Last week, taxi/car sharing aggregator Uber raised an incredible $1.2 billion in private equity, at a whopping valuation of $18 billion. It’s the largest amount ever raised by a private company, and it makes Uber more valuable than car-rental giant Hertz. AirBnB has done almost as well, closing a $500 million round at a $10 billion valuation in April. Remember, those are billions. With a B.
More than a bubble
I’m not going to argue that these sky-high prices for still young and profit-challenged companies constitute a bubble. There very well may be a bubble, but there’s something else going on, too.
Instead, I’m saying that the rise of these companies and the “sharing economy” they represent is a fundamental shift in value from the creation of goods and services to the ability to aggregate, organize, and deliver access to those goods and services. More to the point - this shift is likely to have enormous and poorly understood effects on the overall economy.
While Silicon Valley loves to celebrate disruption, and I don’t have a problem with outmoded companies losing out to more innovative organizations, the structural changes enabled by the sharing economy threaten to commoditize and thus lessen the rewards of actually building something – transferring those incentives to the companies that can best connect buyers to those resources.
Google blazed the trail
Google is the perfect case study. The Internet’s most powerful company doesn’t actually create much content. Google merely created the world’s most popular way to find content that other organizations create. In the process, it sucked up the lion’s share of the economic value created by that content. Case in point: Google now makes more money on advertising than the entire U.S. newspaper or magazine industries. You know, the people who actually create a lot of the content that Google point to.
In a not-unrelated development, about a third of all journalism jobs have gone “poof” in the last couple of decades, and many of the ones that remain are remarkably low-paid.
Sure, there’s still content being created, but often not by the professionals who used to do it for a living. And so while there’s still plenty of content around, there’s a lot less of the kind of content that professionals used to create. You may not mind that -- plenty of people seem happy with vast quantities of home-grown content, which I guess is kind of the point – but I for one miss the professional-grade stuff as both a writer and a reader.
As the Google and various social media references become the entry point for more and more content, content brands are becoming less and less important. The value of individual pieces of content is increasingly determined by Google and social links. And they’re reaping more profit out of it than are the original content creators, without actually having to create much content of their own.
The end of taxis and hotels?
In some ways, Uber, AirBnB, and their ilk are doing similar things to the markets they serve. While Uber actually employs some drivers directly, most of these services are built around facilitating access to existing resources created by someone else. And that can play hell with the economics of actually creating those resources.
While there’s been plenty of arguments over how much—or how little—Uber drivers earn, the numbers pencil out much better when drivers use cars they already own. While the taxi industry uses dedicated vehicles, trying to justify purchase of an automobile for ride-sharing use is pretty tough. Similarly, buying or building lodging space just for rental on AirBnB is probably not economic in most markets (New York excepted).
The obvious difference between these sharing companies and Google is that they’re monetizing something that wasn’t previously saleable, while Google grabbed the cash that went to existing businesses. But taxi and hotel companies invest big bucks in providing their services, and Uber and AirBnB are sucking a lot of that money out of their markets.
How much sense does it make for businesses to invest in taxis or hotel rooms when you’re competing against amateurs with no real investment costs?
Do we still need “professional” transportation and lodging? Do we need someone “regulated” to pick up passengers in wheelchairs or with other troublesome special needs? Do we need places to stay that provide more complete service than a futon in the living room (or even a house or apartment)?
And if so, where is all that going to come from down the road?
Don’t get me wrong - I’m not saying the economy is a bad thing. I appreciate unlocking all those underused resources, and I’m a customer of both Uber and AirBnb. And, of course, I rely heavily on Google to reach the content I want and social media to tell me about content I didn’t know I wanted.
But let’s not pretend that there are no costs to these new services. Not all of those billions are added value; some of it is going to come out of the hides of institutions upon which we’ve long relied, perhaps precipitating changes that we may not like as much as we do taking an Uber to stay at an AirBnb.