Disintermediation : in the App World
Updated: Jan 12, 2021
The threat of disintermediation is real; uncover new-age tools and methodologies that help to unravel the threat, whilst continuing to dominate the multi-homing industry..the author says and delivers the right pitch "Airbnb’s dominant market share lets it avoid multi-homing and its features and trajectory avoid the lethality of disintermediation. These advantages solidify Airbnb’s foundation, promising profitable growth and therefore a more predictable, lucrative, and stable debut on the public market. The stumbles of Lyft and Uber have not permanently tarnished the promise and profit potential of sharing platforms. Airbnb is likely to revitalize the reputation of this powerful business model." - like what the ancient forefathers say "the good show is yet to come" hashtag#airbnb hashtag#multihoming hashtag#businessmodel hashtag#sustainable hashtag#disintermediation hashtag#bypass hashtag#innovation hashtag#app hashtag#platform
8,787 views Jul 26, 2019, 07:50am
Will Airbnb’s IPO Collapse Like Uber’s And Lyft’s?
(Credit : www.forbes.com)
The recent IPOs of ride-hailing stars Lyft and Uber promised a big bang, complete with clashes of cymbals and soaring violins, but instead delivered a dull thud, accompanied by a descending kazoo. What does their bumpy road herald for Airbnb, the global apartment-sharing behemoth, which plans to go public next year?
These companies peddle different services – transportation vs housing – which exposes them to different micro- and macro-economic challenges. Airbnb enjoys a comparatively more stable business model, whose flaws are known and surmountable, possibly positioning Airbnb for a smoother debut for investors. But there’s a deeper analysis beneath the bed sheets.
Lyft, Uber, and Airbnb all leverage a novel method for creating and capturing customer value, compared to their traditional competitors. Instead of making and delivering a service, these multi-sided platforms coordinate demand from buyers with demand from sellers. These companies match riders or renters with car or apartment owners, reducing the hassles of finding willing customers and facilitating the consummation of a mutually beneficial transaction. In the process, they generate impressive commissions, unlocking the potential of under-utilized assets – cars or houses that sit empty - and therefore lower the costs of the service, releasing an under-served demand.
The Big Five – Amazon, Apple, Facebook, Microsoft and Google – are all multi-sided platforms, just like Lyft, Uber, and Airbnb. These behemoths comprise the newest entrants to the world’s ten most valuable companies. Unlike the Big Five, however, Lyft, Uber, and Airbnb are “sharing” ventures. As compared to Amazon, which helps sellers transfer ownership of a product to buyers, sharing companies do not transfer ownership. Instead, they prompt the owners of assets to sell a temporary service instead of the asset itself. Without fewer needs, these sharing companies require almost no capital investment in inventory or physical logistics. As a result, they are efficient to start, scale, and operate. While they have large IT functions, they are not reliant on patents or trade secrets. Until Lyft and Uber stumbled, a business harnessing the network effect through a multi-sided platform in the sharing economy looked like the Next Big Thing.
The potholes in the road for Lyft and Uber are deeper and worse than the cracks in the foundations of Airbnb. Let’s start with multi-homing. A consumer standing on a street corner seeking a ride has many options. If Uber does not have an available car nearby, the consumer can check availability on Lyft quickly, with no delay or penalty. Traditional taxis now recognize the threat from these ride-hailing apps, and have cut their fees to become a competitive alternative. And public transportation is always cheap, albeit typically less convenient. This ability for riders and drivers to switch between Lyft and Uber precipitated a price war, both to lower costs for riders and to raise compensation to drivers. The result has been a sea of red ink that swamped their profits into the distant future.
In contrast, Airbnb does not face a significant threat from multi-homing. Because it quickly sprinted past competitors to establish a global footprint, Airbnb has already captured the lion’s market share of interest from homeowners and potential renters. Switching to, say, HomeAway, a much smaller competitor, drastically limits renter choice and rental demand. Airbnb’s early lead created loyalty among consumers because there is no close alternative. Moreover, the company reinforces this loyalty by penalizing owners or renters who cancel their booking, reducing the temptation to flit from one house-sharing platform to another.
However, Airbnb’s business model has one fault that doesn’t inflict its ride-hailing cousins: disintermediation. Homeowners and renters have a incentive to find each other through the platform, and then cut a side-deal that avoids the platform’s commission. This incentive rises with the price of the service. But a rider is unlikely to attempt such a side-deal with an Uber driver, because it might only save $1. Bypassing Airbnb could save a renter and homeowner thousands of dollars on avoided commission. Airbnb has already taken several technical steps to attenuate disintermediation. Hiding owners’ and renters’ contact information and showing imprecise locations on its maps hinder such direct arrangements.
Beyond these small rearguard actions, Airbnb is employing more powerful magic to attenuate the threat of disintermediation. Instead of blocking it, the company is adding value-added services that intentionally lure buyers and sellers to facilitate a deeper relationship. For example, the company’s expansion into guide services is augmented with schedule and communication tools that convince buyers and sellers to voluntarily stay on the platform and pay a commission for access to these useful tools.
In sum, Airbnb’s dominant market share lets it avoid multi-homing and its features and trajectory avoid the lethality of disintermediation. These advantages solidify Airbnb’s foundation, promising profitable growth and therefore a more predictable, lucrative, and stable debut on the public market. The stumbles of Lyft and Uber have not permanently tarnished the promise and profit potential of sharing platforms. Airbnb is likely to revitalize the reputation of this powerful business model.
Ted Ladd is the Dean of Research and Professor of Entrepreneurship at the Hult International Business School and an instructor at Harvard University, teaching and researching