Earlier this week, Pascal-Emmanuel Gobry posted a long and thoughtful comment on my response to his Forbes piece on the sharing economy from last week. I wanted to follow up with a few additional (and admittedly disjointed) thoughts.
I think PEG’s basic point about Uber as a fast food franchising model is worth considering. He writes:
Uber is not exactly GE, but it’s very, very far from the NYSE. If anything, it’s more like a big fast food franchise: I’m technically, legally and economically independent, but really, all of my value comes from the franchise agreement and the franchiser wants to suck as much as possible about it. Except that even then franchisees have assets that Uber drivers don’t, namely real estate/location (quite valuable in many cases) and the “last meter” of the consumer relationship.
While the franchising mental model may be a good way to think about at least some companies in the peer production space (most notably Uber), a few caveats are in order. First, while Uber reigns supreme in the black car space, I’m not sure the network effects are as strong as he suggests. I don’t see what would stop another firm from opening up to compete with Uber, either on service or price grounds. Uber certainly has a first mover advantage, but — as Gobry himself argues — they’re basically providing a commodity product: a clean black car with a driver who speaks English and has a working knowledge of the city, paid for by an on-file credit card. It doesn’t seem that the advantage of incumbency is actually that large; if it were, we wouldn’t see such competition in the ridesharing space between Lyft, Sidecar, and UberX.
That said, there probably is more of a first mover advantage for firms like Airbnb, Etsy, or RelayRides that act as marketplaces for a diversified and differentiated group of sellers. People come to Airbnb to peruse offerings and look at what differentiates different products sold through the Airbnb network; when people want a black car or a ride-share, the only differentiation is in the parameters set by the firm.
Additionally — and this is admittedly nitpicking — my uninformed impression is that it’s far easier, both logistically and contractually, to change whether or not you drive for Uber or another company than to go from being a McDonalds franchisee to a Taco Bell franchisee. The ease of exit in peer production reduces the ability of the franchiser to collect monopoly rents from drivers or other peer producers.
In short, I think PEG’s analysis may be right for the parts of the peer production economy that provide a commoditized service. But I’m not sure it holds up as well under business models where sellers can and do differentiate themselves. What will be interesting to watch, then, is how things that we currently think of as commodity products begin to allow some degree of differentiation. Uber’s VIP option is at least a tiny step in that direction; it will be interesting to see if other innovations follow. But for now, Uber’s black car service (and ped cabs, and bicycle messengers, and Christmas tree deliveries, and ice cream trucks) remain focused on commodity provision.
In the fullness of time, I think we will likely look back at the early peer production firms and business models as original and innovative, but what we see in a decade or more will likely look little like what we have today. And the evolution of this sector of the economy — and the ways in which its spoils are divided up — will be a function at least in part of to what extent firms act like marketplaces where sellers can differentiate themselves from one another.
Finally, PEG is right that the brands in question here do own a great of capital, albeit non-physical. The nature of capital in the twenty-first century is changing, and returns to it are changing likewise. Someone should write a book about that.