The USS Quad Damage

Ebay needs to be a business that grows.

When we look at “peer economy companies”, like Ebay, Uber, and Airbnb, they all follow a similar pattern. They start by allowing users to trade their surplus. With Ebay, it was surplus goods — you have a spare X lying around and you want to get rid of it, just auction it off and you’ll make some money off it; on the other side someone gets a cheap second hand X without the prices being pushed up from the middlemen. With Airbnb it’s room — I have a spare room or house and it’s not being used ever or right now and it’d be good to let someone sleep there and a bit of income is OK. With Uber it’s a car seat — I was driving to X anyway and I could make a bit of money taking someone else along. However, each of these services are turning (or turned, in the case of ebay) into a very different service.

Ebay is trying (and has already succeeded to some degree) to turn into a regular online retailer like Amazon, Uber is trying to turn into a regular taxi service, and Airbnb is trying to turn into a regular hotel service. But the real question is: why? The original ideas are actually quite valuable to society. If you think about it, people in western societies largely have a surplus of a huge number of things. These things are mostly wasted, whether it’s a spare room or a car just sitting there or travelling with only the driver, or a bunch of random stuff that isn’t being used any more. This “waste” is sometimes turned into carbon emissions, sometimes landfill, sometimes just inefficiency, and these services turn this waste product into something usable. Great news for society! So what gives? Why do these companies switch away from this focus?

The answer has to do with the idea that the west doesn’t know what Capitalism looks like. Ironically, there are many former soviet countries, and China, and India, who do Capitalism the way the books define it, but countries like the US? Nope!

It’s funny because people think in the “left” or “right” political sense, and think of Capitalism as some sort of automatic solution, but in fact a huge amount of “capitalism”, or “how you do business” is highly dependent on culture. Ask someone in Japan how people do business, not just on the “production” side, but also as a “consumer”. Japan as an economy is (apparently) mind boggling in many ways. I’m going to use India and the US as examples, though, because they are the most easily understood in terms of economic theory and literature.

India is basically Economics 101: the book of the movie of the game — Champion Edition. By this I mean there are several vendors selling the same things and competing purely on price, there’s a huge market and very little government intervention (other than “cost of doing business”, which is apparently a euphemism for “bribes”). I find it rather funny when Randian billionaires talk about “experimental societies” with no government oversight and completely unregulated businesses when really you have your perfect experiment right there in India! It is both as beautiful and terrifying as that. Economics 101 describes India to a tee.

Contrast with the US. The US is also a hugely free market and prices are low there, too. However, you will rarely see companies actually compete. The first key word is “niche”: Find something no one else is doing and do it really well. The second key word is “rent”: Find a way to “own” the playground and charge to let people in. When an American business decides to take a market, they don’t just walk in and start charging lower prices, they will actively strangle every business around until it’s nothing but them. They will outright lose money to do this. They will absolutely not give the customer what they asked for, rather set up a web of intrigue so they can give you something for “free” then charge you through the nose for it. The only reason they can get away with it is culture. They know that everyone is in it for the rent. In India, someone would just give away the playground and charge as little as possible for the games.

Part of this has to do with the fact that India tends to have a lot of private enterprise — if you’re making money, you’re doing well. The US by contrast has a lot of public enterprise — the key isn’t your present credentials, it’s all about growth. But let’s not get caught up the cultural comparisons, let’s talk about what that means for the companies themselves.

See, Ebay (and I’ll use them as an example, since it’s mostly played out, while Uber and Airbnb are in process) doesn’t just need to be a business that makes money; It needs to be a business that grows. After a certain time, Ebay knows that it will basically “own” the market where people buy and sell goods online. There’s only so much money to be made from that. You can make operations cheaper but it’s an internet business doing arbitration, it’s already cheap! So it has two options: find some way of getting more “waste” to end up on the site (which is completely dependent on its customers), or find a way to start charging that delicious rent.

One of the ways it did this is by buying Paypal. Now every transaction is one which gave them rent. They were trying at one point to make it so Ebay only worked with Paypal. Once everyone’s gotten “Network Effected” onto Ebay, stick them with Paypal and you’ve got the customers by the balls. However, the users smelled that a mile away, and Ebay had to move away from that idea. The second big idea is simply to sell new items. They have a bunch of traffic and buyers and sellers, so it’s already a place where people search for goods, and being able to sell a new one straight away means they could potentially make it impossible for someone to sell stuff on the internet unless it was via Ebay. If they make themselves a virtual mall and kill off all other internet transactions, they have sellers by the balls. This is what Ebay is moving towards.

In fact, Uber and Airbnb are moving towards the same thing. Instead of having several competing websites that offer hotels, Airbnb want to be “the” site, because they’ve grown from a strong community, one where one group of people make an unexpected small amount of money, and the other group get unexpectedly cheap hotel rooms. You could easily “layer” regular hotel rooms on top of that, and no one would bother looking at any other site to book a hotel. Once they have the network effects, they have hotel companies by the balls. Uber want every taxi to have to go through them. They want everyone to forget that you can even go to another taxi company’s site because all the taxis are on Uber anyway. They want taxi drivers by the balls.

And that’s why companies like Uber, Airbnb, and Ebay stray from their roots, because they’re not after money, they’re after “growth”, which is really just code for “rent”, and the only way to get rent is to really have someone by the balls. You can get community sites where you can share rides or a room or sell second hand goods, and those places can even be for-profit, but it requires that the company be run by a management which is necessarily focused on the cash flow and has a distinct lack of ambition. Alternately you need to be in an economy where someone with a distinct lack of ambition can readily undercut the rent seeking guys.