Earlier this month, a college classmate of mine, Jack, astutely wrote,
“There’s an interesting link between many successful startups that gets surprisingly little attention. It was a foreign concept before the rise of the Internet, and now I believe it is one of the driving forces behind the growth of Airbnb, Uber, Teespring, Postmates, Patreon, Verbling, and many more. Companies can now empower people to create their own jobs.”
The most well-known companies mentioned above are Airbnb and Uber, whose business models veer from the status quo in their respective industries in a strikingly similar fashion.
Airbnb is part of the ‘temporary lodging’ sector and competes foremost with hotels. Hotels provide a branded platform, usually buildings, and they sell goods, ‘rooms in which to sleep.’ Uber is a company in the transportation sector and competes foremost with taxi companies. Taxi companies provide platforms, branded cars and professional drivers, and the service they sell is ‘car rides.’
Airbnb and Uber also provide branded platforms – mediums that connect supply and demand for ‘rooms in which to sleep’ and ‘car rides,’ respectively. But, in contrast to their competitors, the supply-sides within these platforms, not Airbnb and Uber, own and sell the desired goods and services.
Exemplified by Uber and Airbnb, a new kind of business model is revolutionizing many sectors, notably energy and manufactured goods. Globalization, the Internet, and digitally-enabled automation are transforming business models in a manner that decentralizes production and, thus, empowers the individual.
The Clunky Present – Selling Butchered Chicken
The dominant model at present for the energy and manufactured goods sectors is for companies to both provide the platform and sell the good or service. Large centralized power stations feed current into long high-voltage transmission lines to sell electricity at a lower cost than local generators could offer. Massive conglomerates, such as Walmart, Home Depot, and Ikea, wield their economies of scale and efficient supply chains to dominate the manufactured goods sector.
To use an analogy, companies provide the chicken, butcher it, and all the value for the customers manifests in how this butchered chicken is cooked and consumed.
The Nimble Future – Selling Live Chickens
In the burgeoning decentralized model, however, companies are creating the platform, so that individuals can own the valued good or service that is produced and potentially sold.
In this model, companies provide live chickens, and value for customers manifests in the eggs laid.
The upspring of microgrids and rooftop solar panels is catalyzing the electricity sector’s trend towards decentralized generation, and Bloomberg New Energy Finance (BNEF) foresees this trend gaining steam for the foreseeable future.
Microgrids are localized energy systems – fueled by natural gas cells and often renewables – that can operate independently from the broader transmission and distribution grid when needed. Thus, when the broader grid experiences power outages and/or high prices, the microgrid is sheltered and microgrid operators and owners profit from saving money via lower prices, not needing to stop activity that requires electricity, and even selling the electricity produced. Goldman Sachs and Princeton University operate on microgrids, and these were two of the only places in the New York/New Jersey area to sustain power throughout the aftermath of hurricane Sandy.
At an even more localized level, rooftop solar panels are a growing source of distributed electricity generation. BNEF’s June 2014 2030 Market Outlook forecasts that, by 2030, “renewables will command over 60% of the 5,574GW of new [global] capacity and 65% of the $7.7 trillion [global] power investment. Rooftop solar PV will dominate, taking up a fifth [1,073GW] of the capacity additions and investment to 2020.”
Even today, consumers in many locations can make a return on investment above 6% (real) by installing a PV system and operating it for a 25-year lifetime. In other words, producers of solar panels do not sell electricity; instead, as do Airbnb and Uber, they manufacture a platform that enables owners to sell this good and generate profits.
As costs decline – BNEF believes that “from at least 2020, [policy and/or financial] support will no longer be necessary for [solar] PV build, thanks to a significant decline in costs” – this profitability will increase. Thus, in addition to solar’s social and political benefits – a clean, renewable fuel that is not imported from the Middle East or Russia – it promises to become an increasingly economically prudent fuel source that empowers individuals. And individuals have proven quick to capitalize. In Germany, the country with the most advanced solar progress, individuals and small businesses own over half of all renewable electricity capacity.
Even though solar provided only 0.3% of global power generation in 2013, terror-stricken traditional electric utilities – in both the US and Europe – have been forced to fight for their lives via anti-solar advocacy and/or business model adaptation. BNEF projects solar generation to increase to 6% in 2030; a level which will render utilities that refuse to adapt from traditional models structurally obsolete.
Similarly revolutionary, MIT’s Neil Gershenfeld and many others believe a nascent stage of the ‘digital fabrication’ era is upon us. According to Gershenfeld, “Digital fabrication consists of much more than 3-D printing. It is an evolving suite of capabilities to turn data into things and things into data. Many years of research remain to complete this vision, but the revolution is well under way.”
Among the benefits of digital fabrication – which include improved personalization capabilities, waste management, and cost-minimization – is individual ownership of production (similar to solar panels, Uber, and Airbnb). Digital fabrication suites function as platforms through which individuals may design, produce, and sell tangible objects on demand, wherever and whenever they need them. This state of affairs, according to Gershenfeld,
“Will challenge traditional models of business, aid, and education… Integrated personal digital fabricators comparable to the personal computer do not yet exist, but they will… Scientists at a number of labs (including mine) are now working the real thing, developing processes that can place individual atoms and molecules into whatever structure they want. Unlike 3-D printers today, these will be able to build complete, functional systems at once, with no need for parts to be assembled. The aim is to not only produce the parts for a drone, for example, but to build a complete vehicle that can fly right out of the printer. This goal is still years away, but it is not necessary to wait: most of the computer functions one uses today were invented in the minicomputer era, long before they would flourish in the era of personal computing. Similarly, although today’s digital manufacturing machines are still in their infancy, they can already be used to make (almost) anything, anywhere. That changes everything.”
What Does This Mean?
I foresee this trending “Live Chicken” business model – building the platform that enables users to sell the end-use good – influencing impacted sectors and society at large in the following ways:
Decreased importance of supply chains in microeconomic economies of scale
Without digital fabrication, economies of scale will retain importance for producers of physical value-creation platforms, such as solar panels. However, when I own a digital fabrication suite that enables me to print my own solar panel, the value of SolarCity’s supply chains will erode. Rather, the new market for solar panels will be structured more like a grocery store than a restaurant – selling ingredients, not ready-to-eat meals – and I would purchase the digitized solar panel code that creates the most productive panel with the cheapest recipe.
Many companies, such as Uber and Aibnb, with this “Live Chicken” business model are and will be Internet-based, however. For these companies, scale manifests in the quality and size of one’s strategy, programming, and marketing forces, rather than bulk-purchasing and efficient manufacturing and transportation.
A boom in self-employment
To quote my friend Jack again,
“Companies can empower people to create their own jobs. This is a huge deal and has major implications. Job creation gives employees livelihoods, it gives companies champions who fight to make them succeed, and it gives economies legs to stand on. For employees, it used to be the case that to get a job, you had to be hired; now you don’t. Companies now have the ability to create jobs not only internally but externally, and they can increase the size of their workforce much more quickly.”
This source of jobs is increasingly comforting as fears mount regarding robots causing mass structural unemployment as they replace humans in labor-intensive jobs that have potential for automation.
Increased need for organizational platforms
This “Live Chicken” business model will multiply the options people will have regarding employment, production, consumption, and, more generally, how people spend their time. The combination of “Live Chicken” business models empowering the individual and progress towards an “Internet of Things” – the ability to control tangible objects via Internet-enabled remote controls – in a broad swath of sectors will raise expectations regarding the number of ways the average person must be functional.
I foresee a warm reception for tools simplifying this increased complexity, such as Apple’s “HomeKit” – a single app used to remotely control a fleet of smart in-home devices, such as thermostats and security systems. With HomeKit, Apple is pioneering development of the “Internet of Things” in the home energy management context.
An increasing number of companies in a wide variety of sectors are profiting big time through creating platforms that enable customers to create and sell valued goods and services. If this trend continues, companies will see to it that you, the individual, are empowered in countless new contexts. Just know that with great power comes great responsibility. And with more options comes more choices. And with more choices comes more FOMO.