The Rise of the Sharing Economy: Estimating the Impact of AirBnB on the Hotel Industry – BU
In my first academic research post, I am sharing some of the findings from George Zervas, Davide Proserpio and John W. Byers on the impact of Airbnb on the hotel industry. I read a thought provoking comment the other day that “did you ever think Starwood’s biggest competitor in NYC would be a room sharing start-up called Airbnb”. The world has already been greatly changed by Airbnb and Uber, though I think we are in inning 2 of what will be the most disruptive change to how we traditionally do business. I can see very soon the twin trends of the Freelance economy and the Sharing economy melding together and changing the way we interact with and are employed by company in the near future. A few notes from the authors:
- “To date, we view the rise of platforms as having two distinct phases. In the first phase, web sites like eBay and Craigslist enabled the selling of goods through the use of searchable listings, allowing suppliers to reach broader audiences at minimal cost, and for purchasers to browse a massive online inventory from their desktop. In the second phase, platforms such as Airbnb have addressed the more challenging and less well-circumscribed problem of the sharing of goods and services, where unlike selling a good, retention of value, post-transaction, is an essential consideration for the supplier.”
- “we show that Airbnb penetration has negatively impacted hotel room revenue, and that lower-end hotels incur most of the financial impact” and when referring to Austin, TX, “resulting in an estimated revenue impact of over 13% for the most vulnerable hotels in our data.”
- “Indeed, our analysis confirms that the impact of Airbnb on independent hotels is disproportionately larger. Finally, with respect to market response, we study the extent to which affected hotels react to Airbnb’s market entry. By reflecting on hotel industry per- formance metrics, notably occupancy and price, we find no statistically significant evidence of a change in occupancy rates, while instead, we observe almost all of the revenue impact being shouldered as a (negative) price response.”
- “A handful of studies have examined the adoption and effects of car-sharing, for example, two studies have used survey analysis methods to find that car-sharing is associated with significant decreases in miles traveled, gasoline consumption, and car ownership (Cervero et al. 2007, Martin et al. 2010).”
5 Dimensions of a Great Product – Jeff Weiner
In a youtube interview with the CEO of LinkedIn, Jeff Weiner provides his 5 Dimensions of a Great Product:
- Deliver on a singular value proposition in a truly world class way
- Laserlike focus on doing at least one thing really, really well. Google and Headspace being his examples
- Simple, intuitive and anticipate their customers needs
- He uses Waze as an example: driving directions + collective intelligence.
- Their “are you going home” button.
- Exceeds expectations. “You’ll never forget it”
- Sonos customer service staying late by 45 mins on a holiday,.
- Virgin America – every little detail from lighting, food, boarding passes.
- Resonate emotionally
- Not just about utility, how it makes you feel.
- Tesla, like driving the future. (Even tholugh they don’t even market themselves like that”.
- You knew it would change everything.
- Change your life.
- iPhone for instance.
And what Jeff says is amazing is that all of his examples are all iPhone apps. Something I need to think about further is how do these features of a great product relate to the Adopter categories.
On an unrelated note, they also mention http://walkercorporatelaw.com as a resource which I visited and which has a great blog that answers legal questions for entrepreneurs.
Pando Fireside Chat – Naval Ravikant
Angelist Founder Naval Ravikant provided many interesting insights into financing trends and his thoughts on boiling down the key criteria of companies which are getting funded. My notes from his talk categorized below:
Start-Up Financing Trends
- Commoditization and transparency of deal flow has meant that niche VCs have lost some of their edge in having proprietary deal flow though still valuable is proprietary access
- As Michael Lewis said the internet hates middle men who rely on proprietary knowledge to make a living
- The cost of building a business has collapsed and because businesses don’t need as much capital, the relationship in the industry between entrepreneur and VC has changed
- ‘First check privilege’ is now $25k instead of $3m and goes to the incubators like YC or TechStars or AngelPad. This puts the VCs further back in the food chain which is bad for them because brands are built on the early relationship with the entrepreneurs
- Need Angels to fund companies coming out of incubators so those companies don’t fall on face and die
- AngelList worked with 500 Startups to send them 600 deals. All were ranked, social graphs, connections mentioned, founders, and basically a nicely set up list where in the past a research analyst would have to do that Incubators to take applications from AngelList. Processing queues will be open to all
Getting Funded
- The actual set of start-ups that are truly creative is pretty small. Companies have to be very discerning when evaluating technologies that can be applied to a client because not all are getting paid in volume which is the key.
- Have paying users
- In volume
- That are genuinely new
- Make a profit
- Funding – traction, unique product, stellar team or social proof
- Social proof is when someone who is worth listening to believes in you and shows that in some way.
- Advisor (time or investor ($$).
- Or recruited an incredible team member.
- Traction is quantitative evidence of customer demand. For enterprise software it could be 2 or 3 earlier customers who are paying a bit. For consumer internet it could be 100k users. Mobile apps could be download rate
- Social proof is when someone who is worth listening to believes in you and shows that in some way.
Pando Firesaide Chat – Josh Kopelman
I saw Josh Kopelman speak at Wharton when I was there about a decade ago. At the time he had just finished selling TurnTide and was beginning First Round. It was one of the best speeches and while I can remember a few of the stories, what stands out vividly is the impression I got form him, basically that ‘this guy has it figured out.’ It is no surprise to me that he’s at the top of the Midas List and he’s created a VC firm that is innovative and top tier. Below are a few of my notes from his Pando Fireside Chat.
Job of a VC
- A very simple definition of a VC’s job: “to find good companies, invest in them and help them win. Ways to help them win by having great partners who are experienced and strong who can add value.”
- That partner experience comes from their personal experience as entrepreneurs but it also comes from the Board rooms you’ve sat in on other companies.
- That puts the VC as the hub and connector for all their portfolio companies
- What First Round has done instead is to link their portfolio companies into a community/ecosystem where they share that knowledge directly
- So instead of bringing an in-house recruiting firm in, they share recruiting resources
- Successful companies make an ecosystem built by their alumni
- “When you’re not limited, hindered by sort of understanding of how things are done in the industry i think that really creates an oppty to imagine how you are going to do it.
- Whats is the innovation in VC? What a VC firm looks like and the value it provides will be a lot different 15 years from now: unbundling of capital: VC = advice, money, mentorship, help with recruiting, but this will change
Start-Up Trends
- Cost of getting first product ship is dropping from millions of dollars to now is free. Which is counter to the VC industry where the funds were getting larger. As companies were getting more capital efficient, investors were getting more money to invest
- As entrepreneurship has gotten democratized, its created opportunities for angels to fill the gap to get started (cloud computing, 3D printing, shopify)
- One good thing for the industry is more money doing Seed and A means there are more potential targets for Series B,C,D funds
- Goal for Web1.0: lifetime value of customer larger than customer acquisition
- Web 2.0 and Social:
- If social can drive 50% of customers, that cuts cost of customer acquisition by 50%. And if cost of customer acquisition is singly largest variable, that changes the equation.
- On top of that, mobile purchasing can be additive as opposed to behavior shifting
- Internal sales can again add
- These three things have transformed the cost of doing business
Evaluating Companies
- First Round evaluates the founder and the team.
- How do they make decisions.
- How do they prioritize.
- Looks at the product created as an amazing lens to the founder. The product is a series of thousands of decisions the founder had to make in order to get to that product. understand thought process and decision making process.
- First Round funds amounts based on what do you need to get there “get there being how many passes do you need over the target to confirm traction
The Shared Genius of Elon Musk and Steve Jobs
I didn’t know much about the background of Elon Musk and was looking forward to reading this ‘well titled’ article that grabbed my attention.
The article had 2 paragraphs I wanted to capture:
1) “One of the most exciting things about human beings is our ability to imagine alternative futures. We can somehow form a picture of one set of possibilities, break it down into elements, reshuffle them, and picture alternate possibilities. And then comes the interesting part, if we like one of those alternatives, we can decide to try to make it real….”
- I especially like this quote. The article goes on to say that determination is needed to pursue one of the alternatives. I agree determination is an important part to bringing an alternative to fruition, but I value more the ability to construct the steps needed for success in pursuit as well as the probability while weighing the risks – mapping out how to get from point A to point B the quickest, least expensive way while minimizing risk and resources (especially financial resources through outside capital).
2) The second paragraph describes what Musk says is ‘first principles’ reasoning.
- For example, imagine starting a new job where you had to go and assess the sales team members. Upon your visit, you realize the team does not have the skills or work ethic to get the job done. “Reasoning by analogy” as the article quotes it would leave the solution to either (1) training the sales team or (2) top grading the sales team with better sales associates. However, Musk’s ‘first principles’ reasoning would suggest instead of tweaking the sales team, you must ‘boil things down to their fundamental trusts and reason from there.’ Should the product you are selling have a direct sales force or should it be inside sales? eCommerce? Resale channel strategy? A ‘first principles’ approach may remove the sales team all together and go with an eCommerce strategy whereas someone ‘reasoning by analogy’ would be spending their time tweaking the existing structure without the success of taking a step back and understanding the fundamental truth.
Just in (down)Time 