Uber And Friends: Old Math Of The New Economy
The digital economy promised to create markets that were fluid by definition. But even in the so-called "sharing" economy of mobile applications, there are bound to be winners and losers.
BUENOS AIRES — The new digital economy had among its many claims the promise of removing the middleman on the way to building more efficient societies.
In practice, a new class of middlemen and intermediate agents is busy emerging to take their share of the pie. Two months ago in response to complaints by the hotel industry, the city of New York imposed restrictions on renting out flats and rooms through the website Airbnb, an online accomodation agency.
Last week, taxi drivers protested around Europe against Uber, an Internet car rental service between private individuals, operating in 130 cities including several in Latin America such as Rio de Janiero, Bogota and Santiago.
The new firms of the "sharing economy" share several traits.
All were created no more than five years ago when the use of applications on smartphones began to multiply.
They break into regulated markets like hotels or passenger transport without paying the costs (taxes, municipal fees, insurance) that raise the price of their established competitors' services.
They have emerged from Sillicon Valley, where a concentration of investment funds gives them enormous financial leverage. Even before being floated on the capital markets, such firms can attain colossal pricetags, $10 billion in the case of Airbnb and $18 billion for Uber.
But the most important shared trait is that they exploit what economists call the web's externalities, also called Metcalfe's Law, which link the returns and utility of a service to its number of users.
The more people use Windows for example, the more software is developed for it, which will lead to even more people using it.
Google constantly improves its search algorithms to locate information every time it is used by millions of viewers, which attracts more users who are all "working" to improve Google's worth (latest figure, $375 billion).
The problem is that Metcalfe's Law often leads to de facto monopolies. In 1996, the United States broke AT&T's monopoly of the telephone network, dividing it among several firms; and in 2001, Washington accused Microsoft of violating antitrust laws by abusing its dominant market position.
Google has recently been sliding toward a similar fate as Microsoft for dominating the Android operating system for smartphones and facing monopoly-related suits in the United States and Europe, where it constrols 90% of the online search market.
But in some ways, the taxi war erupting in Europe and beyond is a new type of conflict between technology and society. Two dimensions are moving at different speeds and fighting a battle to determine which will change the other.