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Uber and Airbnb are Not the Digital Economy

When is disruption a bad thing? According to the London black cab driver I had recently, it is when Uber comes to town. A rival taxi company using an app for hailing and a GPS for finding its way around and charging less than black cabs is bad disruption.

There is no doubt that Uber is a threat to traditional taxi firms, which is why it is often held up as a shining example of digital disruption. We hear a lot about it being the largest taxi company in the world that does not own a single car. Airbnb is another one widely cited as a digital disruptor; being the largest room rental company that does not own a single piece of property.

But I wonder if they are really good examples of digital disruptors. They are not actually disrupting the business models themselves, those have not really changed. And, surprisingly, unlike other disruptors – such as Amazon or Google - they are not contributing much to the Gross Domestic Product (GDP) of the countries in which they operate.

At a recent conference in NYC, Fed economist Laurence H Meyer caused a stir when he said that the digital economy contributes nothing to GDP. The theory is that digital disrupters do not require the manufacture of additional goods – a key ingredient to the GDP calculation. 

My cabbie was complaining that Uber drivers, as opposed to black cab drivers in London for example, do not need to have specially built cars with disabled access. They do not need training, so there is no need for teachers or The Knowledge. Many Uber drivers do not even own a car – they borrow them or “rent” from other Uber drivers.

Airbnb hosts do not need to build hotels. They don’t need to buy new mattresses or food for guests. They don’t need to hire staff to manage bookings. They simply offer the use of an existing room/apartment/house in return for money.

Are these so-called digital disrupters bad for the economy? Or is it that GDP is no longer an effective measurement for economic growth?

GDP was developed during the industrial age, says the Harvard Business Review and “struggles to account for today’s intangible assets—services, insights, and networks.”

This may be true, but if you look at some of the true digital economy participants – Google, for example, or Amazon – they are providing jobs, building offices, buying computer hardware and software, offering training courses. All of these things contribute to GDP. In the UK, for example, the digital economy contributed 10% of GDP in 2015. According to Accenture, digital technology could power $2 trillion of global economic output by 2020.

Existing companies trying to become digital enterprises are just starting to embark on their digital journeys. Just a year ago, Cap Gemini said that only 7% of companies had “successfully allied digital technology capabilities with the ability to quickly self-organize and forge partnerships to drive digital initiatives.”

Once these organizations arrive at their initial goalposts, they will start to look like truly digital companies, using technology to better engage with their customers and to design entirely new revenue-making business models.  At this stage we will begin to see them add more jobs, more new business – i.e. goods and services contributing to GDP.

We need to find some real, shining examples of digital pioneers that not only actually disrupt a traditional business model but also contribute to the greater economic good. Because I don’t think the Ubers and Airbnbs of this world will hold up as true disruptors, and they are not really good examples of the digital economy.

Disclosure:

I work for a software company that specializes in helping companies with their digital transformation journeys, so obviously I have a bias. But I am also a former journalist, so I will always be as balanced as possible in my writing. Rational comments are welcome. 

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Comments: (9)

Francis Chlarie
Francis Chlarie - Hexalina - Brugge 20 December, 2016, 05:491 like 1 like

HI Melanie, 

I definitely share you views. Uber and AirBnB aren't digital disruptors.  Nor are they also the leaders in the sharing economy.   In fact, they don't share anything. The have replaced the intermediary just by themselfves.

 

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 20 December, 2016, 10:482 likes 2 likes

In HBR's What Is Disruptive Innovation?, Clayton M. Christensen, the founder of the disruptive innovation theory, writes that UBER is NOT an example of disruption.

Letting that pass: Amazon / Google may be creating jobs, building offices, etc. But they've also destroyed jobs and shuttered premises at mom-and-pop stores and traditional publishing industry. How do we know that their net contribution to GDP has been positive?

Assuming there's some way to prove that their net contribution to GDP has been positive, it can be argued that the same method can be used to prove that AirBnB and Uber's net contributions to GDP have also been positive. For example, AirBnB makes outstation stay cheap, it can be argued that so many people who didn't travel on vacation earlier because of high cost of hotels are now undertaking the travel because AirBnB has made stay affordable, which makes AirBnB GDP-accretive. As I'd highlighted in http://lnr.li/PVpK1, a similar argument can be made in favor of UBER as well.

Now, all that was only in terms of revenues, which is a measure of worth of a company in the traditional economy. Valuation / market cap is a major measure of a company's worth in the new digital economy. Whether we like the new metric or not, AirBnB and UBER have done extremely well on the valuation measure - arguably even better than Amazon and Google.

A Finextra member
A Finextra member 20 December, 2016, 11:03Be the first to give this comment the thumbs up 0 likes

Thanks for the comment! All this is true, and there is the fear that any digital disruption at all could be GDP-negative - particularly in terms of jobs. Which is why I am looking for good examples of digitalization where there is a postive influence on GDP - jobs, goods, the economy. Uber is not it, nor is Airbnb (but I take your point about more people traveling and will check it out for another blog!). 

Raymond Lee
Raymond Lee - Consult Hyperion - Guildforrd 20 December, 2016, 14:45Be the first to give this comment the thumbs up 0 likes

Have you looked at Deliveroo? They have created jobs and I've not yet seen a contra effect of restaurants laying off staff as less people eat at home rather than eat out

A Finextra member
A Finextra member 20 December, 2016, 16:181 like 1 like

Melanie,

thank you for your insightful analysis.  related to this is that Uber's business model is unproven and they are still losing money.  In California where I live, and elsewhere, there is the ongoing battle to classify uber drivers as employees.  In my view we will see Uber's model and traditional cab companies' models converge over time, as traditional cab companies use Flywheel or similar apps that have the same functionality as the Uber app. 

Craig Focardi

Principal Executive Advisor

CEB

Francis Chlarie
Francis Chlarie - Hexalina - Brugge 20 December, 2016, 16:31Be the first to give this comment the thumbs up 0 likes

@graig

Graig, that battle is also taking place in EU. 

https://www.bloomberg.com/view/articles/2016-11-30/taxi-or-tech-eu-court-will-rule-on-uber-s-identity

 

But as you correctly pointed out, the two models will converge eventually. 

 

 

James Andrew
James Andrew - Ndot - San Jose 12 December, 2017, 07:49Be the first to give this comment the thumbs up 0 likes

I think no disruption for london cabbies and taxi companies now. "Uber is banned"

 

Thanks & Regards,

James

Tagmytaxi

Raymond Lee
Raymond Lee - Consult Hyperion - Guildforrd 12 December, 2017, 09:041 like 1 like

@james Amdrew - UBER is not yet banned. It's had its licence revoked but until the appeals process is exhausted, it's free to carry on as usual.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 12 December, 2017, 09:051 like 1 like

@JamesAndrew: No such luck for London cabbies and taxi companies. I was recently testing the app for work-related reasons and stumbled upon availability of Uber cabs between my ex-home and customer's office in London. I found out that Uber continues to operate in London, pending decision on its appeal.