The Granular Economy

The digital technologies and the flag-bearers that have taken advantage of them (up-and-coming startups; Web giants à la Google and Facebook that some of them eventually turn into; civil society; and “traditional” companies and governments to a lesser extent) have unleashed a mesh of diverse but related economic, social, societal and political consequences.

In my view, the important trend underlying and stitching many of our contemporary changes is the advent of a granular economy: the unbundling of our economy into tinier and tinier (grainier) measurable units.

3 processes at play

The autonomization of things

Your spare bedroom on Airbnb, your unused car on RelayRides or boat on Boatbound, your empty shop on Storefront… The list of items and spaces you can offer on online sharing / renting marketplaces could go on and on. What becomes obvious is that numerous things that were once inseparable from a whole (let’s say a car from a domestic economy) are now granted a form of autonomy, a separate existence synonym of new sources of income.

In addition, we may see more and more things generating value not by their usage, but through their production. Take the examples of 21 the Inc. BitShare chip that could make every device a bitcoin miner, the Aspirational Lamp that would “collect solar energy, sell it back to the grid, then invests in itelf and its owner”, or the Living Things art project turning furniture into algae production units, to be used for energy or food consumption: all these projects, even if they will certainly take time to materialize on a large scale, point toward a hybrid future where things could serve both utilitarian and financial functions.

And tomorrow, the autonomization trend could go even further, with a deeper meaning of “autonomy”: the transformation of things into economic agents, capable of making their own decisions, most likely derived from algorithms. Our future will be populated with Decentralized Autonomous Organizations or Corporations, building on the blockchain and AI breakthroughs.

That realm of autonomization will keep expanding:

  • in scale: look around you, and ask yourself what things are unused, or not used enough, and could then be a prime target for a new marketplace. The digital age diminishes transactions costs and eases discovery: the hunt for idle inventory is certainly not over.
  • in space & time resolution: if today you can rent a store for a day, tomorrow you’ll be able to rent a specific shelf for an hour.

The subdivision of jobs into tasks

This process will probably sound more trivial, since it relates in a large part to the now-well-documented rise of the 1099 or gig economy, and its Handy, Uber, Postmates, Instacart et al. harbingers. Indeed, in the same way that things can now be seperated from a whole, tasks are increasingly separated from jobs that used to bundle them. Thus workers are paid by the task, and may carry out a handful of parallel tasks coming from various platforms.

I’d tentatively posit that if you can observe an emerging opposition between contractors+marketplaces on one side, and traditional corporations on the other, in the near future corporations may look like marketplaces for proprietary tasks. Evolutions such as the ability to more easily track employees’ impact (think “people analytics”) and mechanisms to quickly match a given task with the right person or team, without any spatial constraints (remote work) or usual biases (algorithms may surface the best employees without prematurely filtering most of them using degree, gender, age etc. considerations), are key to this process.

Indeed, if you take a look at open innovation platforms such as Quirky, it’s not a far stretch to imagine corporations extending such external practices to their internal processes. Moreover, some marketplace mechanisms have already permeated the workplace, with Zappos for instance bringing the infamous “surge pricing” to its call centers.

Here also, the subdivision of jobs into tasks will certainly grow larger in scale and in resolution.

Decentralization, or the end of gatekeepers

Digital services are increasingly transforming what used to be hidden marketplaces into transparent ones, unbundling the products or services at stake in the process, and distributing the power of decision to the crowd. Think about banks for instance: they transform savings into loans (and in a sense it’s a hidden marketplace), but as a consumer you don’t see through the bank and have a say in the allocation of loans to small businesses for example; in contrast with banks, crowdfunding platforms allow you to choose who you want to lend your money to, in a piecemeal fashion. A similar mechanism could be used tomorrow to replace “bundled” news outlets by a direction relationship between readers and writers, the former financing the latter through tipping.

Beware though to talk about distintermediation: it’s a process of reintermediation we’re observing. Marketplace operators are still acting as a filter (Lending Club chooses what businesses are accepted on its platform), but the difference is that now you can act as the second and ultimate one.

Looking for intersections

At this point, you may wonder what brings the autonomization, subdivision and decentralization together, besides fragmenting the economy into an ocean of monetized tasks and small productive units. Before suggesting financialization as an answer, I’d like to shed light on a bunch of instances where the 3 processes happen to intersect:

  • Autonomization / Subdivision: Hyrecar, a car rental marketplace where autonomized vehicles make up the supply side and Uber or Lyft contract drivers the demand side.
  • Subdivision / Decentralization: tipping for content (authors are rewarded piece of content by piece of content, and the audience sends a large volume of tiny amounts decided at the individual level).
  • Decentralization / Autonomization: blockchain-based smart contracts.

Financialization, the glue that holds them all

The common thread tying the autonomization, subdivision and decentralization processes together is that everything can be turned into a series of cash flows, of course both from a lessor or a lessee point of view: your car (monthly rentals or daily rides vs. a one-off expense when buying a car), yourself (various contractor stints vs. a bundled salary), your attention (see for an email paywall), your data (see Datacoup)…

I’d like to underline that this change is not an opposition between ownership and rental — we too often tend to forget that they are the faces of the same coin, and that there still are owners in the rental economy. It’s rather a shift from a discrete & bundled to a continuous & granular valuation of things.

In a sense, it looks like the level of precision that we have reached for the analysis of web and mobile applications (e.g. customer acquisition costs for specific channels) is now applicable to the entire world.

The transformation of things into cash flows gives a new twist to the definition of the “sharing economy”. In lieu of the idea that we share a lot of things more and more, and somewhat more generously, we could rather formulate a fundamental law for the granular economy:

Everything can and will be turned into shares (in the financial sense).

2 examples: Fantex enables you to buy shares of an athlete, and LexShares to buy shares of a lawsuit. The dissociation between ownership, usage and value distribution is well under way…

The addition of the cash flow lens and the creation of new financial assets based on that is what we can call the financialization of the world.

Everyone’s a portfolio manager

If the financialization of the world is a valid hypothesis, then we’ll all become portfolio managers, allocating time, capital and resources (think idle inventory again) to maximize our income or achieve a target income level. Our revenues would thus be made of a variety of streams.

The main consequence of the financialization of the world will be a shift to, or the integration of part of, a cash-flow-based method of valuation for a ton of things (objects or beings). Think for example about the value of an apartment: if there is a track record of rentals on Airbnb, from which we can infer the revenue that would be generated in the future, why shouldn’t it be taken into account in the calculation of the present value of the apartment?

2 metrics to monitor: average transaction size and hourly wage

If the Granular Economy keeps unfolding, 2 metrics will be interesting to scrutinize, both taking the economic agents’ point of view:

  • The average transaction size. This is the pulse of the Granular Economy, for numerous trends (subscription rather than ownership, paid tasks rather than jobs, individual tipping rather than bulk advertising etc.) should lead to its fall. We may even posit the equivalent of Moore’s law for the economy, the law of diminishing transaction size: every 18 months, the average transaction size will decrease by XX%.
  • The hourly wage. Until now, the hourly wage hasn’t been a primary concern for workers: what matters is the income you receive at the end of the month, and the hourly wage is one underpinning of it (e.g. with minimum wages). But if tomorrow we all become “time investors”, looking for the most lucrative ways to allocate the number of hours we want or need to work, the perspective will shift completely. As far as money partakes in the arbitrage between different work opportunities (because of course there will always be other considerations such interest of the tasks), the hourly wage will become the new yardstick to watch.

An atomized economy?

By now, you may have wondered why I’ve been using the granular analogy rather than the pretty similar atomic one. The reason is that “atomize” carries a major overtone, since one of its definitions is “to deprive of meaningful ties to others”. But I wouldn’t be able to utter such a statement: maybe we’ll feel a dearth of meaningful connections with other human beings (e.g. loss of the old workplace), or we’ll have extended our range of acquaintances thanks to wide work and social networks. It’s probably too soon to see, and one of the open questions left.

Open questions

  • Will the subdivision of jobs into tasks will make us hyper-specialized workers or jacks-of-all-trades?
  • Who will own the economy, and thus what about the consequences of the Granular Economy in inequalities? Will we all be owners and renters at the same time, buying some things and renting others, with a dense network of transactions as a consequence, or will the ownership be concentrated among a few hands? Will institutional investors own fleets of Uber cars and shares of lawsuits, athletes… and you, just as they buy stocks, bonds or commodities today?

It’s my first shot at an article on Medium, so don’t hesitate to share your comments, suggestions and questions to refine it!

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