WEBVTT - Interview With Arun Sundararajan: Masters in Business (Audio) 0:00:00.120 --> 0:00:03.239 Brought to you by Bank of America Merrill Lynch committed 0:00:03.279 --> 0:00:06.280 to bringing higher finance to lower carbon named the most 0:00:06.360 --> 0:00:10.280 innovative investment bank for climate change and sustainability by the banker. 0:00:10.640 --> 0:00:13.960 That's the power of Global Connections. Bank of America North 0:00:14.000 --> 0:00:20.600 America member f D I C. This is Masters in 0:00:20.680 --> 0:00:25.079 Business with Barry Riddles on Bloomberg Radio. This week on 0:00:25.120 --> 0:00:29.720 the podcast, I sit down with Professor Arun Sundarajan of 0:00:29.920 --> 0:00:33.360 n y U Sterns School of Business. The professor is 0:00:33.400 --> 0:00:37.320 a technologist and an economist and studies what we have 0:00:38.080 --> 0:00:42.000 come to call the sharing economy. He likes to call 0:00:42.080 --> 0:00:46.520 it crowdsourcing capitalism, and we look at a whole bunch 0:00:46.560 --> 0:00:51.640 of different companies and platforms and technologies that are changing 0:00:51.680 --> 0:00:54.920 the way people interact with each other. If you've ever 0:00:55.080 --> 0:00:58.440 used Uber for a ride, if you've bought or sold 0:00:58.480 --> 0:01:02.240 something on eBay or eggs List or or Etsy, if 0:01:02.280 --> 0:01:05.520 you've stayed at an air b and B. There are 0:01:05.840 --> 0:01:11.640 hundreds and hundreds of different companies, platforms, etcetera that allow 0:01:11.800 --> 0:01:20.160 people to either monetize they're unused real estate, hardware, ortomobiles, whatever, 0:01:20.840 --> 0:01:26.039 or other people to only purchase a fractional usage of it. UH. 0:01:26.080 --> 0:01:30.040 The professor is is certainly well known amongst technology circles. 0:01:30.040 --> 0:01:32.080 You might not have heard of him if you go 0:01:32.640 --> 0:01:36.480 on YouTube and look at any of his presentations. They're 0:01:36.560 --> 0:01:39.959 quite fascinating and they're always filled with these amazing tidbits. 0:01:40.319 --> 0:01:43.080 I don't want to spoil anything from the actual podcast, 0:01:43.160 --> 0:01:47.360 but I have to just share this one little data 0:01:47.440 --> 0:01:51.960 point with you. In the United States, there are approximately 0:01:52.880 --> 0:01:57.880 eighty million electric drills. I have one, actually I have 0:01:58.000 --> 0:02:02.440 to the second one UH is out at the vacation house, 0:02:02.960 --> 0:02:05.840 and the data point on those drills is quite amazing. 0:02:06.560 --> 0:02:11.520 The average usage over the lifespan of that drill is 0:02:11.600 --> 0:02:15.240 a mere thirteen minutes. Now, stop and think about it. 0:02:15.480 --> 0:02:17.840 A decent drill you're paying a hundred or two hundred 0:02:17.840 --> 0:02:21.760 dollars for and essentially you're barely using it. So a 0:02:21.800 --> 0:02:25.280 platform that allows people to rent or loan or what 0:02:25.400 --> 0:02:29.720 have you drills has a certain appeal because it you're 0:02:29.760 --> 0:02:33.359 taking something that actually has a value on a cost 0:02:33.560 --> 0:02:36.520 and you're recapturing some of that cost. On the other hand, 0:02:36.560 --> 0:02:38.280 if you only need a drill for five minutes, why 0:02:38.320 --> 0:02:40.720 do you want to spend two hundred dollars. That is 0:02:40.760 --> 0:02:44.000 the essence of the sharing economy, whether it be a 0:02:44.040 --> 0:02:48.120 spare room or a ride in someone's car, or rent 0:02:48.200 --> 0:02:51.160 the runway, a a any sort of couture dress that 0:02:51.240 --> 0:02:53.679 you don't want to spend five thousand dollars on to 0:02:53.760 --> 0:02:57.120 wear just once. Uh. The professor not only thinks this 0:02:57.200 --> 0:03:00.280 is the future of retail, but he thinks that's going 0:03:00.360 --> 0:03:03.760 to have a very beneficial impact on people in the 0:03:03.800 --> 0:03:08.320 bottom half of the economic strata in terms of income. So, 0:03:08.520 --> 0:03:13.880 without any further ado, here is my conversation with Un Sundarajan. 0:03:17.000 --> 0:03:21.320 This is Masters in Business with Barry Ridholes on Bloomberg Radio. 0:03:21.919 --> 0:03:26.120 My special guest this week is Aurun Sundarajan. He is 0:03:26.160 --> 0:03:29.000 a professor at n y U Stern School of Business 0:03:29.480 --> 0:03:33.320 and is fascinated by how digital technology shapes the economy 0:03:33.320 --> 0:03:38.000 and transforms our lives. His scholarly research analyzes what makes 0:03:38.000 --> 0:03:42.240 the economics of technology, products and industries so unique. He 0:03:42.400 --> 0:03:46.560 is a member of the World Economic Forums Global Council 0:03:46.800 --> 0:03:51.080 on Technology Value and Policy, and he advises governments around 0:03:51.080 --> 0:03:55.000 the world on digital regulation. He is also the author 0:03:55.400 --> 0:03:59.040 of a new book called The Sharing Economy, The End 0:03:59.080 --> 0:04:03.280 of Employment and the rise of crowd based Capitalism are 0:04:03.400 --> 0:04:07.120 in Sundarajan. Welcome to Bloomberg. Thank you, Barry. I'm delighted 0:04:07.160 --> 0:04:09.680 to be on your show. Well, it's a pleasure to 0:04:09.720 --> 0:04:12.120 have you. I enjoyed the book very much and it 0:04:12.280 --> 0:04:15.800 raised a whole lot of questions. Let's jump right into 0:04:15.840 --> 0:04:21.000 this from a broad perspective, what exactly is the sharing economy? Well, 0:04:21.000 --> 0:04:23.760 that's a great question to start with, because that's the 0:04:23.839 --> 0:04:26.720 question that I hope to answer in the book. UM. 0:04:26.760 --> 0:04:30.719 The label sharing economy can often be distracting because it 0:04:30.800 --> 0:04:33.800 conjures up an image of something that it's not, which 0:04:33.839 --> 0:04:36.800 is why I prefer the term crowd based capitalism. But 0:04:36.880 --> 0:04:39.080 in the battle between what should we called the book 0:04:39.120 --> 0:04:41.800 between me and my publisher, sharing economy one of a 0:04:41.839 --> 0:04:45.560 crowd based capitalism um. So. I think of it as 0:04:45.720 --> 0:04:49.520 a new way of organizing economic activity where we are 0:04:49.600 --> 0:04:52.400 taking out a lot of what used to happen within 0:04:52.480 --> 0:04:57.840 an organization and decentralizing it to a distributed crowd of providers. 0:04:58.279 --> 0:05:00.680 So A, B and B hosts who are running their 0:05:00.720 --> 0:05:04.839 small short term accommodation businesses through the platforms. Uber drivers 0:05:04.839 --> 0:05:08.200 who are driving through the platform get around renters who 0:05:08.200 --> 0:05:11.360 are running tiny car rental businesses, et C sellers, funding 0:05:11.360 --> 0:05:15.960 circle lenders, and I expect that this model will sit 0:05:16.080 --> 0:05:20.200 aside the traditional industrial capitalism model in the twenty one 0:05:20.360 --> 0:05:23.039 century as one of the dominant ways in which we 0:05:23.120 --> 0:05:26.960 organize economic activity. So what you're describing sounds very much 0:05:27.000 --> 0:05:29.560 like what used to be called peer to peer or 0:05:29.720 --> 0:05:34.480 many too many as opposed to a centralized distribution where 0:05:34.520 --> 0:05:37.640 one company manufactured, they ship it, it goes to their stores, 0:05:38.080 --> 0:05:41.360 and then consumers come and buy it. That model seems 0:05:41.400 --> 0:05:46.000 to be challenged by let's call it, crowd based capitalists. Yes, 0:05:46.040 --> 0:05:49.000 I think that peer to peer is certainly a precursor. 0:05:49.680 --> 0:05:53.080 You might think of the eighteenth century economy as being 0:05:53.160 --> 0:05:57.360 almost entirely peer to peer, the Adam Smith market economy 0:05:57.480 --> 0:06:01.760 us individuals or small businesses sold to other individuals. And 0:06:01.800 --> 0:06:04.320 then we saw a resurgence of some of that kind 0:06:04.320 --> 0:06:08.000 of activity in the late nineties with eBay and with Craigslist. 0:06:08.600 --> 0:06:11.559 But what's different about the sharing economy and crowd based 0:06:11.600 --> 0:06:15.520 capitalism is two things. One is that it scales this 0:06:15.640 --> 0:06:19.239 kind of activity to the point where the crowd based 0:06:19.279 --> 0:06:22.840 alternative can be the largest provider in the industry. A 0:06:22.960 --> 0:06:25.280 B and B is already the largest provider of short 0:06:25.360 --> 0:06:27.920 term accommodation in the world. They have three times as 0:06:27.960 --> 0:06:31.640 many listings as Marriott's Star would have rooms. If I 0:06:31.640 --> 0:06:36.279 recall hearing one of your presentations, once you mentioned last 0:06:36.400 --> 0:06:40.200 night a hundred and fifty thousand people stayed at an Airbnb. 0:06:40.600 --> 0:06:44.159 Is that number still accurate? Well, that was probably a 0:06:44.200 --> 0:06:47.839 couple of years ago. Um, that's amazing, that really is right. 0:06:47.880 --> 0:06:51.720 I mean, they own no assets. This is entirely other 0:06:51.880 --> 0:06:57.280 individuals running their businesses through the platform. So the ramifications 0:06:57.320 --> 0:07:00.480 of this or are going to be significant. And you've 0:07:00.640 --> 0:07:06.920 you've discussed the blurred lines between personal and professional, between 0:07:07.080 --> 0:07:10.360 casual labor and someone who's working full time for someone else. 0:07:10.760 --> 0:07:15.400 So how does this new change affect everything? What is 0:07:15.520 --> 0:07:19.600 the ramifications of the way these digital technologies are going 0:07:19.640 --> 0:07:23.440 to impact our lives? Um? See the blurring of lines 0:07:23.520 --> 0:07:27.680 between personal and professional I think is central to a 0:07:27.720 --> 0:07:30.560 lot of the challengers that the sharing economy has faced 0:07:30.560 --> 0:07:33.120 in the last decade, because if you think about it, 0:07:33.160 --> 0:07:37.040 there are lots of activities that fall under the personal umbrella. Naturally, 0:07:37.360 --> 0:07:39.480 if you own a car, you've probably picked someone up 0:07:39.480 --> 0:07:41.840 from the airport. Sure, you've probably cooked a meal for 0:07:41.880 --> 0:07:44.120 someone at your and had them eat it at your home. 0:07:44.520 --> 0:07:47.000 You've had house guests. You may have picked your friends 0:07:47.080 --> 0:07:49.559 kids up from soccer practice. You may have lent money 0:07:49.560 --> 0:07:52.760 to a friend. You didn't need any special permit for this. 0:07:52.760 --> 0:07:55.440 This was all under the personal umbrella. And then you 0:07:55.520 --> 0:07:59.360 had taxi drivers, you had professional bankers, you had restaurant owners, 0:07:59.360 --> 0:08:02.200 you had bed breakfast owners who were on the professional 0:08:02.320 --> 0:08:06.000 side and for whom all of the regulations were developed. 0:08:06.440 --> 0:08:09.480 And so we're now entering an economy where these lines 0:08:09.560 --> 0:08:14.160 between personal and professional up blurring, and so the regulatory 0:08:14.280 --> 0:08:20.040 structures that we have developed to regulate, say accommodation or transportation, 0:08:20.480 --> 0:08:24.680 which expect a full time professional provider on the supply side, 0:08:25.000 --> 0:08:28.360 are being challenged because you've got people who are hosting 0:08:28.360 --> 0:08:31.720 occasionally on a B and B, who are driving occasionally 0:08:31.760 --> 0:08:34.240 for left, who have become little car rental businesses, who 0:08:34.280 --> 0:08:37.600 have become little bankers. Here in New York City, there's 0:08:37.640 --> 0:08:41.439 been a number of complaints from condos and co ops 0:08:41.480 --> 0:08:47.040 about buildings originally not made for taking guests, And suddenly 0:08:47.200 --> 0:08:50.280 you think you own a private co op in a 0:08:50.280 --> 0:08:54.400 apartment building and you discover there's random strangers in your building. 0:08:54.760 --> 0:08:57.319 How does an Airbnb deal with that? How does the 0:08:57.559 --> 0:09:01.080 city of New York deal with that? Well? Um dealing 0:09:01.240 --> 0:09:04.320 with the new world of short term accommodation I think 0:09:04.400 --> 0:09:08.240 requires a fundamental rethinking of a lot of different dimensions 0:09:08.240 --> 0:09:12.720 of regulation, because we are creating, in some sense, a 0:09:12.760 --> 0:09:16.400 new form of mixed use real estate where the personal 0:09:16.440 --> 0:09:21.199 home can also become a commercial, short term accommodation source 0:09:21.760 --> 0:09:25.199 for people who are visiting the city. We're challenging ideas 0:09:25.240 --> 0:09:29.080 of zoning, and we're challenging sort of this separation between 0:09:29.240 --> 0:09:33.840 long term and short term accommodation. It's really a situation 0:09:33.960 --> 0:09:37.280 where we have to think about how do we change 0:09:37.360 --> 0:09:41.840 the laws in a way that accommodates this activity. Because 0:09:42.040 --> 0:09:44.079 a lot of people want to host on a B 0:09:44.200 --> 0:09:47.199 and B, A lot of guests want a B and B, 0:09:47.320 --> 0:09:51.079 so society wants this service. What I think will happen 0:09:51.120 --> 0:09:53.560 in the long run is a couple of things. One 0:09:53.679 --> 0:09:56.680 is that we will in fact change the laws around 0:09:56.679 --> 0:09:59.720 that prevent people from renting for less than thirty days 0:09:59.720 --> 0:10:01.680 and go on. But I think but also going to 0:10:01.840 --> 0:10:05.160 delegate a lot of the responsibility to partties other than 0:10:05.200 --> 0:10:08.880 the government. I'm Barry Ridholts. You're listening to Masters in 0:10:08.920 --> 0:10:12.680 Business on Bloomberg Radio. My special guest this week is 0:10:12.800 --> 0:10:16.319 our on Sundarajan. He is a professor at n y 0:10:16.440 --> 0:10:20.080 U Stern School of Business and is an expert in 0:10:20.160 --> 0:10:26.040 digital technologies and sharing economy. So there are sort of 0:10:26.240 --> 0:10:31.840 three levels of of sharing economies when it comes to accommodations. 0:10:32.240 --> 0:10:35.560 On the high end, you have one fine Stay, which 0:10:35.960 --> 0:10:39.319 is a way for people with lovely high end homes 0:10:39.520 --> 0:10:43.479 or other properties to generate a little income with them. 0:10:43.600 --> 0:10:46.080 You have Airbnb, which is pretty middle of the road. 0:10:46.120 --> 0:10:48.360 It's way that anybody can rent out a room or 0:10:48.400 --> 0:10:51.760 an apartment or what have you. And then I kind 0:10:51.760 --> 0:10:56.560 of like CouchSurfing dot com, whose business model essentially, hey, 0:10:56.600 --> 0:10:58.960 we have a couch for you to crash on and 0:10:59.000 --> 0:11:02.360 no money exchange his hands. What is that business model? 0:11:02.360 --> 0:11:05.440 How does that company that has venture investors, how do 0:11:05.480 --> 0:11:09.439 they make money? Well, their revenue sources. The revenue sources 0:11:09.480 --> 0:11:12.640 that couch surfing have are pretty limited. Um, they have 0:11:12.760 --> 0:11:15.880 been making money for a while by charging people for 0:11:15.920 --> 0:11:18.480 a verification service, where if you want to stay with 0:11:18.559 --> 0:11:23.079 people who have been verified, then couch surfing gets a fee. UM. 0:11:23.120 --> 0:11:29.040 They switched recently from disavowing advertising to adopting an advertising 0:11:29.080 --> 0:11:32.360 business model. This is in the Google tradition of like, 0:11:32.480 --> 0:11:34.720 you know, sort of going from anti advertising the pro 0:11:34.800 --> 0:11:38.679 advertising um. But you know, I think focusing on the 0:11:38.800 --> 0:11:42.760 revenue model of couch surfing UM takes us away from 0:11:42.840 --> 0:11:46.600 what's fundamentally different about them. They haven't been set up 0:11:46.640 --> 0:11:50.040 as a commercial business. They are a pure gift economy, 0:11:50.120 --> 0:11:53.360 so it's really more of a social network than anything else. Really. Yeah, 0:11:53.440 --> 0:11:56.000 I mean the typical couch surfing user when they go 0:11:56.040 --> 0:11:58.360 to a new city, they're not saying where do I 0:11:58.400 --> 0:12:01.360 find accommodation? They're saying, you know, where's the party? Or 0:12:01.600 --> 0:12:04.120 you know, how do I meet the interesting people? And 0:12:04.160 --> 0:12:06.920 the exchange of accommodation is sort of the gift that 0:12:07.040 --> 0:12:10.040 cements the connection. It makes a lot of sense. And 0:12:10.160 --> 0:12:13.520 there are some people who only seem to host others, 0:12:13.960 --> 0:12:16.240 and there are other people who are traveling around the 0:12:16.240 --> 0:12:21.080 country only. Couch surfing absolutely and ABNB in some ways 0:12:21.120 --> 0:12:24.680 represents a middle ground between the commercial and the gift. 0:12:25.240 --> 0:12:28.920 In that sense, I mean, it's decidedly commercial. You are pricing, 0:12:29.080 --> 0:12:32.720 you are managing inventory. If you're a supplier. As a guest, 0:12:32.800 --> 0:12:35.800 you are paying for something that is a service that 0:12:35.840 --> 0:12:38.880 you're getting from the host. But there is also some 0:12:39.000 --> 0:12:43.120 gift element and some sort of embracing of imperfection that 0:12:43.240 --> 0:12:46.120 the guest experiences, where you don't expect all the towels 0:12:46.160 --> 0:12:49.520 will be the same color and perfectly folded. Um. There's 0:12:49.559 --> 0:12:52.960 a connection that forms with the host. Even if the 0:12:53.000 --> 0:12:55.600 host is not there, you get to see how they 0:12:55.600 --> 0:12:58.240 have made up their home. There's an intimacy associated with 0:12:58.400 --> 0:13:01.120 staying at someone else's home. It's like a bend and breakfast. 0:13:01.120 --> 0:13:04.240 And I was amused I learned in your book that 0:13:04.320 --> 0:13:06.680 the name Airbnb came out from the idea of an 0:13:06.720 --> 0:13:11.000 air mattress as as a place for people to to crash. 0:13:11.200 --> 0:13:14.160 Let's let's shift away from a combination and talk a 0:13:14.280 --> 0:13:18.520 little bit about travel. So uber has been a huge 0:13:18.559 --> 0:13:25.199 success globally. Lift also has experienced a tremendous amount of growth. Um. 0:13:25.240 --> 0:13:28.320 So here's the question, how much of this is a 0:13:28.400 --> 0:13:34.360 function of the entrenched industries complacency. And let's be honest, 0:13:34.400 --> 0:13:37.000 at least as a New Yorker who who here doesn't 0:13:37.679 --> 0:13:40.040 eight taxis. There aren't enough of them. As soon as 0:13:40.080 --> 0:13:43.680 it starts to ring, you can't get one, and heaven forbid, 0:13:43.679 --> 0:13:46.680 if you want one during rush hours, some idiot has 0:13:46.720 --> 0:13:49.640 decided that's when we're gonna do the shift change, and 0:13:49.679 --> 0:13:53.000 there's no taxis available. So would Uber have been this 0:13:53.120 --> 0:13:58.679 successful if you didn't have a complacent, dominant and trench business. Um. 0:13:58.760 --> 0:14:02.079 I certainly think that the placency of the entrenched businesses 0:14:02.200 --> 0:14:05.000 opened the door for Uber and left because the bar 0:14:05.240 --> 0:14:08.520 was pretty low and it was easy to create a product, 0:14:08.800 --> 0:14:12.720 a service that was dramatically superior. You know, I've lived 0:14:12.720 --> 0:14:14.600 in New York for a long time and I've had 0:14:14.600 --> 0:14:17.120 the same frustrations with the yellow cabs. But if you 0:14:17.160 --> 0:14:20.160 think about the United States, New York has by far 0:14:20.280 --> 0:14:23.160 the best taxi service in the country, really, and so 0:14:23.200 --> 0:14:26.080 that that's horrible. Yeah, I know last Las Vegas maybe 0:14:26.160 --> 0:14:28.400 comes close, but that's pretty much it. I mean, I 0:14:28.440 --> 0:14:30.800 used to go to l A and I wouldn't know 0:14:30.840 --> 0:14:33.600 how to get around without renting a car, and then 0:14:33.600 --> 0:14:36.240 I'd be driving on the highway at sixty miles an 0:14:36.240 --> 0:14:39.160 hour having not driven for three months. So you know, 0:14:39.480 --> 0:14:42.240 that's how the door was open. But that's not going 0:14:42.320 --> 0:14:45.480 to determine the long run success of the company's because 0:14:45.760 --> 0:14:48.400 they're not really going after the taxi industry. They're going 0:14:48.400 --> 0:14:52.360 after the automobile industry. They want to shift our spending 0:14:52.480 --> 0:14:57.320 on buying new and used cars towards getting transportation on 0:14:57.480 --> 0:15:00.280 demand as a service. So they're not going to the 0:15:00.320 --> 0:15:03.280 eleven billion dollars we spend on taxi every year. They're 0:15:03.320 --> 0:15:05.840 going after the one point two trillion dollars we spend 0:15:05.920 --> 0:15:08.720 on buying new and used cars. So, so let's talk 0:15:08.800 --> 0:15:12.800 about that for a moment. You discuss the importance of 0:15:13.000 --> 0:15:18.000 idle capacity and share ability. So, and it's not just cars. 0:15:18.080 --> 0:15:20.520 Let me throw a statistic out, and again this is 0:15:20.560 --> 0:15:24.120 from an earlier presentation of yours. There are eighty million 0:15:24.280 --> 0:15:28.080 power drills in the United States. Each drill is used 0:15:28.200 --> 0:15:31.920 over the course of its total lifetime a grand total 0:15:32.000 --> 0:15:35.720 of thirteen minutes. Yes, that seems like an enormous waste 0:15:35.960 --> 0:15:40.600 of idle capacity. Absolutely, And I think that the sharing 0:15:40.600 --> 0:15:45.120 economy sort of came to be because we decided that 0:15:45.160 --> 0:15:50.200 there must be ways of tapping into capacity that is underutilized. 0:15:50.440 --> 0:15:53.640 And once we got the smartphones, we were equipped with 0:15:53.680 --> 0:15:56.640 the technology that allowed us, in some ways to think 0:15:56.680 --> 0:15:59.800 about re engineering our consumption in the same way as 0:15:59.840 --> 0:16:02.440 that the company sort of re engineered their businesses twenty 0:16:02.520 --> 0:16:04.920 years ago when they got the PCs and the Internet 0:16:05.000 --> 0:16:08.800 and the ethernet. UM. But and if you think about 0:16:08.840 --> 0:16:12.600 the two industries we're talking about accommodation and transportation. UM. 0:16:12.640 --> 0:16:15.080 Part of the reason why they're so visible is that 0:16:15.120 --> 0:16:18.840 they reflect the two most valuable personal assets that the 0:16:18.880 --> 0:16:22.840 average individual has, their home and their car. And so 0:16:22.880 --> 0:16:27.160 we've managed to create sharing markets for these assets, even 0:16:27.160 --> 0:16:30.520 though the transaction costs are still pretty high. It's been 0:16:30.600 --> 0:16:34.080 harder to create markets for power drill rental, or for 0:16:34.240 --> 0:16:37.560 vacuum cleaner rental, or for you know, tent rental. All 0:16:37.560 --> 0:16:40.680 of these underutilized assets. What what about some of them? 0:16:41.360 --> 0:16:46.560 The high end designer clothing. I know there's a number 0:16:46.560 --> 0:16:50.240 of companies that rent high end dresses and I forgot 0:16:50.280 --> 0:16:53.080 some of the names of Absolutely, there's rent the Runway. 0:16:54.280 --> 0:16:56.520 It does this on demand as a business. There's another 0:16:56.520 --> 0:16:58.800 one called Style and that I really like that does 0:16:58.840 --> 0:17:01.760 this peer appear where you can sort of monetize your 0:17:01.840 --> 0:17:06.080 wardrobe by renting things out? Um. The logistics are still 0:17:06.160 --> 0:17:08.600 sort of the economics, the unit economics of the logistics 0:17:08.600 --> 0:17:11.480 are still being worked out on that front um, but 0:17:11.560 --> 0:17:13.000 I think that things are going to get a lot 0:17:13.040 --> 0:17:17.000 easier once drone technologies take off and we have the 0:17:17.040 --> 0:17:19.640 ability to sort of tap into you know, if an 0:17:19.640 --> 0:17:22.560 object knows how much it's being used where it is 0:17:22.960 --> 0:17:26.399 and can call on transport on demand, which will be 0:17:26.440 --> 0:17:29.280 possible in about a decade um. You know, with drone 0:17:29.280 --> 0:17:31.760 technology so far off in the future, not at all, 0:17:31.800 --> 0:17:33.560 then we have the spectra of not just sort of 0:17:33.640 --> 0:17:37.520 drones flying above, but carrying power drills. I'm very results 0:17:37.600 --> 0:17:41.119 you're listening to Masters in Business on Bloomberg Radio. My 0:17:41.200 --> 0:17:45.119 special guest today is Professor Arun Sundarajan. He is a 0:17:45.160 --> 0:17:49.000 professor at n y U Sterns School of Business specializing 0:17:49.400 --> 0:17:52.760 in the impact of digital technologies and how they shape 0:17:53.280 --> 0:17:56.480 our economies. He is not only a member of the 0:17:56.520 --> 0:18:01.120 World Economic Forums Global Agenda Council on Technowlogy, he is 0:18:01.240 --> 0:18:05.119 also the author of a new book called The Sharing Economy, 0:18:05.359 --> 0:18:09.359 The End of Employment and the Rise of crowd based Capitalism. 0:18:09.440 --> 0:18:13.040 Let's jump right into the technology backdrop of of the 0:18:13.080 --> 0:18:18.840 collaborative economy. Um, you've talked about the iPod as the 0:18:18.920 --> 0:18:24.240 first successful mass market product that was developed for consumers 0:18:24.400 --> 0:18:29.399 rather than businesses or governments. So what is the consumerization 0:18:29.640 --> 0:18:33.520 of digital technology mean for us? Well, I think that 0:18:33.560 --> 0:18:37.960 this was the consumerization of digital technology represented a radical 0:18:38.119 --> 0:18:43.480 shift in the focus of the industry producing the technology. 0:18:43.520 --> 0:18:46.600 Because if you think about the sixties, seventies, eighties, and nineties, 0:18:47.240 --> 0:18:51.040 technology products were built for business or government and meaning 0:18:51.240 --> 0:18:57.440 meaning computers, phones, all those various texts. Didn't consumers eventually 0:18:57.560 --> 0:19:00.520 take advantage of those. They did, But if you think 0:19:00.520 --> 0:19:03.520 about the primary focus of R and D in all 0:19:03.560 --> 0:19:07.200 of the companies except Apple, the business was the primary focus. 0:19:07.240 --> 0:19:10.280 The PC was built for business, and then a home 0:19:10.359 --> 0:19:15.160 computer version was developed. The larger computers were built for business. 0:19:15.160 --> 0:19:19.280 Software was built for business frames, databases, etcetera. That's that's 0:19:19.280 --> 0:19:22.160 really very interesting. So and so there was a shift 0:19:22.440 --> 0:19:25.760 in like you know, the late nineties, because computer technology 0:19:25.880 --> 0:19:28.480 got cheap enough and fast enough that you could conceive 0:19:28.560 --> 0:19:31.840 of mass market consumer products, and the iPod was the 0:19:31.880 --> 0:19:34.480 first big one. But what this has done is that 0:19:34.560 --> 0:19:38.000 it shifted the focus of the technology industry away from 0:19:38.000 --> 0:19:40.760 businesses and to consumers. If you look at the big 0:19:40.800 --> 0:19:45.040 innovations of the last ten years, social media, tablet, smartphones. 0:19:45.280 --> 0:19:48.480 They were built for consumers and then adapted for businesses. 0:19:48.720 --> 0:19:52.000 So so let's talk about you mentioned Apple. Let's let's 0:19:52.000 --> 0:19:55.920 talk about from iPod to I phone. How much of 0:19:56.000 --> 0:20:01.119 the sharing economy is really directly dependent on the iPhone 0:20:01.200 --> 0:20:04.919 coming out and just upending the mobile phone market and 0:20:04.960 --> 0:20:08.040 then everything else that that fouled from there. Is that 0:20:08.119 --> 0:20:11.640 the prime enabler of all these technologies. Um, I think 0:20:11.680 --> 0:20:15.720 that the iPhone or smartphones becoming mass market is one 0:20:15.760 --> 0:20:18.439 of the enablers of a number of industries that have 0:20:18.480 --> 0:20:21.680 been changed by the sharing economy. You can't imagine uber 0:20:21.800 --> 0:20:24.560 without a g Press enabled smartphone or knows where you are, 0:20:24.680 --> 0:20:26.880 knows where the car is yep. And there's a whole 0:20:26.880 --> 0:20:30.199 bunch of labor markets that have become possible because you know, 0:20:30.480 --> 0:20:32.919 if I have a smartphone, then I become a potential 0:20:33.040 --> 0:20:35.679 source of labor to a market. They don't have to 0:20:35.720 --> 0:20:38.120 equip me with one of those devices that the ups 0:20:38.240 --> 0:20:41.840 drivers have. But I think that there was a broader 0:20:42.080 --> 0:20:46.440 adoption of digital technology and a comfort level we got 0:20:46.640 --> 0:20:51.000 using this technology and interacting with other people through an interface. 0:20:51.640 --> 0:20:55.280 We digitized a lot of our social capital on networks 0:20:55.320 --> 0:20:58.760 like Facebook and LinkedIn. Explain that because you you discuss 0:20:58.920 --> 0:21:02.399 that frequently the what do you mean by we've digitized 0:21:02.840 --> 0:21:06.959 our identity and we've digitized our our trust? Well, if 0:21:07.000 --> 0:21:10.160 you think about pre two thousand five, we carried around 0:21:10.320 --> 0:21:13.960 a driver's license, and this established through a government system 0:21:14.000 --> 0:21:16.399 that you were who you said you were, and you 0:21:16.440 --> 0:21:19.800 had a professional and a personal network that was known 0:21:19.840 --> 0:21:24.480 to you, but wasn't translatable into information that could make 0:21:24.560 --> 0:21:26.840 someone else who didn't know you trust you. So what 0:21:26.960 --> 0:21:30.359 Facebook and LinkedIn now represent is a lot of connections 0:21:30.359 --> 0:21:33.119 on Facebook and LinkedIn are meaningless, I agree, but a 0:21:33.119 --> 0:21:37.240 lot of it represents real world social capital, professional capital 0:21:37.600 --> 0:21:40.440 that you have built up over your lifetime that makes 0:21:40.480 --> 0:21:43.560 you more credible as a trading partner. When someone says, 0:21:43.600 --> 0:21:46.879 well should I rent my car to this person? Or 0:21:47.520 --> 0:21:49.720 should I trust this person enough to sleep in their 0:21:49.720 --> 0:21:52.760 spare bedroom, or should I sort of like you know, 0:21:53.080 --> 0:21:55.639 borrow money from them? Should I lend them money? This 0:21:55.800 --> 0:22:00.440 becomes part of a trust infrastructure. Along with tech oologies 0:22:00.480 --> 0:22:03.359 that allow you to hold up your driver's license in 0:22:03.400 --> 0:22:06.879 front of your webcam and have it verified. So you 0:22:07.000 --> 0:22:12.439 referenced earlier Craigslist and alf Rowan Wikipedia, But one of 0:22:12.440 --> 0:22:15.879 the earliest of the tech companies was eBay. And the 0:22:15.920 --> 0:22:19.359 way eBay built in their trust verification is if you 0:22:19.400 --> 0:22:21.920 want to buy something from someone and you say, oh, 0:22:21.960 --> 0:22:24.360 this guy has a five star rating and there's ten 0:22:24.400 --> 0:22:29.800 thousand transactions, they're fairly trustworthy. Is eBay the first entity 0:22:29.880 --> 0:22:34.359 to digitize that trust factor. eBay was definitely the pioneer 0:22:34.359 --> 0:22:38.920 in using these pure feedback systems or to create reputation 0:22:39.440 --> 0:22:42.880 some ways. They created the equivalent of a digital institution. 0:22:43.520 --> 0:22:45.800 You didn't have to have courts of law or contract. 0:22:45.840 --> 0:22:48.399 You could just rely on the feedback. The thing with 0:22:48.520 --> 0:22:51.960 eBay is that, um, the stakes were low receiving a 0:22:52.000 --> 0:22:54.959 package from someone, or you need to get paid by someone. 0:22:55.440 --> 0:22:57.480 The worst thing that happens is that you don't get 0:22:57.520 --> 0:23:00.760 the product, the products broken, you don't get paid. These 0:23:00.800 --> 0:23:04.160 are very different stakes from trusting someone enough to let 0:23:04.200 --> 0:23:07.400 them into your apartment, trusting someone enough to get into 0:23:07.440 --> 0:23:10.439 their car and be driven to another city. Um. And 0:23:10.520 --> 0:23:14.320 so we needed the social capital and the identity to 0:23:14.400 --> 0:23:17.320 come in and to pair up with the peer to 0:23:17.400 --> 0:23:20.560 peer feedback systems, which all of the sharing economy platforms 0:23:20.680 --> 0:23:24.800 use before we could see these high stakes activities emerge 0:23:24.880 --> 0:23:28.520 and assume these sort of population scale businesses that we're 0:23:28.520 --> 0:23:32.119 seeing today. I'm very hults. You're listening to Masters in 0:23:32.160 --> 0:23:35.680 Business on Bloomberg Radio. My special guest today is Professor 0:23:35.960 --> 0:23:39.439 Arun Sundarajan. He is a professor at n y U 0:23:39.560 --> 0:23:44.200 Stern School of Business, an expert on digital technologies and 0:23:44.240 --> 0:23:48.080 the sharing economy. Let's talk a little bit about crowdfunding 0:23:48.119 --> 0:23:54.480 because there's some really interesting companies. Kickstarter, Kivalone Angel List 0:23:54.920 --> 0:23:57.600 are the first three that come to mind. Let's start 0:23:57.600 --> 0:24:01.879 with simply, what is crowd based capitalism. Well, crowd based 0:24:01.880 --> 0:24:05.880 capitalism is my conception of a new model of how 0:24:05.960 --> 0:24:09.480 we organize the world's economic activity. So if you apply 0:24:09.600 --> 0:24:12.720 it to the funding space, what we're talking about is 0:24:12.800 --> 0:24:16.600 shifting the way we finance things out of the hands 0:24:16.680 --> 0:24:19.320 of an institution that gives you money. Could be a bank, 0:24:19.359 --> 0:24:23.080 could be a venture capital fund fund, could be like 0:24:23.119 --> 0:24:26.000