Letters from America — When a network is more than a network
I love observing multi-sided networks. I’ll explain what multi-sided networks are and then I’m going to share my observations of a network that I believe is having a profound in-direct impact on society.
Multi-sided networks are sometimes simplified to multi-sided markets or simply marketplaces. For those unfamiliar with these, the concept is pretty simple. Two or more sets of “customers” or “groups” who benefit from the network effect of each other being present.
[Given my parents read this blog, I’m going to use some examples that aren’t traditionally used in the techosphere to set the scene. Bear with me!]
When looking at networks, the telephone is the easiest example to grasp. If I had the only telephone on earth it wouldn’t be much use. The more people with telephones the more useful the telephone is to me.
Perhaps it’s easier to understand if I talk in marketplace terms. For the less techy readers, think in Sunday farmer’s market terms. The more shoppers who come to the market, the more stalls that will come to the market. The more stalls that come to the market, the more shoppers that will come (due to more choice). And so on.
What’s interesting is that the growth profile of these marketplaces can be rapid. The best way to think about this is akin to having two pedals on a bike (rather than trying to ride a bike with one pedal). Both the stall owners and the customers are advertising the marketplace. Customers via word of mouth, social etc and the stall owners through marketing — “find us at xxx Sunday market”. A supermarket or a mall is also an easy example of this flywheel effect.
Three-sided marketplaces are simply like bikes with three pedals (and riders with three legs) they can go even faster. Take Deliveroo for example. It’s a three sided market place. The restaurants tell all their clientele they can now be found on Deliveroo, the customers share Deliveroo with friends and colleagues and the delivery riders are all over the city with Deliveroo boxes on their backs. Three different growth drivers, all amplifying one another. Deliveroo is reported to be growing at 30% month over month. It’s no surprise. (For those in the US replace Deliveroo with GrubHub (…except on bicycles)).
Skyscanner is a two sided market place. We have partners (airlines, hoteliers, car rental orgs and OTAs) and we have travelers. We operate to serve both. The more partners we have the more choice we have for users. The happier the users are the more they shout about us and the faster we grow. Which in turn leads to more partners joining us. And so on.
Starting marketplaces is near impossible due to the chicken and egg issue. Before we had users there was no reason for a partner to connect with us (as it cost them resource to do so) and likewise, without partners, we couldn’t attract users. I’ll not go into it here but starting a market place tends to involve a lot of hacking (scraping / reducing friction to join market place) and starting in a niche (low cost carriers only) and then expanding out. Two other major difficulties with the Skyscanner marketplace are partners don’t operate locally (we can’t start at city level to then build a series of local networks like Uber — we need to go National from the off, which makes testing hard) and partners in many cases see us as third party distribution which means they won’t advertise that they are on Skyscanner in the same way a restaurant will with Deliveroo. Despite this, today Skyscanner has 1,200 partners and over 50m travelers on a monthly basis.
According to Medium, we’re at three minutes of reading and I’ve only just finished setting the background of marketplaces — apologies to those that already know all of this.
Here’s the observation: Uber is changing society and the economy in a way that I had never envisaged.
Being car-less when first moving to Miami meant that I opted to take Uber everywhere. Not just to work and back every day but also to places like HomeDepot to get stuff for my new house (obligatory BBQ for instance). I have ridden more than 50 Ubers in the last few weeks and in all cases I’ve interrogated the drivers as to the experience for them.
My back of the cigarette packet analysis is this — it is staggering:
30% — full time Uber driver (no surprise there)
20% — part time Uber driver supplementing income ( again, no surprise there)
Nothing unusual so far. I didn’t expect the volume of the following anecdotes though.
15% — Was a stay at home mum or a retired person that couldn’t get a job due to age. Love Uber because of flexibility. Get to see my kids/ grandkids and still earn some money (I met William who was >80 years old!! and used to run his own advertising agency. He wanted to keep working but couldn’t get a job until his Grandson challenged him to become an Uber driver)
15% — I’ve gone back to college to study as I can now pay for it due to the flexible working.
15% — I have a full time job but my English isn’t good enough for me to progress. Either I pay to learn better English or I get paid to learn by driving for a couple of hours each night. In these instances I was always amazed by how good their English already was.
5% — other — including at least two entrepreneurs that have set up their own companies and Uber means they can fund the development stages of their companies (I’m looking our for Alberto and his water less mobile carwash app and franchise due to launch soon).
Think about those last 4 categories and think about what that is doing for the economy — both long and short term.
People that couldn’t work (too old for convention, challenges of picking up kids from school etc) are working. Obviously this means they are contributing to the economy but there are proven health benefits too in being engaged and having a mission. William doesn’t drive for the money, he drives to get out of the house and meet people.
The education levels are lifting because more people can afford to educate themselves. The long term benefits for society and the economy are obvious.
People are also getting the opportunity to learn English in an affordable way. I was really impressed with the people doing this after a full days work. Again, highly entrepreneurial and clear long term benefits. The same for the entrepreneurs that can now try setting up the business they’ve been dreaming of building.
Two final observations to add:
- I was told by someone in government in Miami that drink driving incidents were down 50% since Uber had come to Miami. Amazing!
- Here’s a thought about the impact on the car industry:
There’s > 10,000 Uber drivers in Miami. Let’s assume 50% drive during morning rush hour and assume they take 4 people to work each. For those 4,000 drivers on the road there are 20,000 cars off the road. Now, not all of those are Pool (albeit Pool is great and growing) so the mileage doesn’t equate (so less of an eco argument) but the car parking space needed and car production output has to be impacted as a result.
I’m not sponsored by Uber (before you question) and I’ve interviewed people who work there and I hear it’s a challenging place to work as an employee (I don’t mean a driver). However, I do like the product and I’ve had my eyes opened to the wider impact for which I think they should be applauded. Good job.
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