system simulation - sharing economy_airbnb

- 1 -Hult International Business School – MBA Class 2016 – Golden Gate – Team 8Mod. A – Global & Business Society

Does the Sharing Economy really Share?


Conclusion

Shift from a Consumeristic Economy to a Cooperative Economy by way of economic and

social equality, accountability and stability


27Conclusion5

22New System Simulation4

15Cooperative Economy: Principles, Structure and Roles3

10The Hospitality Industry: Threats by Airbnb2

4Sharing Economy: Principles, Forces and Issues1

Agenda


27Conclusion5





Agenda


Sharing Economy: a revolutionary way of doing business

“Sharing economy, also known as collaborative consumption, is a business concept that highlights the ability (and perhaps the preference) for individuals to rent or borrow goods and services rather than buy and own them”1

Trust

Economic downturn

Scarcity of resources

Sharing Economy

“I don’t need a drill, I need a hole in my wall” Traditional “Consumeristic” Economy

Current “Sharing” Economy

1 http://searchcio.techtarget.com/definition/sharing-economy

Internet

1

2


Personal liabilities Increased individual risks Uncertain regulations Uncertain service security Uncertain service quality No Labor Rights protection Diseconomies of scale Increased risk of ‘Adverse Selection’

and ‘Information Asymmetry’ The majority of sharing economy

platforms still have control over the prices of the service provided

More choice for the customers Better pricing in the market Reduced transaction costs Increased entrepreneurial ‘spirit’ New and faster innovations Increased job flexibility Better use of scarce resources New and unique experiences

UPSIDES DOWNSIDES

Sharing Economy: are we sure the upsides outweigh the downsides?


Which forces affect the Sharing Economy System?

SOCIAL

TECHNOLOGICAL

ETHICAL

LEGAL

ENVIRONMENTAL

ECONOMIC

Individual growth

Demographics

Change in consumer mindset

Unemployment

Regulations

Individual growth

Income inequality

Discrimination

Technological changes

Economic cycle

Scarcity of economic resources

Barriers to Entry

Economy of scale

Network effect

Investors’ interests in the System

Unemployment

Scarcity of natural resources

Negative externalities (e.g. pollution)Legend:

High impact / High Uncertain Driving forcesOther driving forces


Need for investments in

new assets

Government incentives

Rise of big players

Lobbying power

+

+

++

+

+

+

Need for utilization of

existing assets

Seizing new IT

opportunities

Sharing Economy

+- -

+

2

Faster Capital & Cash inflow

+

Rise of big players

++

Social welfare

-

+

+

+

+

Accountability

Security

Labor rights

New & easier way

of doing business

-+

Desire to grow

Opportunities for new players

Ability to respond to economic shocks

Consumeristic Economy-

+

1

Economic system fragility

The current Sharing Economy ultimately leads back to a consumption driven economy fostering social inequality

Social welfare

-

-

+


Need for investments in

new assets

Government incentives

Rise of big players

Lobbying power

+

+

+

++

+

+ Need for utilization of

existing assets

+

Seizing new IT

opportunities

Sharing Economy

+- -

+

2

Faster Capital & Cash inflow

+

Rise of big players

++

Social welfare

-

+

+

+

+

Accountability

Security

Labor rights

New & easier way

of doing business

-+

Desire to grow

The current Sharing Economy ultimately leads back to a consumption driven economy fostering social inequality

Opportunities for new players

Ability to respond to economic shocks

Consumeristic Economy-

+

1

Economic system fragility

-Economic

system fragility

Social welfare

-

+


27Conclusion5





Agenda


How is the Sharing Economy infiltrating the Hospitality Industry?

Threats of Substitutes

Technology ( Video Conferencing ) – Making the world a smaller place

Peer to Peer Accommodation / Home sharing

Mobile Homes / Camping Cruises

Power of Suppliers

Labor Supply / Contracted Workforce Furnishing Catering Utility Providers

Industry Rivalry

Concentration Price, Quantity, Services Competition Brand Recognition

Powers of Buyers

Wide Range of Options Available Relationship Specific Bookings Discount Packages

Hospitality Industry

Barriers to Entry

Infrastructure costs Government regulations Labor costs Branding costs Locations

Legend:Affected by the advent of Sharing EconomyNot affected by the advent of Sharing Economy


Airbnb’s Business Model: low costs and the Network Effect

Key Partners

Hosts

Guests

Professional photographers

Investors

Payment processors

Revenue Streams

Commission from Hosts upon every booking Commission from Guests upon every booking

Cost Structure

Platform set up & maintenance costs Salaries to permanent employers Payment to freelance photographers

Key Activities

Building Hosts network and Hosts management

Building Guests network and Guests management

Key Resources

Financial: relations in the Silicon Valley

Human: best technicians and web designer

Technology: User-friendly well designed web platform

Value Proposition

Hosts:› Earning money renting

the place› Insurance offered by

Airbnb› Free photo shooting

Guests:› New opportunity

(homestay vs Hotel)› Decreased prices

Customer Relationship

Customer service

Social Media

Promotional offers

Home insurance

Channels

Website

Mobile apps (i.e. Android, iOS)

Customer Segments

Hosts:› People owning a house

willing to rent› People willing to meet

new people

Guests:› Travelers› Casual guests looking

for comfortable accommodation at affordable prices

Source: http://nextjuggernaut.com/blog/Airbnb-business-model-canvas-how-Airbnb-works-revenue-insights/

Network Effect


Airbnb: Issues with Regulation, Reputation, and Risk

Regulation: Local governments impose taxes and fines

› Hotel Tax within San Francisco

› Fines imposed on Airbnb and Hosts Legislation to restrict Airbnb short term rentals

› Proposition F in San Francisco

› Caps on Short Term Rentals: 90 nights in SF, 30 nights in NYC

Reputation: Local residents view Airbnb as a negative force causing evictions Airbnb becomes a scapegoat for housing shortage, increasing

rents

Risk: Liability: Safety of Hosts and Guests Discrimination and Inequality

Case: City of San Francisco vs Airbnb Airbnb fights back - amidst Prop F uproar

Airbnb tries to remind the public of their contribution to local economy


How Airbnb and the other Stakeholders impact society as a whole?

Stakeholder Interests/Expectations Actions Negative Impact

Airbnb

Initial: Source of income during recession

Existing (2014 Mission/Vision):

"Belong Anywhere"

Owns a platform where they can easily connect hosts with guests.

Lose distinct cultural flair amongst locals / mass tourism takes precedence enabling gentrification

New Guests Get a place that mimics home Utilize the asset suited with their chosen price, needs and lifestyle

Increases buyer power Gain better understanding of the local's cultures

Airbnb Hosts Individual growth; extra income Use Airbnb platform to choose and approve potential guests

Promotes discrimination and / or inequality

Local Government Aims at stimulating local economy and social development

Imposes Transient Occupancy Tax to Airbnb Owners (eg SF Local Government)

Produces displaced citizens as Airbnb hosts force up housing prices to accommodate taxes

Hospitality Industry Aims at providing outstanding lodging facilities and services to guests

As their market share got affected, they have to lower down their employee headcount or reduce

payroll Reduced market share causes the decline of local’s labor force

Locals Displaced Stay in the area with reasonable price Relocate due to higher rental prices Increases number of displaced residents in the area Mass tourism takes precedence

Neighbors NONE (externalities) NONE (externalies) Irresponsible guests are disrupting peace and values of the area

Real Estate Industry

Meet the market's demand of purchasing or selling real estate needs

Get paid and commissioned from selling spaces outside shared economy system. Some leave the

industry and join Airbnb bandwagon

Licensed real estate agents lose their jobs

Weakens the real estate industry as experts leave

VOLU

NTA

RYIN

VOLU

NTA

RY


27Conclusion5


20Airbnb in the new System3.2

16Principles, Structure and Roles3.1




Agenda


27Conclusion5







Agenda


The New World: Cooperative Economy

“It promotes decentralization which means there will be no capital outflow outside the regional community being aligned with the principle of economic efficiency and economies of scale.”

GUIDING

PrinciplesPROGRESS

Measures

An autonomous association of people in which they work collaboratively as shareholders to meet their common economic, social and cultural needs and aspirations

A cooperative enterprise focus on creating equality by providing equal opportunity to people to take part in the economic activity of the enterprise by means of sharing their assets and creation of new assets ultimately enabling them to drive their financial and social welfare on their own

Voluntary and Open Membership

Democratic Control

Independence

Community development

Literacy levels

Environmental sustainability

Bio-diversity

Income distribution

Purchasing capacity


Pillars of the Cooperative Economy

STABILITY

ACCOUNTABILITY

EQUALITY

Bringing transparency to the System

Distributing profit and risk Enhancing and enforcing ratings

systems

Providing Stability within the System› Self-Regulation› Self-Reliance

Demanding equality for the System:› Creating equal opportunity› Reducing discrimination

The Cooperative System utilizes three key pillars which work in conjunction to create a self-

regulating, sustainable system


Cooperative Economy: What will it look like?

Regional Community

National Cooperative Grid

Central Government

Regional Community

Cooperatives: Enterprises driven by the shareholders Shareholders: Local people working in cooperatives Board of Directors: Governing council of cooperatives Elected Representative: Chosen representative of the

cooperative in the regional community organization. Regional Community: Responsible for development,

judiciary and legislation of the community. Manages utilities, education, transportation.

National Cooperative Grid: Chosen representative from regional community collaborate to form national organization.

Central Government: Responsible for global representation, security and national disasters.

Roles


27Conclusion5







Agenda


Accountability:

› The Neighborhood Collaborative enforce ratings, and are responsible for monitoring the risk involved regarding local government regulations

› They gain shares in Airbnb, earning more for their assets and creating a voice for the prosumer. Giving Airbnb the benefit of marketing, research and development and new innovations

Equality:

› Prosumer (Host) enters into a Neighborhood Collaborative, in which every member is equally represented by one vote which sets the agenda to be brought to Airbnb by the Collaborative Representative

› Ratings Enforcement prevent Discrimination, also lessening risk for Airbnb.

Stability:

› The Collaborative self-regulates, allowing local residents to interact with Hosts. Collaborative Ratings Enforcement alleviate safety concerns. Airbnb’s reputation is strengthened.

How could Airbnb contribute to the success of the new System?

Implementing a Collaborative Approach, Airbnb will contribute to the success of the Economy by bringing the Sharing Economy Giants together, setting a precedent for a new model of business.

(SOMA)Neighborhood Collaborative

(Mission District)Neighborhood Collaborative

(Outer Sunset) Neighborhood Collaborative

San Francisco Regional Collaborative

Representatives


27Conclusion5





Agenda


Is the System Antifragile? – Testing through the five main Driving Forces

ECONOMIC CYCLE

SCARCITYREGULATION

TECHNOLOGYNEGATIVE EXTERNALITIES ON

THE ENVIRONMENT

Regional Community

National Cooperative

Grid

Central Government

Regional Community


Test # 1-2 – Scarcity of Economic Resources & Technological Changes

Who:

› Shareholders

How:

› In abundance, prices of assets are reduced.

› In scarcity, prices of assets are increased.

› In scarcity, the system is not able to satisfy customers’ needs.

SCARCITY OF ECONOMIC RESOURCES:

Abundance of resources/assets

Scarcity of resources/assets

TECHNOLOGY: Attacks behind Internet

technology affecting Client’s internet platform (platform isn’t available)

More people accessing internet

In abundance, focus for sharing assets will be shifted to other priorities such as innovation and environment sustainability

In scarcity, the system would use reserved funds to continue its economic activity

Sharing transactions are less costly than owning an asset.

Measure of assets will control the production according to seasonality.

Who:

› Shareholders

How:

› Less technology reduces the connectedness between cooperatives and customers

› More People accessing internet increases congestion in the system. More people joining the network affecting client’s response

Have a communication back up plan with clients.

› Emergency Telephone line.

› Face to Face communication.

› Invest in R&D to create new platforms for interaction between people.

More technology improves process of recruitment of new members, making it more efficient.

Improve communication process with new members and people willing to join the system/company.

IMPACTS ON THE SYSTEM HEALING THE SYSTEM


Test # 3-4 – Regulations & Negative Externalities on the Environment

Who:

› Community

› Shareholders

› Government

How:

› Lessen availability to natural resources.

› Reduction of Social welfare.

› Necessity to find new ways to be environmentally conscious

› Economically affected

REGULATION

&

NEGATIVE EXTERNALITIES ON THE

ENVIRONMENT: Reduction of natural

resources More Taxes imposed Penalties misusage of

resources

Cooperatives fully utilize their existing resources Each individual is accountable for the usage of

resources

Transparency within the system will allow people to be more conscious of their acts



Test # 5 – Economic Cycle

Who:

› Shareholders

› Government

How:

› Economic Boom:

People have less incentive to share.

› Economic Bust:People have more incentives to share, creating

congestion in the System

Lack of faith in the system

A Global Crisis would affect the System in a community level

As wealth increases, so are the incentives for everyone to remain the System and keep contributing in the System

As the System successfully elevates everyone's welfare, people will focus on other priorities such as global issues (i.e. environment, innovation)

In a Economic Downfall, the system would use reserve funds to continue its economic activity

In a community level the issue would be addressed by decentralization


ECONOMIC

CYCLE


27Conclusion5





Agenda


Conclusion

Shift from a Consumeristic Economy to a Cooperative Economy by way of economic and

social equality, accountability and stability


Back up


Source: http://www.statista.com/chart/2323/the-rise-of-the-sharing-economy/

How accepting the public is with sharing communities


• Cooperatives overcome the historic barriers to development in the ways they aggregate people, resources, and capital (Ziewacz 1994). Of 162 non-agricultural cooperatives in one study, 44% of the respondents said they could not have opened their business had it not been organized as a cooperative (Bhuyan et al 1998).

• The economic activity of the 30,000 cooperatives in the U.S. contributes an estimated $154 billion to the nation’s total income. The co-ops have helped to create over 2.1 million jobs, with an impact on wages and salaries of almost $75 billion (Deller et al 2009)

• Cooperative businesses have lower failure rates than traditional corporations/small businesses: after the first year (10% failure versus 60-80%) and after 5 years in business (90% still operating versus 3-5% of traditional businesses) (World Council of Credit Unions study in Williams 2007). Evidence also shows that cooperatives both successfully address the effects of crises and survive crises better (Borzaga and Calera 2012).

Source: http://www.geo.coop/story/fact-sheet

Numerical Facts: Benefits of Cooperative Economy


Stakeholder Analysis 1/2


Stakeholder Analysis 2/2


Human RightsPrinciple 1: Businesses should support and respect the protection of internationally proclaimed human rights; and

Principle 2: make sure that they are not complicit in human rights abuses.

Labor

Principle 3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining;

Principle 4: the elimination of all forms of forced and compulsory labour;

Principle 5: the effective abolition of child labour; and

Principle 6: the elimination of discrimination in respect of employment and occupation.

Environment

Principle 7: Businesses should support a precautionary approach to environmental challenges;

Principle 8: undertake initiatives to promote greater environmental responsibility; and

Principle 9: encourage the development and diffusion of environmentally friendly technologies.

Anti-Corruption

Principle 10: Businesses should work against corruption in all its forms, including extortion and bribery.

Does our conclusion follow the un global compact principles?

https://www.unglobalcompact.org/what-is-gc/mission/principles/principle-1










system simulation - sharing economy_airbnb

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