The New Crowd Focussed Economy

In the mid 90s at the birth of the modern consumer focussed Internet we saw a multitude of major companies launched throughout that decade up until the dotcom bubble burst in 2000-01. During that period we saw many brands rise and fall completely like Pets.com. Some reached a zenith point during that era but have never quite captured the same level of importance as they had in first 10 years of the consumer internet like AOL and Yahoo. Then there is a third category of companies that were established during that era that are now the dominant mainstream brands let alone Internet players of today like Google and Amazon.

What is common to all of those brands is that they launched in era commonly known as Web 1.0 and their business models are predicated on a traditional business way of thing. That is where the brand is a primary destination and makes it money from the technology they have developed and the things they directly sell. In Amazon’s case this was physical good initially being books and in Google this was white space like a Newspaper for people to buy ads.

As we went into the Web 2.0 era and companies like Facebook, Twitter and Yelp came along and they took advantage of the network effects of the Web and broadband reaching near saturation levels. The began utilizing user generated content and digital interactions between users as the basis of their destination portals and engagement. Therefore while Facebook and Google still both sell white space on their page as a basis of revenue, the content on Facebook comes all from its users whereas the content on Google is from its technology’s ability to provide a digital map of the web relevant to a user’s search intent.

Interestingly both Google and Amazon took advantage of the Web 2.0 era by opening up their platforms and revenue streams to 3rd party based offerings as way of taking advantage of the network effects of the maturing web population. Google offered contextual based ads for web portals to show on their own website to monetize their own audience. Amazon opened up their platform allowing both traditional and other digital retailers to sell via Amazon’s robust and efficient e-commerce and distribution platform. This evolution is one of the main reasons Google and Amazon are behemoths today versus Yahoo and AOL who dwarfed them in the early internet.

This Web 2.0 era has now evolved into a new era which has manifested in two ways. It is a mobile powered era where portable devices like smartphones, tablets and light weight laptops dominate with smaller screens, touch first interfaces and a more closed network architecture is taking hold. More importantly many of the new brand starting to become the major players like Airbnb, Uber, Kickstarter, LendingClub, Instagram, Whatsapp, TaskRabbit, Skillshare, Square, Snapchat, Vine, Etsy, etc. are not only becoming companies where mobile is first and in some cases already everything but a new paradigm is emerging.

Every business needs customers and these new companies are no different. However where the likes of Airbnb and Uber differ to even Facebook or Amazon is the idea of the crowd. That is without the crowd not only would Airbnb and Uber not have anything to offer and sell but that the crowd itself become micro businesses built upon the larger business. Facebook needs crowd content to have something to sell (i.e. Ads), however it is only Facebook that profits from those ads. Amazon allows micro businesses to be built on its platform selling goods but Amazon itself offers a large amount of goods and services that they provide directly.

Hence the crowd focussed economy is born ….

Now people may ask both why has this happened and why is it even important. Larger global socioeconomic shifts along with technology innovation plays a part in this perfect storm and the resultant effect is a new distributed economy where the boundary between the individual and business is blurring. In actuality this is not even a new phenomenon as it the way we were for much of human history until the Industrial revolution brought us the concepts of employer-employee, corporation and separate work and home on a mass scale.

What has caused this?

  1. Globalization – The relative free and speedy movement between nations of goods, services and labor creates a dynamic market for all three meaning things like geography no longer play any major factor as an insulator to success even for small businesses
  2. Mobile Technology – The majority of the developed world is now spending more time using and buying more mobile devices than traditional less portable computers and the developing world along with younger generations globally are almost universally mobile first.
  3. 2007-9 Economic Crisis – The financial crisis that began in the US and quickly engulfed the world was essentially a credit leverage fueled crisis both at the corporate level and at the individual level and thus by extension the government that represent the people and corporations.
  4. Rise of Middle Class in China, India, etc. – Between China and India alone you have 1/3 of the world’s population and thus a major source of the world’s demand and labor force. When Russia, Brazil, Mexico, South Africa, Turkey and others are added you have the new growth engines of the world’s economy having a populace increasingly becoming more wealthy.

These are all long term trends along with declining birth rates and education standards with increased costs of health and education in much of the industrialized world mean that the average employee in Japan, France or the US can no longer rely on an employee marketplace friendly to their entire populace.

On the flip side people in these nations and across the globe now more than ever have an environment that makes it easier to commence their own enterprises and/or offer their unique skills to large and small businesses alike on an ad-hoc basis.

Enter Airbnb, Uber, Etsy, Kickstarter, LendingClub and Square as companies that directly take advantage of these macro trends and create businesses based on the crowd and sharing focussed economy.

The baby boomer generation were born into a time fueled by the manufacturing boom coming out of World War 2 and a maturing of the technologies coming out the Industrial Revolution like mass production factories, automobiles and more stability and innovation in farming, agriculture  and thus food production. Of course this was limited largely to the countries we called the mature industrial economies  but produced a culture where the individual, rather than the community during Depression era times, was back in vogue. As this generation entered government an economy centered around consumption was promoted and credit fueled domestic growth was born. Today we are paying the price was that over leveraging of credit with massive government and individual debt inhibiting the mobility of workers and the government to address issues just when they are most needed.

What these 6 companies amongst many others are leading the way in is using individual creativity and what already exists and making a business out of it along with creating many thousands of micro entrepreneurs along the way who badly need the income.

  • Airbnb – As construction collapsed, hotel accommodation got ever more expensive and people were looking for new income streams to help pay their rents and mortgages, Airbnb was born. The ability for people to offer up their own homes or rooms within their homes to travelers for a rental fee has turned the travel industry upside down in 3 years around the world and revolutionized small business. As hotels tend to be concentrated around major attractions in a city, Airbnb locations are everywhere and thus travelers explore neighborhoods, sites and patronize small businesses they never otherwise would injecting valuable money into local economies and broadening awareness of culture
  • Uber – Owning or driving a taxi is often the rite of passage for an immigrant family in a new homeland. In general taxis are micro small businesses where the license is owned by someone who may drive his own car or hire drivers. Uber has created a system allowing thousands of these types of individual drivers to be connected to commuters via mobile at the exact time they are needed. Suddenly individual businesses are not just beholden to old world dispatch centers and the luck of being in right place at right time nor do they have to worry about the tedious hassle and risk of payment at the end of the ride
  • Etsy – Local, handmade and custom used to be the story for all goods until the mass production era and more recently the Made in China phenomenon. Putting the political sensitivities, patriotism and quality debates aside, what has definitely been lost in all of this has been small businesses across the globe and the unique culture behind individual designers and creators of products. Etsy has become the leading place for the local small businesses of yesteryear to be in a place where that is again valued but also keep up with the modern consumer methods of finding and paying for said items.
  • Kickstarter  – Some may say ideas are plentiful but there are so many good ideas that before were limited in execution to the networks and abilities of the originator(s). Kickstarter and other’s allow these ideas to be put to a community who can choose to back it with funds in return for maybe an initial sample of the product, some other memorabilia or even just recognition that they helped cede something great. These funds pooled together allow ever more ideas to have a chance to ferment and many new businesses are born.
  • LendingClub – Banks for centuries have owned the ability to offer loans to customers in return for a return payments over time with interest. It has made many a fortune when done prudently from the original modern banks of Florence in the Renaissance to the powerhouse institutions today. However for most of human history it was again the private lender who would loan funds to others for their needs in return for a repayment with interest. Most individuals can’t afford to lend large amounts of money repeatedly to meet people’s loan needs nor can they easily be able to spread the risk of these loans across multiple borrowers. Hence companies like LendingClub (and Proper) were born allowing loan amounts to be pooled amongst investors for a single borrower and thus allowing investors to issue multiple loans easily like a bank.
  • Square – Each year we head further towards a cashless society where transactions happen electronically via mobile, chips, credit cards, wire transfers, etc. Small businesses of all types often fall victim to this consumer trend as people carry less cash so are unable to buy things at their business which does not want to bear the expense of previously expensive infrastructure and ongoing costs to accept credit cards. Companies like square using people’s mobile devices like an iPhone or tablet paired with a freely issued card reader dongle can now accept payments anywhere with technology they probably already always have with them along with capturing transaction data for accounting records.

The common thing at play with all these companies and their contemporaries is they use what already exists and/or the crowd pooled together to create their business and many micro businesses around it. It also feeds into Generation Y and Millennial era values of being slightly less consumption focussed and more on community, sustainability, local and environmentally minded ideals.

There are forces at play from Incumbent businesses and their lobby groups, unions and government figures that are resistant to this crowd centric economy change primarily because it takes away power and money from their legacy ideals and ways of doing business. However just like Walmart disrupted many small local retail businesses, the major hotel chains the same for family owned inns and bed and breakfasts and community banks were overrun by national mega banks over the last few decades, today they are facing a revolution as crowds of these same people are offering a comparable solution in the market where their ancestors were unable to compete.

Embrace this new economy as the potential for great things for us all is vast and vote with your feet and actions in preventing the establishment players from preventing the necessary changes needed from a prosperous and sustainable society as a whole as me move further into the 21st century.