The 21st Century is a time when anyone can become a small business owner. The golden age of the internet is breaking down barriers and transparently connecting people. Specifically, we’re finally reinventing the middleman by adopting peer-to-peer business models like Uber and Airbnb. These worldwide ‘share economy’ businesses are disrupting the model that’s been in place for decades.
The monopolized middleman gets a lot of flak: you know, that annoying guy who ‘facilitates’ your transaction or service and takes a hefty chunk of money in exchange. He drives up prices for businesses and customers, because let’s face it, the middleman is a business all to himself. In many instances, this type of monopolized business relationship is just plain outdated. Uber and Airbnb are both examples of what are called a ‘share economy.’ Assets or services are ‘rented’ out, like the use of a car or home. For all intents and purposes this is still a middleman variation, but they simply manage access to decentralized non-company assets.
Want to go on vacation without having to shell out a fortune to a massive hotel chain? Airbnb has cheaper (and cozier) local homes or apartments for you to stay at instead. An individual homeowner is a far cry from a hotel chain, and as a result their upkeep costs are much lower. Airbnb charges host and guest service percentage fees, and that’s it. The rest of the cost is determined by that individual host who, by necessity, must keep his rates competitive with other hosts in the area.
Need to catch a ride to the airport? Forget calling a taxi dispatch service. There’s Uber or Lyft for that. Global usage has grown in leaps and bounds, particularly in the United Kingdom. In his piece for the Guardian titled “How Uber conquered London” Sam Knight writes, “Three years ago, during the winter of 2012, there were 5,000 active riders in London. Now there are 1.7 million – around half the number of people who take the Tube each day.”
Uber operates in 450 cities across the world for an average of 1 million daily rides. The service is widely adopted because it gives regular people increased mobility without breaking the bank in costly metropolitan locations. Uber drivers operate typically as a sole proprietorship and pay their own taxes. They’re not actually employed by Uber. All Uber does is provide drivers with clients through their service as long as they abide by their guidelines. They charge a commission for this service, but drivers are not part of a union or corporation like with taxi drivers.
Take New York City for example. Taxis painted yellow are called medallion taxis, and are operated by private companies and licensed via the New York City Taxi and Limousine Commission. There are a pre-determined and artificially restricted number of taxi medallions and acquiring one is extremely costly: the market value in 2013-2014 was between $1 million and $1.3 million. You don’t need a medallion to drive using Uber’s service. Uber and Lyft undercut this monopoly, and now taxi medallions have dropped in value to around $500k in cities like Philadelphia.
Taxi medallions have always been a bad deal for customers and regular people trying to become taxi drivers. It’s an artificially limited system intended to benefit those private companies that hold the medallion licenses. The system is becoming increasingly irrelevant when anyone can become a taxi driver since that power is being redistributed.
There are other variations of this peer-to-peer model. Want to start a business, develop an invention, or launch a product without going to a bank or investor? Kickstarter has you covered. Regular ol’ people will fund your project. Kickstarter takes just five percent, and only if your project is successfully funded.
In each of these cases, the service facilitates connection. You’re connecting directly with another person who has the solution to your problem. The main benefit of this for everyone involved is transparency. You know exactly what it’s going to cost. You’re aware of the rate, how much is taken, and how much you’ll receive.
Even in the case of Airbnb, price mark-ups are minimized by the competitiveness of the marketplace. Each of these is great for entrepreneurs and customers because it disrupts the kind of monopoly that drives up the cost of services due to lack of competition.