Transaction Costs in Everything: The Drill

 Coordinating the sharing economy can be complicated. That's why there are platforms.....

With thanks to the LMM for the find...

Burt Helm's article on AirBnB

Did an interview with Burt Helm, of INC, on AirBnB

The link is here....

He raises some interesting questions.

Airbnb, a startup which is still not yet eight years old, continues to face many of the same challenges it faced last year: It's trying to retain a folksy, community-driven image even as it surpasses multinational hospitality chains in size. It faces public relations crises when bad things happen in Airbnb homes--most recently, a death in Texas and report of a rape in Spain. And it still runs afoul of local governments who say the company's listings are unlawful.

Sharing Economy: Luggage?

The example I have been using is a drill.  Like here.  We all have drills, and never use them.  Why?  We'd rent them if it were cheap in terms of money and bother.  Instead, we own them and they take up space and we never use them.

But that's not the best example. The best example, I now realize, is ....luggage!  Think how much space luggage takes up.  And it gets all dusty and torn up, and you buy cheap luggage because you don't use it much.  Some people may only use luggage two or three weekends a year.

WHY. NOT. RENT. IT?

Because it's a hassle to get it delivered, it's expensive and...wait, what if it weren't those things? 

Some folks are giving it a shot.  Here, at RentLuggage.Com .  You get a nice piece of luggage delivered to you, and you send it back when you are done.  You don't have to store it, and the luggage is nicer.  Instead of sitting unused 350 days a year, your $1,000 (we have at least $2,000 worth of luggage, in the attic, but I'm assuming you people are less insane than we are) can be doing something else.

If I wanted to rent a Lipault bag like this,  It would cost $150 or so to buy.  You can rent it for a  a week for $22.  Of course, then you have to return it.  What if you want to travel again?  You can optimize, because this time you are going to Europe and you want to rent a backpack, like this.  That's $38 for two weeks.  To own both bags would cost more than $400, whereas you rented both for $60, at different times of your choosing, and now you don't have to store them.  It would take at least five years for the "own it" gig to work out, and lots of stuff doesn't last much longer than that, getting bumped around in the back of your closet which you don't have room for anyway.

So...my new example is luggage.  Don't you have some bags that you never use?  Why do you own them?

AirBnB in INC Mag

Had a great time talking to Burt Helm of INC about AirBnB.  He did a very informative article, for which I provided a small and largely uninformative set of thoughts.  But the article is worth reading in full.

The best background I know of on AirBnB is--unsurprisingly--from Russ Roberts.  At this point, Russ no longer has corporeal form, and has evolved into pure energy.

Lagniappe:  Zach Weiner sends this link.  Hmmmm...... Raising the question:  is it just opportunism?

Middleman Economy

Article by Kristen Brown in SF Chronicle.  She was kind to let me think out loud a bit, but the story is generally well done.  She came up with some pretty cool insights...

Kozmo, the dot-com era darling that promised one-hour delivery of everything from DVDs to Starbucks coffee, famously went bust after raising $250 million in funding, expanding to 11 cities and filing for an IPO. 

But technology introduced since then, such as smartphones with GPS, has made the prospect of on-demand delivery much more simple — and therefore with more opportunity for profit. “As transactions costs shrink, more and more transactions become 'profitable,’” said Munger. “And there are more and more ways to 'sell’ reduced transactions costs.” 

Companies like Instacart and Curbside, then, are not so much “disruptive” as they are part of a natural evolution of a market economy. Munger imagines that this kind of logic will continue “way down the chain,” with profitable companies emerging that perform even more niche tasks than picking up an order from Target and delivering it to the store’s curbside. 

"A power drill only gets used 10 minutes in its life, for most people,” he said. He can see a day when Uber will carry more than just people. “I don’t need to buy a power drill, I can get one on Uber. Value of the transaction: maybe only $3. But if we can reduce transactions costs enough, that transaction comes in as a money-maker.” The idea that we might not physically visit the grocery store or own the drill is what Munger says could create such a huge shakeup in the economy.

Sharing Economy Lecture: Video from Strata at USU