Excess capacity exists in our lives and businesses. It occurs when invested resources or assets in our personal lives or business are not used to the fullest. The idling or unused capacity of a resource or an asset is “Waste”. I am sure the car, vacation house, kitchen, bedroom or bedrooms, books, toys, boat, exercise equipment, bicycle, sporting gear, electronics, luxury clothing, parking spaces etc. may have popped up in your mind when you think of all the excess capacity in your lives.
The sharing platform Yerdle estimates, 80% of the things in our homes are used less than once a month, and self-storage has gone up 1,000% over the past 3 decades.
When businesses think of excess capacity, they think of unused or under-utilized machines or tools in a production environment, project resources, cloud resources, computing capacity, offices, buildings, unused agricultural land etc. Many a times companies maintain excess capacity for a reason which could include demand fluctuations over time (due to either seasonality or the business cycle), and economies of scale when demand grows over time. Amazon.com had excess computing capacity that was only used once a year for the Christmas rush and sold the rest of the year to others.
By the end of 2013 over $2 Billion was invested in Excess Capacity businesses globally.
These businesses are using new technologies to unlock the hidden wealth of underutilized assets or resources, enabling us to find such assets with idling capacity and use them when we need them without having to bother with the hassles of owning them. Monetizing off Excess Capacity has resulted in a massive paradigm shift in how we live, work, play, travel, create, bank and consume. It has created newer marketplaces of products and services we thought never existed. Evidently, Excess Capacity is an area to watch; absolutely fertile for innovations and ripe for tremendous growth.
Wouldn’t you want to monetize off the Excess Capacity in your lives or business?
WHY HAVE EXCESS CAPACITY BUSINESS MODELS BECOME POPULAR? AND UBERIZATION OF ALL THINGS
Excess Capacity Business Models have gained popularity because:
Firstly, Availability of Excess Capacity
Secondly, Access over Ownership, ability to use the asset or resource when needed without having to go through the hassles of owning it
Thirdly, Growth of technology platforms that have made it easier to find, use and pay for use of Excess Capacity
Fourthly, A growing TRUST culture due to the growth of social networks; a trust based on social connectivity
Fifthly, Sharing what is in Excess enables most optimal use of assets or resources; thus contributing to sustainability, bettering the environment and creating a positive societal impact.
Sixthly, Ability to Monetize off Excess Capacity
Lastly and most Importantly, Older ways of doing things are no longer feasible due to factors like population growth, growing urbanization, changes brought about by climate change, depletion of natural resources, growing search of efficient ways of doing things and just a radical shift in values and ethics as a result of a growing trust culture.
Now leveraging Excess Capacity is not a new concept, it always existed.It is the use of technology that made the search, use and payment processing of such transactions, a one-button simplified operation. The growing Trust culture as a result of the growth of social networks like Facebook, Twitter, Linkedin etc. enabled searching and connecting the “I HAVE” with the “I NEED” much easier and reliable; thus resulting in an exponential growth of such businesses; that are offering some radically different ways of working and living.
Though it was eBay that pioneered the Excess Capacity business; it was truly Uber that popularized the notion of leveraging Excess Capacity by not just using technology to connect extra supply(I HAVE) and untapped demand(I NEED) but; by opening the doors to shifting the way every industry views work and consumption. Uber does not represent just a single startup but rather a new way of thinking about personal resources and infrastructure: the stuff we own, the skills and free time we possess, the untapped potential all around us.
Uber allows you to book a car on your phone, see the estimated time of arrival of the car, complete the task on hand, and close the transaction back on your phone with payment and ratings in the most simplest way; typically called ”one button simplified transactions”. It removes the need for doing research, making a phone call and organizing a booking. Uber takes a cut of about 20% for this superior service.
“You are simply one button away from ordering a handyman, food, or a cab with several Uber-like startups that are lubricating eCommerce by making it simple and easy to transact with these services.” says Ashton Kutcher who has invested in several Uber-like startups.
It isn’t surprising that the term “Uberization” has become so popular in the world of Excess Capacity businesses which are in essence based off Uber’s or Uber-like business models.
SOME EXAMPLES OF EXCESS CAPACITY SHARING BUSINESSES
NEXT STEPS TO CREATE AN EXCESS CAPACITY SHARING OR UBER-LIKE BUSINESS
To operationalize the use of Excess Capacity, those in need (NEEDERS); need an easy and trusted access to the Excess Capacity of those who have (HAVERS) what they need; the underlying technology platforms have to enable finding, matching and connecting the Needs with the Haves, enabled or leveraged through Trust-based social networks and simplified Transaction processing with an in-built Feedback mechanism; typically referred to as “One-button transactions”.
Here are my 7-Point Guidelines to start an Uber-like business within any industry where excess capacity exists:
1. IDENTIFY HAVERS: HAVERS are those that HAVE the Excess Capacity. Identify the Excess Capacity i.e. Resources, Assets, IP etc. that are not optimally used within an industry. Understand the element of waste and the ASSET/RESOURCE USAGE COST by taking into account the average idle time and the average monthly cost. For example, before starting Zipcar, Robin Chase, the Founder of the car-sharing marketplace, started with finding the CAR USAGE COST EQUATION and found that the AVERAGE IDLE TIME of a car which is the time a car sits idle each day is “23 hours” (>90%) and the AVERAGE MONTHLY COST of a car is $715 per month. That is what will help you estimate the earning potential of your business model.
2. IDENTIFY NEEDERS: Identify those that NEED the Excess Capacity, the users of the same. It is helpful to understand some of the challenges and processes of owning the asset or resource that is needed by the NEEDERS. Example – The cost of buying a car is known to all and so are the underlying processes related to buying, loans, insurance and maintenance etc. are important to understand. That is what will help you build the value proposition for the NEEDERS to access the Excess Capacity that you can provide versus going through the hassle of owning it.
3. IMPACT ANALYSIS: Excess Capacity businesses are based off new ways of living or working or doing things. Such disruptions may need changes in SOPs, regional laws and/or policies for successful adoption.
For e.g. GetAround is a social car sharing. Car owners rent their vehicles out to the users and make money off the micro-renting of their vehicle. For GetAround, insurance works similarly to a personal policy when a car is rented. Both the owner and the renter are covered under GetAround’s A++ rated insurance policy. The policy provides coverage for liability, collision, and theft that may occur during the rental period. Car owners are required to keep their personal insurance per state law for the times the car is not rented. This is because coverage is only active during the rental period.
Similarly non-airport regulators needed to be educated that ride sharing services are not cab companies and should not be subject to the same regulations. In September of 2013, California became the first state to provide a regulatory framework for Transportation Network Companies (“TNCs”), defined by the California Public Utilities Commission (“CPUC”) as any organization that “provides prearranged transportation services for compensation using an online-enabled application (app) or platform to connect passengers with drivers using their personal vehicles. Understanding the underlying processes and policies that may be impacted and working towards addressing those early on is a good strategy to have.
4. IDENTIFY APPROPRIATE PRICING OF THE PRODUCT/SERVICES: Most of the current businesses based on Excess Capacity make it possible by disrupting the marketplace with lower prices for an adequate alternative; thus stealing the demand from already established players in the business. Pricing the product/service appropriately by not only understanding your competitive landscape but pricing models of comparable businesses will help develop an Optimal Pricing structure that will contribute to the earning potential of your business.
5. TECHNOLOGY PLATFORM: This is truly the key to the success of such a business. It is very important that the technology platform allow search & matching and trust based connections between the HAVERS and NEEDERS, by leveraging social connections, simplified one-button transaction processing with inbuilt feedback mechanism for both the parties and sufficient automation to continually use the feedback to improve the user/customer’s experience of the product/service.
6. SOCIAL CONNECTIVITY: Integrate social networks in the technology as well use it increasingly to develop strategic partnerships, and to increase awareness and adoption of your service/business.
7. CONTINUOUS IMPROVEMENT OF CUSTOMER & USER EXPERIENCES: There are a plethora of players and growing competition in the Excess Capacity space especially in the verticals like Car sharing and Home sharing and is growing in other areas as well. The differentiator over time will be the user/customer’s experience of using such services/products or participating in such businesses. If businesses do not continuously evolve and offer better user/customer experiences; they will have a very short success story to share. It has become important more than ever before to start looking at how user/customer experiences can be continually improved by introducing regular doses of “Service Delighters” to the consumers. Service Delighters are experiences that are above and beyond the user/customer expectations. I will cover this topic in further detail in another post.
Madhavi Anita Chodankar
Product Management & Digital Transformation Leader