15/12/2015 - 05:25

Disruptive services break business mould

15/12/2015 - 05:25


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Traditional businesses were slow to wake up to the threat posed by disrupters such as Uber and Airbnb, but they’re now warned and should prepare for further assaults.

MAJOR MERGER: The Sheraton brand is operated by Starwood Hotels and Resorts, which merged with Marriott International last month. Photo: iStockphoto/Kenneth Wiedermann

Traditional businesses were slow to wake up to the threat posed by disrupters such as Uber and Airbnb, but they’re now warned and should prepare for further assaults.

Perth taxi drivers and local hotel owners do not like their exposure to the ‘shared economy’ revolution, which started with Uber and Airbnb but, if international trends are a guide, it’s going to get a lot worse for service providers.

Airbnb, which offers travellers the chance for cut-price accommodation in private homes, has been credited with driving the $15 billion merger of giant US-based hotel chains Marriott and Starwood (which operates the Sheraton brand, among others), despite being a relatively small-startup business that is just a few years old.

Uber has received more publicity thanks to protests around the world from taxi drivers, who argue that the slick ride-booking service has an unfair advantage because it is not subject to close government scrutiny or licensing – not to mention that Uber drivers do not have to hand over a small fortune to buy a set of taxi plates.

What makes Airbnb and Uber such interesting phenomena is that the principle behind what they offer can be extended to an infinite variety of shared services and equipment hire, for a fee.
Most households only have to look in their back sheds to appreciate that a lot of equipment bought for a specific purpose and only used once or twice a year has the potential to be hired out. Garden tools are an obvious example, though it could be some time before sharing reached that far down.

What started this examination of the shared economy revolution was the Marriot/Starwood merger, which seems to have been driven by the usual desire of management to run a bigger business that delivers greater economies.

In fact the hotel merger appears to be more of a reaction to what Airbnb might become rather than what it is today, with its estimated 1 per cent of the world’s accommodation market.

A few weeks ago, a US real estate investor, Thomas Barrack, stuck his neck out a long way when he said Airbnb was “killing” the hotel industry.

Mr Barrack was exaggerating, but he was commenting on what might be to come in the same way that Amazon has killed bookshops and music websites have killed high-street music and entertainment retailers.

In other words, Airbnb is travelling the same growth trajectory as other internet-based services, which also started small and then exploded.

One estimate is that a 10 per cent increase in Airbnb supply in a market leads to a 0.35 per cent decline in local hotel revenue, while the $30 billion stock market value of Airbnb is double that of Marriott and Starwood combined.

The Uber experience is much better understood in Perth because of the damage it is doing to the taxi industry.

However, to get a glimpse of what comes next in the world of Uber it’s worth looking at recent events in Paris and London, where variations of the Uber offering threaten to cut even deeper into traditional taxi services.

UberPool, which is just being launched in Australia, has already proved to be remarkably popular in Paris, a city that rejected the early version of Uber with its amateur drivers.

The new service, which pools passengers heading in the same general direction to deliver a lower fare, uses licensed minicab drivers who are already operating in the French capital, cutting the ground out from under angry taxi drivers.

UberPool arrived in London last week with a claim that it would be 25 per cent cheaper than UberX, the cheapest of the current range of Uber services.

There are two reasons for Perth taxi drivers and customers to watch carefully what happens in London with UberPool.

The first is the cost saving, which appears to have further stimulated interest in a service that undercuts taxi fares and gets close to public transport fares – depending on the length of the journey, the time of day, and the number of ways the fare can be divided.

The second aspect is that British competition regulators are fully supporting Uber as a way of delivering a service that customers want.

Alex Chisholm, chief executive of Britain’s Competition and Markets Authority, said in an article he wrote last week for London’s Financial Times newspaper that: “New taxi business models have the potential to increase choice and deliver what passengers want.”

He also noted that consumers who often benefit from technological disruption could struggle to have their voices heard.

“But watch what they do. Their actions speak louder than words,” Mr Chisholm wrote.

Love it, or hate it, the Uber rabbit is out of the hat; and it’s being followed by countless other disruptive services that will continue changing the way business operates and consumers spend.

Indian mirage?

IT would be a brave man to question comments made by Reserve Bank of Australia governor Glenn Stevens, but the alarm bells started ringing when he suggested last week in a speech in Perth that India would pick up some of the slack created by China’s slowdown.

The problem is not to dispute that India is undergoing a revival process; that can be measured in a number of ways. It’s more a case of whether what’s been started can continue for long, or whether the recent burst of growth will fade as it always has in the past.

Theoretically, Western Australia and India ought to have close ties in a number of areas, including sport and business.

But that simplistic observation fails to account for India’s staggeringly inefficient government systems, which have seemingly been designed to throttle any attempt at change almost before it starts.

Another worry is that Indian economic statistics appear to be as rubbery as those produced in China, which means that the rapid growth you see today might fade completely when the final numbers come in.

Mr Stevens is right to talk up India as an opportunity for Australian exporters, but there is a real concern that the talk will not be converted into action.

A life well lived

THE life insurance business works to a different time scale than most others, as a recent advertisement in a New York newspaper illustrates.

As part of a book clean-up exercise, New York Life wants to hear from “heirs of Assyrians” who had life policies with the company in the Ottoman Empire before 1915.

Obviously no-one who bought a policy before 1915 will still be alive but apparently the heirs might have a claim, though there might not be many of them given that the period in question includes the WWI and the collapse of the Ottoman Empire.



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