Understand Uberization and Make it Work for You
Almost everyone agrees that Uber is a game changer. Some see Uber as a leading example of the “sharing” economy. I’ve also heard the phrase “gig economy” bandied about. But those labels don’t really capture the powerful economic essence of companies like Uber. Any good economist recognizes what Uber is really all about—and so should you. Understanding is the first step in your ability to leverage the concept yourself.
Uber is about optimal asset utilization. Of course, Uber is not the first to optimize the utilization of assets. The airlines have been at it for decades—they try to figure out how to keep their planes in the air as much as possible. Canada’s famed heli-skiing businesses do it too. They use their helicopters to ferry skiers in the winter and then rent those same helicopters to the forest service in the summer for firefighting.
Think of it this way. Let’s say your helicopter cost $15 million and you finance that at 5%. That financing costs you roughly $2,000 per day. Every day the helicopter is not flying, you’re still paying $2,000 in a day in finance costs. That’s nearly $100 per hour—just for the financing. The more you can keep that helicopter in the air producing revenue, the better. It’s that simple, and it represent the difference between a failing and thriving business.
I live in Colorado. If you’ve never been to Colorado, you think of it as ski country. So it might surprise you to know that the traffic coming down from the mountains is often worse in the summer than the winter. Why? Because the resorts have figured out how to make themselves attractive destinations during the summer, too. They still have some work to do—the fall is still a quiet time. Kids are back in school and there’s not enough snow to ski yet. But the fact that it’s become such a vibrant summer vacation spot is another good example of asset utilization.
Ratings Remove Risk
Car sharing has been around in one way or another for some time. City dwellers have gone without cars for decades, instead opting to rent on the weekends. The car rental companies would rent to business people during the week and to locals on the weekend. Sometimes they’d have to move cars from an airport (say LaGuardia or Newark) into Manhattan, but the principle is the same.
Short-term room renting is also a time honored tradition. Those lucky enough to live in an area where a major destination event is taking place have been reaping space renting benefits for decades (think Olympics, Super Bowls, political conventions). Yet, Airbnb is the other transformative “Uber” of our time.
The difference between then and now with respect to car sharing and short-term space rentals is all about information technology. For many—some years ago, the idea of renting someone’s apartment for the night—instead of a hotel room—was too risky. But with the robust, on-demand rating systems used by Uber and Airbnb, consumers can easily find cars—and apartments—that are clean and well equipped. In fact they can be better than taxis and hotels.
So, Uber does not represent a new concept—not by a long shot. But it does introduce a valuable, long-understood concept to many that haven’t thought about it before. So instead of thinking how to leverage the new sharing economy, think about asset utilization.
Now that you understand what it’s all about, perhaps you can come up with some ideas yourself. The premise is that anything that simply sits idle is unproductive. That’s where to start.
Here’ my list:
- My washer and dryer. Sure, I know Kathy (my wife) would say they run all the time, given our four active kids. But they don’t. Is there a business to be had? Well, there are laundromats—so that’s not a new idea. What else can you come up with?
- I have thousands of dollars’ worth of tools in my garage. I long ago decided that buying $200 worth of tools was still cheaper than hiring a contractor if I could figure things out myself. And since I like learning new things, well….
- Then there’s my house itself…and most of what’s in it. My televisions, PCs, etc., and my kid’s rooms. When I served on a submarine, the most junior guys often, “hot bunked.” That means you had the use of a bed during your off time, but someone else would use it while you were on duty. “Gross,” you say? Perhaps, though the disciplined ones actually kept their own set of linens. How about your home PC. Loaning out unused CPU time has been around for some time. The most notable example today may be bitcoin, which resides virtually on thousands of PCs and servers around the world.
- I’ve even thought of “renting” my car to Uber drivers while I’m at work. If I get to my office at 7:30 AM and don’t leave until 6 PM, someone else could use my car in between. It just sits there in the parking garage, producing nothing. Who’s creating the Uber for Uber drivers so they don’t have to invest in new cars, which many Uber drivers are currently doing? This burst of car buying by Uber drivers, by the way, is positively impacting the auto industry—a short term blip and another story altogether.
- Whose office is empty at night?
As with most things, the realities are usually over-simplified. But if you want to be the creator of novel business models and innovative ideas, it’s worth understanding the real principles behind Uber, Airbnb, and other such businesses. Now let your imagination run wild and put your idle assets to work.
David Silverstein is the founder and CEO of BMGI. This article was originally published on LinkedIn. You can follow David on LinkedIn here.
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