Published Work

Frictionless Economy

There is no question that Mr. Gates was a true visionary. His capitalistic (often ruthless) pursuits aside, he has foresaw trends defining our society in the 21st century. Even Mr. Gates’s genius, however, was constrained by time, so that he was unable to govern his monolithic corporation to take chances on every opportunity he could anticipate. “Friction-free Capitalism” was perhaps the most important of Gates’s formulations. It is the expectation that the internet will eventually lessen or remove barriers between producers and consumers. According to Gates, thanks to the technology, the economy should come closer to the Adam Smith’s ideal of free market – a condition where the price-setting is close to perfection – determined by direct contact between sellers and buyers and unhindered by the intervention from governments, monopolies or the lack of information. In the words of Gates himself: “the internet will extend the electronic marketplace and become the ultimate go-between, the universal middleman”.

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published in TREND in January 2015
published in TREND in January 2015

What Gates could not foresee at the time, became evident with the rise of new technology startups like AirBnB, Uber or LendingClub in recent period. AirBnB, the site which allows people to rent their homes directly between each other has an estimated valuation of $10 billion after it successfully raised $450 million in April this year. Uber, company whose uniqueness lies in the ability to bypass taxi services by connecting independent drivers directly with passengers is estimated to be worth nearly $18.2bn after it raised $1.2bn in June. The estimates for the “peer-to-peer” lending platform LendingClub are just as astronomical – the expected potential based on the ability to sidestep banks and arrange lending directly by connecting individual borrowers with savers is immense.

These young companies are regarded as the pioneers of the “internet of things” – a promise of unparalleled increase in efficiency of how economic resources are allocated und used up. The ever-present inter-connectedness between constantly improving intelligent devices should lead to perfect flow of information. A wind turbine would communicate with biomass plant, so that only enough electricity is produced, depending on the wind speed, consumption needs of the households in the neighbourhood nearby and weather forecast for the coming week. Beyond this, however, the internet of things brings a much more fundamental change to business – something that even Gates could not foresee at his time. Young companies like AirBnB are bringing upon “disintermediation”. Their business model is based on cutting out a middlemen and enabling two economic actors to do business directly. When Uber enables its customer to connect directly with the nearby “independent” driver, the need for a taxi company to organise the service ceases to exist. These “peer-to-peer” service platforms remove the middleman (whatever institutional entity that may be) and by doing so unlock immense economic value and create opportunity to turn many businesses on their head.

Missing The Point

There has been a respectable uptick in the startup activity in Central Europe. Young entrepreneurs are bringing together teams of capable programming engineers and webdesigners to come up with the next big “App” idea. In Czech Republic, however, only a small number of the 62 new companies that have recorded their own existence on the crowd-sourcing website startupclub.cz seems to be aiming at the opportunity from the “peer-to-peer” business model. Liftago allows its users to call upon a driver directly and order a ride. Textemo connects companies and independent translators directly. Fobo goes even further – it allows members to sell what they can do directly over the platform to other users. In both cases, removing the need for institutional oversight removes the commission and increases payoff for the individuals. The situation is similar in Slovakia, where only a few of those who logged themselves on the crowdsourcing platform withlove.sk focus on the “peer-to-peer” pie, although those who do come up with interesting propositions. InHiro replaces HR departments in companies by helping firms to hire through social networks – an increasingly prevalent trend in the world. Hopin is a first Slovak application for direct taxi service and getFarmer helps users to find local farmers around their home. The small number is disappointing, since the “peer-to-peer” business is precisely the opportunity that could allow small companies with little capital or investment backing to thrive – idea and technological solution are the key to success.

The Size Of The Opportunity

The “peer-to-peer” gap in Central European markets awaits to be filled. It is, however, not yet clear whether by foreign or local companies. The Czech and Slovakian markets tend to be immune to the threat of seizure from well-established big players. One of the greatest business chances of the century is the unavoidable fall of the traditional TV broadcasting industry. Traditional TV is being replaced by online streaming services like Netflix, Hulu and Amazon Prime. Instead of being crushed by these large players, like in many other countries, Czech market has come up with its answer – Ivio, Topfun and KlikTV all offer the same type of service for a reasonable price. In Slovakia, the market is too small to attract big players initially. During the rapid rise of social network platforms such as myspace and facebook in the early 2000s, it was the local alternative – Boom.sk – which achieved most popularity and awareness. Admittedly, the service has later been crushed by Facebook, but was undeniably the first and strongest platform in the market.

“Peer-to-peer” is a fundamental change in how business is made. Not unlike in the past, the Central European markets should be able to produce capable substitutes for the global competitors. Those who emerge will seize the greatest opportunity of the decade.

Gates, Bill. 1996. The Road Ahead. Rev. ed. London: Penguin.
http://techcrunch.com/2014/04/18/airbnb-has-closed-its-500m-round-of-funding-at-a-10b-valuation-led-by-tpg/
http://online.wsj.com/articles/uber-gets-uber-valuation-of-18-2-billion-1402073876
http://withlove.sk/
http://startupclub.cz/startupy/

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