Both Uber and Airbnb
started in 2007 and defined what is now known as "Sharing Economy".
The U.S. Commerce Department in a report [1] in June 2016 attempted to define
and map out the contours of this emerging business sector as following :
- They use information technology (IT systems), typically available via web-based platforms, such as mobile “apps” on Internet-enabled devices, to facilitate peer-to-peer transactions.
- They rely on user-based rating systems for quality control, ensuring a level of trust between consumers and service providers who have not previously met.
- They offer the workers who provide services via digital matching platforms flexibility in deciding their typical working hours.
- To the extent that tools and assets are necessary to provide a service, digital matching firms rely on the workers using their own.
Both Uber and Airbnb
tend to meet the above criteria. Despite this, they are different in two main
respects -
The first relates to
geographical scalability of marketplace [2] -
Uber’s model relies on hyperlocal network effects, i.e. the addition of a unit of supply (a driver)
makes the product more valuable for the demand side (riders) within a small
geographic radius. However, when Uber expands to other cities, they have to re-invest
in driver acquisition without the benefit of any latent demand. Airbnb’s model,
on the other hand, is built on cross-border network effects, i.e. the addition
of a unit of supply (a host) makes the product more valuable for the demand
side (guests) across geographic boundaries. While Uber faced local competitors
like Didi in China, Ola in India, Grab in SE Asia who had replicated the same model
in their own market, Airbnb, on the other hand, faced very little competition
from other regional startups who had limited supply in cross-geo regions.
The second relates
to the commoditization of supply [3] -
Uber’s suppliers are
interchangeable (or commoditized), i.e. customers just want a ride and are not
particularly sensitive to driver identity or vehicle brand. Riders too are
indifferent to wait times below a certain threshold. Airbnb, on the other hand,
has differentiated supply, i.e. each unit of supply is unique to some degree
across a number of attributes: type of property, quality, nightly rate,
location, capacity, etc. Thus, as Airbnb scaled offering choices across each
variety, it became more and more difficult for its competitors to match the
variety while in the case of Uber, it was much easy to build a similar network of
vehicle types and drivers.
These two
differences account for why valuation to funding ratio is so different for both
these companies.
Credits to Sameeer
Singh from Breadcrumb.vc for insights into this.
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