The Shared Economy and the Era of the Whole-Subscription Distributor
We have always been a shared economy, we just haven’t realized it. Electricity is no longer delivered through my personal generator in the garage but instead through a shared generator and network. Over the past century, advancement in technology has allowed a shift in power from non-luxury Consumer Product companies (or Manufacturers) to their Retailers (or customers). With the new wave of digital technologies, this power is shifting further up the value chain into the hands of the end-consumer or business.
This shift is causing a greater utilization of resources, and in turn forcing companies to change the way they engage with their customers and run their operations. The idea of pay-per-use is at the heart of this – to own or not to own is the question.
The last decade has bolstered many large companies that embrace the key principles for a shared economy. The emergence and dominance of shared rides (Uber and Lyft), shared homes (Airbnb), shared parking etc. is exemplified in industries that were already well established (transportation, hospitality, and parking). So what makes them different and how can distributors find their place and embrace this new world?
- Re-usability – It is at the heart of something being shared. For an asset to be shared, it should have sufficient steady-state, impersonal and non-diminishing useful life. What that means is that each subsequent use of the asset should not leave it less useful, less desirable, or non-consumable to the next user and therefore no frequent replenishment for the primary owner. Barring catastrophic circumstances, a car for example is no different at 10,000 miles vs 10,050. So each ride does not reduce its subsequent usability. You couldn’t do that with a plate of Chicken Tikka Masala. Distributors of reusable items will need to find ways to monetize this sharing. As an example, with companies moving to mobile workplaces and shared offices on the rise, distributors of communication equipment can partner with corporations and space providers to develop a holistic mobile office (phone, internet and video) and bill based on usage. Start-ups or seasonal businesses could use and re-use a high-end IT infrastructure for analytics and communication, albeit momentarily, to compete with larger players. This will give distributors the opportunity to build that capability and offer it as a pay-per-use service. It could be a manufacturer/retailer of Halloween items needing those services, smart POS terminals etc. for just a month in year and another one needing it during Christmas and New Year’s.
- Mobility – For an asset to be shared, either it and/or its consumers need should be mobile. This fulfills the need of the consumer/business at a particular location and for a prescribed duration/task. Uber gives us a ride from point A to B, and the asset in question (a car) is mobile. In the above example, the need for corporations to have a mobile productive workforce across the globe could allow distributors to build that infrastructure and share it with smaller/seasonal players during low tides. Similarly distributors of machinery to miners, refiners or farmers can move much of this equipment based on seasonality and consumption patterns, allowing others to engage in effective utilization of the asset.
- Measurability – It defines the capability to measure the consumption of an asset in a manner that can be tied to billing. An Uber ride measures the distance and time taken and that is an acceptable metric for billing. Similarly, distributors could embed sensors to measure throughput and active time on a machine to bill equipment users. High-end IT infrastructure could be measured and billed on CPU and data usage, and others could be measured on transaction count. An important aspect of measurability should be the simplicity and ease of measuring consumption, with a clear tie to billing such that it is more cost effective against the alternative product or outright ownership.
- Accountability – It encompasses the criteria that are necessary to mitigate risk or adverse action/reaction to/from the customer. In many ways they are like the KPIs that ensure smooth operations, but may not be part of the consumption metrics. In case of Uber these would be criteria such passenger safety and satisfaction. An important aspect of these criteria are that they help measure and ensure repeat purchases and are necessary for the ongoing sustainability of the business model. For distributors of equipment, it could be around safety and performance specifications, and for technology infrastructure it could be around data privacy and infrastructure performance.
Wholesale Distribution has always been about efficient utilization, and distributors will need to find innovative ways to move toward being service providers, to help their customers improve utilization of products sold or subscribed.