Davos has brought the concept of the Fourth Industrial Revolution to the forefront of the imagination. Already society is on the cusp of the revolution but the anticipation of the merging of various technologies such as 3D printing, artificial intelligence, sensor technology et al will enable this revolution. One aspect of this will be peer to peer transactions becoming the norm. What does this mean and how will it affect everybody?
Only this aspect will be the subject of this blog.
Main picture: Airbnb now operates in Cuba
Peer to Peer involves a transaction being undertaken directly between a provider/seller and a customer/purchaser by disintermediating an entity that normally provides that service. Notable examples at the forefront of this innovation are Uber and Airbnb but the possibilities are endless. In these cases an entity with its attendant overhead has been replaced by an App.
File illustration picture showing the logo of car-sharing service app Uber on a smartphone next to the picture of an official German taxi sign in Frankfurt, September 15, 2014. A Frankfurt court earlier this month instituted a temporary injunction against Uber from offering car-sharing services across Germany. San Francisco-based Uber, which allows users to summon taxi-like services on their smartphones, offers two main services, Uber, its classic low-cost, limousine pick-up service, and Uberpop, a newer ride-sharing service, which connects private drivers to passengers – an established practice in Germany that nonetheless operates in a legal grey area of rules governing commercial transportation. REUTERS/Kai Pfaffenbach/Files (GERMANY – Tags: BUSINESS EMPLOYMENT CRIME LAW TRANSPORT)
The debate now raging throughout the world is how to classify the people supplying the service. In reality most service providers are neither employees nor contractors. This conundrum is created not only due to the Contractual Conditions but also due to the fact that the amount of work performed varies widely depending upon the provider’s needs and desires. Take the case of Uber. Only a minority derive all their income from this source. At the opposite end of the spectrum, some will only undertake this work when there is peak demand as their rates are higher. Generally it is a win-win for all the parties involved.
If we take the case of a trip from Sandton City to Rosebank, this route is offered by four traditional taxi companies and Uber. Of these Companies, Uber was the cheapest at R60 with one of the traditional taxi companies charging R 110! Not only that, but the Uber vehicle was newer and the driver well groomed and spoken.
Another complaint is that the fares vary according to demand with fares at peak periods such as New Year’s Eve being exorbitant. I have a diametrically opposed view. In fact this is how the taxi industry should operate. Instead of making the taxi companies responsible for estimating the demand, let the demand raise prices. This will have the effect of automatically bringing additional supply into the market or alternatively automatically curbing demand. If one had to analyse why there is such a discrepancy between Uber’s fares and those of traditional taxi companies – TTCs – this would be part of the reason. The consumer has to pay for the mismatch between supply and estimated demand. In the case of Uber, this correction is automatic.
A demonstrator kicks a car, suspected to be a private taxi during a 24 hour taxi strike and protest in Madrid, Spain, Wednesday, June 11, 2014. The taxi drivers were protesting against unregulated competition from private companies, in particular, Uber, an international company that puts people in contact with each other to share cars or pay for short journeys in private vehicles within the city. (AP Photo/Paul White)
This mis-match is most noticeable in manufacturing companies. The ability to estimate demand correctly is more of an art than a science. Using the concept of Lean Manufacturing producers attempt to mitigate the costs of holding large stockpiles. Conceptually it is an excellent system yet in discussions there are various pitfalls such as unexpected production stoppages, strikes, excessive variability of demand et cetera that make its application imperfect or at least suspect.
Yet without employing expensive production schedulers and planners Uber more accurately matches supply and demand.
Let us look at a practical example of Uber in action. I am a registered Uber supplier but I currently already have a 9 to 5 job. Uber is merely a mechanism to earn additional income because the interest rates have been raised by the Reserve Bank. Without using my spare time, I could capitalise on being an Uber driver when it suits me. As I drive to work from Roodepoort to Sandton every day, I could offer people lifts to work from my general area to Sandton. What would be the negative be? Possibly instead of listening to 702 Talk Radio, I would have to satisfy the customer by switching to 5FM and listening to some inane hip-hop or rap music. The same principle can be applied to other trips such as concerts, New Year’s parties, races et cetera.
We could take this principle one stage further. Already there are courier companies operating on the Uber principle. Let us combine this with a South African example. Currently Makro offers online shopping. However to reduce costs, these packages are delivered to lockable boxes at one’s closest Sasol Service Station. In my case, there are two Sasol garages in the area: one within 750 metres and another within 2 kms. If the picking were done at say the Woodmead Makro, I could deliver all the parcels for the two closest lockable boxes. Certainly a win-win.
An Airbnb online ad campaign
Like in America, this type of courier service could apply to all manner of pick and drop transactions.
Currently most companies employ a driver to perform these services. Apart from the usual mismatch between resource and need, there is the problem relating to working hours. It is year-end and one requires a new toner cartridge for the photocopier machine. The normal problem is the driver will not be able to pick it up as he leaves work at 16:00. Then why not use one’s Courier App and employ them to deliver it.
Before the invention of companies some 200 years ago, there was never an intermediary between the producer and the consumer. The consumer would deal directly with the producer often somebody living in the vicinity and an acquaintance of one. Mass production has certainly reduced the costs of items to the point where they are now affordable to almost everybody.
Makro’s online purchases collection point at Sasol Garages
What the first three Industrial Revolutions did in effect was to automate production but not administrative functions to the same extent. Even factories 100 years employed very few managers and bosses. Almost everybody was what is called “direct labour” in costing parlance. What the Fourth Industrial Revolution will do is to eliminate much of this type of work or at least make it substantially less costly without the intercession of expensive planners and bosses.
The examples above merely apply and extend the existing concept of Uber & Airbnb but what about services in general. Using the concept of App as embraced by Uber, one can provide the whole array of home services on the same basis. Ever tried to find a plumber on Christmas morning 2015 as I did when a pipe in the back garden burst? What about trying to source an IT Techie at 20:00 when something is due for a Board Meeting the next morning.
Of course the list is endless.
Wouldn’t jobs for those with low level skills mainly operate at this level?
Instead of viewing one’s job as an Uber Taxi Driver wouldn’t it depend on the demand and hence the rate. As Uber would be paying more for a driver on New Year’s eve than TechiesOnCall would, an IT Techie could multi task depending upon the demand and hence the rate.
Furthermore unlike using Honest Joe’s Plumbing Services, one will be able to insert comments on the App which other potential users can view thus removing one of the impediments to using unknown individuals.
After all of the complaints about tow truck drivers, but appointing one by using an renowned App such as Uber, would not one’s anxieties be assuaged?
In the services field, Supplier and Customer would again be dealing directly with one another instead of through an intermediary. Like a service provider of yore where one would personally have known the person, the integrity of the supplier will be endorsed by a reputable App.