From Batch to One-Piece Flow

Two of the more interesting Internet-driven companies these days are Airbnb and Uber. They call themselves part of the “sharing economy.” But let’s take a look at the word “share.” From the MacMillan dictionary, share is “to allow someone to have something you own.” Is that what’s happening here?

Not really. The products and services offered by companies in the sharing economy aren’t free.

There is a small unit of demand in the form of a single room or a single car ride, and there’s a small unit of availability in the form of a room in a house, an apartment, an empty cab, or even someone with a car going in the same direction. They are matched, a value is being transferred, and there’s also a financial transaction representative of that value. That’s really micro supply-and-demand management.

Previously such small units of supply and demand were never taken advantage of, let alone optimized, unless they were aggregated. Now Internet connectivity and computational power can dynamically and efficiently track, match, and transact such small units.

The results are rather astounding. According to a recent McKinsey & Company article, “Since its founding, in 2008, Airbnb has spearheaded growth of the sharing economy by allowing thousands of people around the world to rent their homes or spare rooms. Yet while as many as 425,000 people now stay in Airbnb-listed homes on a peak night, the company’s growth is shadowed by laws that clash with its ethos of allowing anyone, including renters, to sell access to their spaces.”

More than 400,000 rooms—on a single night. That’s the equivalent of over 3,000 average-size hotels. Empty space that was being wasted is now going to good use, eliminating the need to build 3,000 hotels. Think about the positive effect on the environment, urban sprawl, energy use, and so forth.

Similarly, in March 2014 (seven months and a lifetime ago in the timescale of a hypergrowth company), Uber was providing 1.1 million rides per week. In this case it is only partially displacing the required capacity of the old business model, taxis, because many taxi drivers are switching to the Uber platform. Still, think about the effect of that optimized micro capacity-and-demand utilization on the required supply of taxis—and hence steel, plastics, and gas.

I happen to be a big fan of Uber, and use its service almost every time I travel. The speed, convenience, and ease of transaction create significant value. Other companies are looking at similar concepts. Amazon is looking at using micro units of delivery capacity in the form of taxis, and Uber competitor Flywheel is considering providing same-day—and perhaps same-hour—delivery.

Very large numbers of previously wasted supply units are now being matched with demand in a very efficient manner. The batch unit of a large delivery truck, a bus, or a hotel is being broken down into units approaching one. Obviously, any change like this doesn’t come easily, and cities—often dependent on bed taxes—are pushing back on Airbnb while traditional taxi services are pushing back on Uber. But because value is being created in an efficient and popular manner, change will occur.

Where have I heard about that concept before?

First published Nov. 8, 2014, on Kevin Meyer’s blog.

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