"The New Era of Economic Abundance" Research Report
Whether you are an executive, entrepreneur, investor, or an individual interested in learning more about the emerging Sharing Economy, I think you will find these highlights from my new research report “The New Era of Economic Abundance” a value-added and insightful read…
By defying traditional economic principles of scarcity, the valuations of Airbnb and Uber have risen exponentially to $25.5 billion and $51 billion. Under our new laws of “Copianomics” (the science of choice under abundance, as opposed to scarcity), the following two economic forces act as growth catalysts:
1. Long Tail of Supply: Building Inventory with No Time or Capital Constraints
In his book The Long Tail, Chris Anderson discusses how the democratization of content will lead to a reversal of economics of the mass market era as the large number of niches in the long tail starts to rival the head of the demand curve. This captures the basic essence of the Abundance Economy supply side as the under-utilized personal assets, goods and talent that were, “…previously dismissed as beneath the economic fringe…” can now be exchanged more efficiently and effectively between people below the depths of the corporate ocean. For example, as shown in Figure 1, Airbnb is building a long tail in accommodation, with 1,000 listings equivalent to one hotel. Airbnb is forecasting revenue to rise from just under $1 billion this year to reach $10 billion by 2020. We calculate this would be the equivalent of Hilton, which took nearly a century to reach its current base of just over 4,300 hotels, announcing plans to add 12,000 hotels over the next five years at a cost of $170 billion!
Figure 1: Airbnb is Building a Long Tail in Accommodation Listings
Source: @heathermcgowan, Brady Capital Research
2. Blue Ocean of Demand: Expanding Total Addressable Market (TAM) Beyond Traditional Categories
In the book “Blue Ocean Strategy: How to Create Uncontested Marketplaces and Make Competition Irrelevant” , W. Chan Kim and Renee Mauborgne advise “instead of focusing on the competition, you focus on making the competition irrelevant by creating a leap in value for buyers and your company, thereby opening up new and uncontested market space.” From an economic perspective, revenue growth is not constrained by existing demand constraints as the companies are accessing new “blue ocean” market demand, expanding their TAM beyond traditional categories. For example, Uber’s mission “to bring transportation as reliable as running water to everyone, everywhere” creates a new “blue ocean”, expanding its Total Addressable Market (TAM) beyond the traditional taxi market to non-customers that used to take public transport, rent vehicles, or own vehicles. As shown in Figure 2, in San Francisco, Uber is generating driver revenue of $500 million a year in San Francisco, in excess of three times the $140 million revenue of the taxi market industry as a whole.
Figure 2: Uber is Expanding its Market Through New Blue Oceans
Source: @heathermcgowan, Brady Capital Research
This in-depth research report features value-added insights for a wide range of individuals:
CEOs and Executives: The new era of Economic Abundance will lead to a radical transformation of the corporate landscape over the next decade as the democratization of assets, goods and expertise starts to threaten the core activities and core assets of a wide range of industries with obsolescence. This will lead to significant value erosion of companies still operating in the traditional era of Scarcity. Companies need to start looking at how Abundance Economy companies could pose a disruptive threat to their industry and weaken their competitive position and economic moats. This will enable companies to identify innovative ways to improve their risk/reward profile by capitalizing on the opportunities created by the Abundance Economy to participate as a buyer, seller, partner, or strategic investor.
Participants (Buyers): Companies in the Abundance Economy leverage technology to enable individuals and businesses to transact below the depths of the corporate ocean. The On-Demand Economy companies excel in offering buyers a superior functional value proposition in terms of convenience and value for money, and in some cases, variety of choice. The Sharing Economy companies excel in offering buyers a high level of fidelity as in addition to convenience, value for money, and variety of choice, they also offer an emotional benefit (in terms of uniqueness of asset, personalized experience, emotional bonding with provider) and a psychological benefit as many are social mission-driven.
Participants (Sellers): Companies in the Sharing Economy provide platforms that enable individuals and businesses to generate passive income by monetizing their under-utilized/latent Assets (Personal Asset Sharing and Corporate Asset Sharing) and Goods (Closet Sharing and General Goods) and to generate active income by monetizing their Expertise/Skills (Professional Services and Trades Services). Companies in the On-Demand Economy enable (mostly) individuals to generate active income by monetizing their time by performing Delivery Services (Private Drivers and Goods Delivery) and Commodity Services (Domestic Services and Non-Domestic Services).
Entrepreneurs: The low barriers to entry, attractive upfront returns, and increasing investor interest in the Abundance Economy is attracting new entrants as well as increasing competition from existing players. In order to sustain its competitive advantage, a company needs to be strategic in terms of creating a business model that enables it to access supply-side growth levers to build a long tail of inventory as well as demand-side growth levers to convert its inventory into revenue. We see the greatest opportunities for growth and value creation in the Corporate Asset Sharing vertical – discovering new blue oceans through unbundling corporate assets, and the Professional Services vertical – building empowering platforms that enable professionals to escape the cubicle and monetize their expertise.
Investors: The Sharing Economy started to gain momentum in the aftermath of the Great Recession as a result of structural shifts in technology, society, and the economy. Advances in mobile technology and apps led to the ascension of the On-Demand Economy in 2012. We calculate the 75 top companies in the Abundance Economy have raised $15.3 billion to-date, with $10.8 billion being raised in the past six quarters by the Big Three (Uber, Airbnb, Lyft). With the exception of the Private Drivers vertical, we would avoid the On-Demand Economy given the rising legal and regulatory risk of worker misclassification. The Sharing Economy companies with the greatest potential to scale inventory are those in the Personal Asset Sharing, Corporate Asset Sharing, and Professional Services verticals featuring both a low marginal cost of supply and a high marginal utility of supply. The Sharing Economy companies with the greatest potential to expand their TAM beyond traditional categories are those founded by rebels with a cause that have built their companies around social missions promoting accessibility, sustainability, or community.
In the spirit of the Sharing Economy, Brady Capital Research is partnering with HourlyNerd, a Professional Services company building the long tail in business consulting. A complimentary copy of our in-depth research report “The New Era of Economic Abundance” (along with our 30 minute pre-recorded webinar) is now available for download at HourlyNerd:http://blog.hourlynerd.com/the-new-era-of-economic-abundance/.
Note: Credit for the graphic designs goes to Heather McGowan, a Future of Work and Future of Learning Consultant, who, like Brian Chesky, is an alumni of the Rhode Island School of Design.