Jim Womack talks about Uber and Airbnb and asks whether the sharing economy is lean

I got my first car forty years ago – a gift from my parents. My first thought was: “it's mine; it will always be there available whenever I need it”. I never considered lending it to anyone, not even my best friend, and I would have been shocked at the thought of giving rides to strangers in exchange for money – had that idea ever crossed my mind. My vision of adult life was that, as I earned more money, I would have more and more assets for my exclusive use. No more crowded buses! No more roommates!

When I arrived in Boston for school (driving alone in my car, which I had received as a gift), I laughed at a T-shirt I saw in Harvard Square: “The person who has the most stuff when they die wins”. But that was exactly what I believed. And most people, in most countries, rich or poor, seemed to share my feeling: poor people didn't have many assets to share, but found it worthwhile to share them when they could. Rich people had many assets, but didn't need and didn't want to share them.

Here is a simple piece of evidence: vehicles in poor countries, in the past and still today, were/are filled with people and cargo – relatives, friends, fellow travelers and chickens, plus strangers willing to pay or trade something (a chicken, for example) for a ride. By comparison, vehicles in rich countries carry an average of 1.3 occupants (a number that keeps falling over time) and are almost never used as a medium of exchange. Moreover, these vehicles are rarely used, averaging only two hours of use for transportation in a twenty-four-hour day.

In recent years, things have changed: the world economy – which now includes China – has slipped back and has shown no signs of regaining its growth. This has left many people with more assets than they can afford or unable to obtain the assets they would need, and there is little expectation of change. At the same time, the cost of finding people wanting to share assets has plummeted because of the internet. Suddenly, the “sharing economy” came to involve many people who had never before considered the option.

Put another way, for many people, some with many assets and others with few, the definition of value has changed. A small loss in the value of the asset (which comes from the fact that it is shared and sometimes not available) seems to be offset by the gain in income, while the trouble of finding someone willing to share their assets, instead of acquiring your own, also seems worthwhile.

I think a lot about how the definition of value changes over time, but this does not affect my definition of lean, which does not change: creating more value (as defined by the customer) with fewer resources. So in recent years I have been paying more attention to the growth of the “sharing economy”, where consumers use the connectivity of the internet to share their private assets. I keep asking the simple question: “is sharing lean?”.

My answer is that it all depends. Let's turn to a current example of the sharing economy: Uber. As originally stated, the concept was that individuals with underused vehicles would “share” them with others who need transportation, according to the matching done by the website. The assumption was that vehicles registered with Uber would run more every day (compared to the 8.3% utilization rate of cars in advanced economies) while creating more value for the owners (income) and for the riders (a cheaper trip). More value from the same assets (resources) certainly looks like lean (disclosure: I downloaded the app and have been an avid user, avoiding the need to buy a second, underused car).

But, in practice, I have found that today's Uber drivers (and my experience is limited to U.S. cities) are full-time drivers rather than people with other sources of income who just use their vehicles a few hours a day to earn some extra money. And many seem to have obtained vehicles for this purpose (often through leasing) instead of using vehicles they already own. In addition, the utilization rate of these vehicles falls as more drivers sign up with Uber, which is good for the app, which can offer shorter average waiting times for riders, but bad for the drivers, whose average hourly income falls proportionally.

At the same time, traditional taxi services, which are conceptually the same thing but without the sophisticated matching technology, are losing ground, as we can see from the plummeting prices of taxis in large cities. This situation does not mean that there is something wrong with Uber or something right with taxis (an industry that froze years ago when taxis captured profits as a monopoly and removed the incentive for innovation). It means that, to determine whether Uber is “leaner” than taxi systems or than the use of private cars for travel, according to the definition of creating more value with the same amount of or fewer resources, a great deal of analysis is needed, and there is no easy answer.

The same can be said of Uber's counterpart in the lodging sector: Airbnb. With the idea of taking someone's home (usually their largest shareable asset, followed by vehicles) and sharing it with strangers, who are located through the internet, it certainly seems that more value is being created with the same assets (remember that the gain in value for the user, who gets a room at lower prices, is, in a way, offset by the loss in value for the owner, who no longer has the flexibility to use the room whenever needed. But the sum is certainly positive, or no one would list their home on Airbnb and no one would try to find a room using the website). But now there are properties being bought or built by owners who want a low-cost way to get into the hotel business. The end result could be that the gain in utilization of Airbnb properties is offset by the loss of utilization of traditional hotels.

There is an additional characteristic of the sharing economy that is problematic for many participants. The network economy – where the most successful matching website eventually ends up with practically all the traffic (think of Google) – means that much of the gain in value from a financial perspective may end up in the hands of the owners of dominant networks rather than with those who share the assets. So, even when there is a substantial gain in the total value created by widespread sharing of assets, that value may not go to the owners of the assets (hence the current lawsuits and proceedings with regulators to sort out who gets the money from Uber and Airbnb).

Lean thinking does not have an answer to this last problem, just as it cannot answer the question of who should keep the gains when a factory doubles its productivity through the application of lean management and methods, or when a hospital learns to treat more patients and treats them more effectively by applying lean principles. What lean thinkers can do is raise the question of how lean any innovation is and, ironically, ask how lean the providers of these new services, such as Uber and Airbnb, are. It is a certainty that the dominant players will become vast bureaucracies subject to the same waste of resources as any other large organization. So we have work to do in the Lean Community, even if these sharing economy concepts are not that lean.

Source: Lean Enterprise Institute.