Customer Aggregation

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Contents

Examples

Kogan consumer electronics, Australia

Mark Pesce, from the Next Billion Seconds:

"Kogan realized that the value chain created by the large television manufacturers – the Samsungs and Sonys – rested with a few Chinese companies assembling the raw components for flat-screen televisions according to specifications that varied hardly at all from model to model. Kogan knew he could get these Chinese manufacturers to build televisions for him, if he could order them in sufficient quantity. Kogan turned to the Web to create enough demand to overcome the frictions to the transaction. The Web provides a frictionless environment where purchasers can pool their buying needs around Kogan’s capacity to build a value chain.

Gerry Harvey complains that Kogan undercuts his retail business, but the innovation is more fundamental than simple e-commerce. Kogan is using the Web as an aggregation mechanism, not a sales channel. Eventually, others will copy the Kogan model, aggregating demand for almost every imaginable product or service. Groupon and Spreets cut off-price deals with businesses, taking a cut of the sales as the price of customer aggregation. The most disruptive businesses of 2011 identify a demand, build a value chain to service that demand, aggregating demand in sufficient quantity to produce a substantial price differential.

Kogan itself is built upon frictions in the marketplace. It is not easy to go directly to a Chinese manufacturer and order a huge and cheap flat-screen television. Kogan is an at-present-necessary intermediary between the manufacturer and the marketplace, the point of aggregation. This interface between manufacturer and marketplace exists only for as long as the manufacturers hold themselves aloof. One of these manufacturers will develop a value chain which allows them to accomodate single customer orders, and at that point the Kogan model collapses, just as Gerry Harvey’s has already collapsed." (http://blog.futurestreetconsulting.com/2011/10/06/hypereconomics/)



Uber Limousine pick-up, San Francisco

Mark Pesce:

"A number of businesses take advantage of the frictionless environment provided hyperconnectivity. One, named Uber, has begun to disrupt the taxi market. Launched late last year in San Francisco, Uber requires users to download a mobile app to their smartphone, uses GPS to locate the user, showing a map of the locale, with any available cars also shown on the map, positions updating in real-time. Uber transmits a request for a pickup to each of these cars, and one car accepts, the others disappear, while the user watches the car approach the pickup location in real-time.

The cars employed by Uber are standard black limousines, used for airport and executive transfers throughout the USA. The drivers run a companion iPhone app in their cars, receiving offers for jobs as users requests pickups. As these drivers add Uber jobs to their scheduled pickups, driver downtime – generally around 50% of the driver’s time – is sharply reduced. The driver makes more per shift worked, because the inefficiencies in hiring a driver have been removed by Uber’s aggregation of both supply and demand.

I had the opportunity to interview several Uber drivers, who uniformly praised the service. Although more expensive than a taxi, Uber makes the process of booking a pickup and paying the driver so frictionless – the payment is charged to a credit card supplied when signing up for the service – it make sense for all but the most cost-conscious.

Uber transformed a discrete and disconnected army of cars into a single, cohesive entity, aggregating demand for that fleet, ensuring that there would be work. This innovation proved so disruptive to the existing San Francisco taxi companies they filed suit against Uber – originally named ‘Uber Cabs’ – getting a judge to order Uber to remove the word ‘Cabs’ from their name. That hasn’t stopped Uber’s growth; they’ve now entered New York, Chicago, Seattle and Boston. Every city that has a fleet of underutilitzed limousines is now ripe for disruption." (http://blog.futurestreetconsulting.com/2011/10/06/hypereconomics/)



AirBnB hospitality rentrals

Mark Pesce:

"AirBnB is another disruptive business employing similar strategies around aggregation. Allowing property owners to list rooms, apartments or homes for short-term rental, AirBnB simultaneously aggregates people looking for short-term rental properties. What was once done informally and clumsily through word-of-mouth and Craigslist, is now smooth, efficient, and effortless.

AirBnB is disrupting the hotel market in cities such as New York and San Francisco, where room prices are high, and where there are also a pool of homeowners looking for cash to defray their enormous mortgage payments. The same market forces which make these cities expensive to visit drive supply and demand to AirBnB. AirBnB has created a fluid market in very-short-term rental properties where none could have existed before, because of marketplace frictions which made it very difficult to connect property owners to renters. Hyperconnectivity has eliminated those frictions, so AirBnB represents the first pass at a frictionless the rental market." (http://blog.futurestreetconsulting.com/2011/10/06/hypereconomics/)