It seems like for as long as we have had the Internet there
has been talk of how it can and is “democratizing” anything and
everything. There is the “democratization
of technology,” the “democratization
of personal finance,” the “democratization
of data,” the “democratization
of retail,” and through blogs like this, the “democratization
of publishing.” So are we really
seeing “The
Democratization of Everything?”
Just because the Internet enables people to do virtually
anything themselves rather than use a professional party, does that mean they
actually will, or even that they should?
In school most of us learned about Adam Smith and the concept of the division of labor. As a refresher, this is the idea that it is
actually better for the individual and for society as a whole to specialize in
a specific area. This allows the
individual to become more expert, and increases productivity individually as
well as in aggregate. This approach has
been credited with spurring the Industrial Revolution, and essentially creating
the modern economy as we know it.
But now some would argue the pendulum is swinging in the
opposite direction. No longer do you
need a banker to focus on finance, a retailer to focus on selling goods, a taxi
driver to focus on transporting people, or a hotel to focus on providing
lodging. In our Internet-enabled age
individuals can and will fill all of these roles and more, not as
professionals, but as part-timers. The
office worker can become a part time driver on Lyft
or Uber to earn a few more dollars. The empty nesters can make some extra money
for retirement by renting their spare bedroom through Airbnb or VRBO. You can even cut out those greedy banks by
lending and borrowing directly from people just like you through LendingClub or Prosper. What is there not to like?
A recent New
York Times article suggests quite a lot. While technology has allowed for the
possibility that amateurs can and will displace professionals, the reality is
rarely so simple. The “providers” in
these peer-to-peer platforms often find that to really be worth their time,
they have to treat it like a real job.
Even when they do, as the New York
Times points out, the returns are far from certain.
And when people don’t treat it as a full time job? Not only do they make less, or sometimes
nothing at all, but they are still taking on a significant burden. Take for example vacation homeowners who
decide to rent out and manage their homes themselves. In theory this is great – they can save on
the commissions they otherwise would have to pay to rental management
companies. In reality they have just
signed up to take on all of the risk, hassle, and time commitment a
professional would otherwise cover. In
fact, a HomeAway survey of homeowners using their platform shows that these
owners spend 8.4
hours per week managing their
homes. That’s right. Every week they are spending an entire workday doing
something that a professional operating full-time and at scale can do more
effectively and efficiently.
Fortunately, despite all of the “democratization” noise to
the contrary, amateurs are not actually displacing professionals in
droves. For example, look at eBay, the
great democratizer of retail. Though the
site started as a venue for soccer moms to sell Beanie Babies to other soccer
moms, it is now a platform on which new professional retail businesses are
started and grown. This shift is so
pronounced that “Power Sellers” now account for 80% of eBay’s total sales.
Or look at Airbnb, the darling of the sharing economy. While pitched by the company as a platform
where “regular people” can rent a spare room or even a couch, the reality of
how it is being used is far different. A recent Skift
report shows that already, much faster than the shift occurred with eBay,
40% of Airbnb’s revenues come from hosts with multiple listings, and a majority of its revenue comes from
whole-home listings – not spare bedrooms or couches.
What is actually happening is that the platform Airbnb
provides has enabled the creation and growth of new model management businesses
such as AirEnvy and MyVRHost, the new “Power Sellers” of the sharing
economy. Companies built entirely on the
backbone Airbnb provides, but companies nonetheless. No wonder Jason Clampet says: “The future of
Airbnb is not the guy who rents out his place on the weekend. It’s the
professionals who know what they’re doing, and sell rooms every night of the
week.”
Even beyond these companies, despite all of the talk
surrounding what Airbnb and VRBO are doing to the lodging space, it is a more
traditional vacation rental management company, Vacasa
that appears to be growing the fastest.
Largely by working with homeowners who have started to realize that just
because they can do things themselves
does not mean that they should, Vacasa
was recently named the fastest
growing company in the Portland area, and the 9th fastest in the
entire United States.
All of this is to say that what may in the short term look
like a Democracy is more likely to evolve into a Republic. We will not become a society where every
single person does everything for himself or herself. However, that does not mean the business
environment as we know it will remain static. Technology and new platforms
enable the creation of new and disruptive business models. In the end, though, it will still be businesses that predominate.
And this is a good thing.
We should remember that, in the United States at least, our forefathers
very explicitly chose to create our country as a Republic not a direct Democracy.
Understanding the principles of the division of labor, they knew it was
better for us to elect representatives who could focus on governing full time
rather than requiring each and every citizen to be involved in the writing,
passing, and enforcement of our laws. Even
with this more hands off approach where we outsource the heavy lifting of
governing to elected representatives, most people find it difficult to do their
part and vote. With voter
turnout at record lows, can you imagine if we actually had to do everything
ourselves? Now there is a scary thought.
