Some things that seemed outrageous not so long ago are suddenly quite normal. Like the “sharing economy”. Could people trust strangers with the keys to their apartments? It turns out that by and large, they can. And so Airbnb, an online firm that pioneered apartment sharing is thriving.
It is a nice example of how web markets work differently than their real world counterparts. That is the conventional wisdom. But do they? And if so,what exactly is the difference?
To get a sense of whether airbnb is different, we need to understand the hotel business model. Long ago, folks in the hotel business knew that owning and maintaining expensive properties in great locations was essential to build a solid brand (you might think of the Ritz). The brand, however, was primarily local because it is very expensive to own and maintain this kind of property.
But someone had a great idea. In fact, it doesn’t matter WHO owns these locations. Hotel brands could let someone else be on the hook to pay for ownership and maintenance. The brand would just enter into long term management agreements with operations standards and fees based on gross and net revenue. It was a great idea that made Sheraton et al global brands. Sheraton’s main assets? A very tall stack of management agreement contracts and an international reservations system.It is a great business where pretty much all the risk is shifted to the owner.
When you put things in this perspective, Airbnb is actually not all that different. The global hotel chains can bring a hotel owner a steady flow of customers with its brand and international reservations systems. Airbnb can bring an apartment owner a steady flow of customers with its the web platform and its — web based international reservation system.
The main difference is that the single hotel owner is taken out of the picture. With just a bit of trust in the system, he or she is not needed. And the idea of the “sharing economy”? Have people in fact changed to become suddenly more trustworthy? Not at all. It’s just that our perception of what is possible has expanded because of new vocabulary that is now the norm on the web. Boiled down to the essentials, the sharing economy is great marketing — and essential for this type of web business to thrive. As Bruce Schneier would say, it is “security theater”.
This allows us to reach a more general conclusion about online commerce. Being online gives immediate access to global markets. But it only works if an enhanced and shared sense of trust is generated. That doesn’t happen automatically and it is not built up with rules. To the contrary, too many rules and the perception grows that the system cannot be trusted. It is built up instead with words. Like “sharing”. The main challenge for those looking to disrupt markets using the web is to create more trust sending signals with more words like that. Notice that this is not really “tech” or “high tech” at all. It is marketing - an enhanced kind of marketing that anyone can do.
Ok, so now I come to the main point and drum roll please — it is about the role of law. Pre-internet, law was the street cop, making sure that commerce flowed. It worked by catching the few bad guys that disrupted stuff by interfering with contract or property rights. But once again — “rights” protection via rules enforcement is not the same as trust generation. In the online world, trust works wonders, rules get in the way. So law appears to have less of a claim to be the key to the system working.And it can be a negative.
Right. So, would you want to be a lawyer in this environment? Especially if getting into the law business is expensive and difficult? Is it a surprise that fewer kids are willing for pay big money for a JD degree? And that law school enrollments are way down? That is the story from NYT today.
Law will come back. But the law business model is in need of disruption before it can. Law needs new branding in the digital era — and btw, that includes but is not limited to IP law.
FOLLOW - The Economist (via BI) offers some interesting thoughts about fixing the US legal system.