter Norvig, Chief Scientist at Google once said: “We don’t have better algorithms. We just have more data”. Look at Google’s self-drive car. In 2005, the winner of the DARPA Grand Challenge, a competition for American driverless vehicles, drove 7 miles in 7 hours. Yet only six years later, Google has designed an autonomous car that has driven hundreds of thousands of miles in ordinary traffic. So what changed?

Google had access to the data behind Google Street View. Or, to put it another way, the recorded memory of humans who drove those roads, stored in a global brain.

CLOSE THE LOOP

Investor Chris Sacca has been quoted as saying “What I learned from Google is to only invest in things that close the loop”. That is an incredibly important principle for startups who should always be trying to discover the loops in the world that their business can close.

For example, Uber is a taxi business that connects individuals with luxury cars for hire. The app knows the location of both the passenger and the driver and makes the connection so that you always know precisely where the vehicle is. Uber has closed the loop.

Think of just how powerful the business becomes when combined with the rating mechanism that I mentioned in an earlier post has been integrated. A relatively small change now has the potential to completely disrupt the traditional regulation of taxi cab services. No longer does a cab driver just need to be trained and certified. In the modern world, he or she must also display social validation in the form of positive customer feedback – a bleak future no doubt for those drivers who drive carelessly, treat customers rudely or even play music too loudly in their vehicle.

CREATE MORE VALUE THAN YOU CAPTURE

O’Reilly argues that the concept of a business that exists solely for the purpose of making money for its shareholders is fundamentally flawed. Every business has an obligation to create value.

Current high-profile tech businesses (see Etsy, airbnb and Kickstarter) are successful precisely because they’ve focused on building an economy around their business. It is not simply about making money for themselves – they want other people to succeed on the back of what they’ve created in building an ecosystem.

YOU WANT TO LEARN? FAIL BIG

To paraphrase a poem by Rilke:

    What we fight with is so small that when we win it makes us small; what we want is to be defeated decisively by successively greater beings.

Find hard problems. Take the example of a guy who quit a well-paid role with a hedge fund to work for a high-altitude (and high-risk) wind energy company. When asked why, he had one simple answer. He’d wanted to work for the startup was because ‘the math is harder’.

People who want to work on a hard problem are the types of individuals you want with you in a startup. If you can get people to work on things that matter and inspire, it will carry far more weight than being driven by simple monetary gain.

JOIN THE DOTS

So – how hard can it be?

Simplify, move to the cloud, automate, enhance intelligence, collect better data, help other people succeed and set goals worthy of your efforts.

There has to be a business idea or two in there, don’t you think?

(photo credit: Patrick Hoesley via photopin cc)

And The Final Scores Are…

Exit SignI came across an interesting article by Om Malik earlier this week that’s worth checking out entitled, ‘Uber, Data Darwinism and the Future of Work‘.

The founder of GigaOm is known for his incisive writing in the tech field but this post caught my attention in particular, as it flags up just how far-reaching the potential impact of increased connectivity could be as it spreads across all levels of society.

UBER TROUBLE

Om’s thoughts are provoked by a recent story involving Uber, the US-based startup that lets customers book private cars with drivers via a mobile app. It’s a hot startup in the US and for good reason: it’s genuinely disruptive.

The company hit the news recently when a number of drivers were ‘let go’ as a result of customer feedback. To be clear, the drivers are self employed and following each trip, both passenger and driver have the opportunity to rate the other. Losing your livelihood because you failed to deliver your side of a deal is hardly new. But the concept of a company acting on the basis of unvalidated low ratings does introduce a new dynamic into the equation.

THE QUANTIFIED SOCIETY

We’re all increasingly happy (and in some cases incentivised) to rank, rate and share our experiences in the digital world. This means that we’re starting to build a ‘Quantified Society’, where each individual is being assessed and scored. Fine. But who judges what is a good (or bad) score and how does the law back that decision up?

For example, what is the magic customer score at which you can ‘sack’ a worker fairly? And, however it might be assessed in the future, what can an employer do if the score that represents an individual’s reputation takes a hit? The rules of society are going to have to try to keep up with the allocation of points when the rules are unclear.

You also have to wonder how individuals might modify their own behaviours as they become increasingly aware of what the potential impact might be of the scores that they allocate. Will feedback be restrained for fear of someone losing their job? Or, instead, will people hide behind their perceived online anonymity in order to criticise aggressively simply because they can?

AND THE FINAL SCORES ARE…

It might be the future and driven by technological advancement but, as Om writes, the range of challenges within a Quantified Society are likely to be “less technical and more legislative, political and philosophical”.

The human race evolved over time to reward the fittest with survival. Society then developed to ensure that other more desirable attributes were sufficiently rewarded. We’re now moving into the next stage however which introduces another form of competition. The only thing that’s clear at the moment is that the rules haven’t been set – and are unlikely to be for a long time yet.

(Photo via: konstriktion under 2.0 Creative Commons Licence)