One of the determining characteristics of any economy is who owns what assets. Different economic systems (capitalism, socialism, communism) differ primarily based on who owns and who rents capital assets. Ownership of assets shifts and evolves over time thanks to technological disruption, economies of scale and shifting income distributions.
But many of the most disruptive tech companies of the last 20 years have been successful precisely because they have disrupted asset ownership in a novel way, with dramatic consequences. Amazon is the poster child of this phenomenon. Not only did Amazon see building and owning an entire national delivery infrastructure as not only reasonable but as an absolute business necessity, it also built Amazon Web Services which powered the rise of the enterprise Cloud. The Cloud has been a dramatic platform shift for businesses and has changed the paradigm around owning computing power, storage and ancillary services. In the 1990s and early 2000s, tech companies needed to build and maintain their own server racks and hire in-house teams focused on just this.
With Amazon Web Services this all went away. Instead, businesses could rent compute or storage space through AWS which continuously scaled to meet their needs. This meant money previously allocated towards building servers and making related hires could be reallocated towards growth or product, a great improvement for businesses (and for investors!). But while AWS (and Microsoft Azure and Google Cloud) is about the enterprise Cloud and enterprise needs, the same phenomenon is at play for end consumers through companies like AirBNB. Amazingly, AirBNB has become the largest hospitality/hotel chain in the world without buying or owning a single room. Its entire business model is predicated around bringing an asset-light model to an asset-heavy industry.
But what’s most exciting about shifts to asset-light approaches is that this is starting to trickle down to ordinary consumers. Today you can rent living space flexibly based on your needs (AirBNB, Stoop), commute from that space without ever buying a car (Wheels, Uber, Lyft), rent clothes to fill your closet (Le Tote), rent specific appliances based on your needs (Joymode) and rent the furniture you fill your apartment with (Fernish). You can afford to live a great life without owning any of the assets that were commonly not possible to rent in the past.
This is a shift towards a rental-first, on-demand economy away from an ownership economy. This shift is pushing capital ownership more into the hands of corporations and out of the hands of consumers. Ultimately, this is a shift to a cashflow economy. As a consumer you can live a great life through renting and all that you have to worry about is cashflow. Cashflow thus becomes king for the consumer too.
The emerging generation of businesses powering this shift have so far avoided the two remaining big investments that any American makes, healthcare and education. Interestingly these can be viewed as investments in your self as an asset, making you smarter and keeping you healthy. Perhaps for this reason these spaces are immune from such rental-like approaches, as they are non-fungible services.
But renting is not a permanent solution for all consumer assets. Indeed, home ownership rates have started inching up thanks to millennials transitioning from renting to owning. Nonetheless, the new consumer behavior is evident and only beginning. The ramifications of a rental-first economy and of decreasing asset-ownership for consumers will spark some important debates around inequality, personal liberty and culture (given that the American dream is centered around home ownership). Nonetheless the shift is underway. The consumer gains are unquestionable. Overall it’s a win-win for everyone involved. Consumers get to live larger with less, and a whole new crop of category-defining businesses are being built. I’m excited to see what’s next!