How asset-light startups are evolving their business model
When analysts started assigning billion-dollar valuations to companies such as Uber and Airbnb, they surprised the market.
These companies had little to no assets. They were ‘simple’ platforms running on smartphones and computers, powered by a little bit of technology, and packed in a lot of conveniences.
Their unique selling point? They mobilized the gig and sharing economy, branded it to bring in trust, and scaled it up across the globe – efficiently.
As a result, they had hundreds of thousands of ‘partners’ – drivers and homeowners – and attracted millions of customers who saw value in the solution they were being offered.
Given their success, many other companies decided to follow in their footsteps. And quite a handful of them made it big. Lyft, DogVacay, and SideCar are some of the new-age businesses that are shaping today’s world.
Airbnb launched in August 2008 and Uber went online soon after in March 2009. They both built multi-billion dollar businesses with very little capital with the help of technology.
Almost ten years later, it seems as those asset-light businesses might stay that light after all.
The cost of leading disruption
Startups, asset-light or not, have been investing in technology (and other assets) in order to improve their business, hold on to their customers, and amplify their effect on the industry.
Take Uber for example. It sunk in serious capital into driverless cars, with a vision to drive customers around town in autonomous vehicles.
As a result, the company has committed to investing US$1 billion in 24,000 self-driving Volvo XC90 SUVs, to be delivered between 2019 and 2021.
It’s competitor (in autonomous vehicle technology) Waymo too is investing in driverless cars, committing to purchase 62,000 minivans from Fiat Chrysler and 20,000 compact cars from Jaguar Land Rover.
Together, they might revolutionize ride-hailing. And spell doom for a large segment of the gig economy.
Drivers are unpredictable, they’re moody, and they sometimes cause trouble. There’s plenty of proof on Twitter, with people ranting about the poor service that Uber and other app-based cab drivers provide.
These drivers are also increasingly a cause for concern, with the US forcing companies to pay them more, provide them better benefits, and also defining them as ‘staff’ rather than as ‘contractors’.
Investing in driverless-cars cuts drivers out of the equation, instantly transforms the customer experience, and makes life simpler for the company in terms of managing employee regulations.
Yes, there are a bunch of regulations they need to take care of if they want to ’employ driverless vehicles’ to do their bidding on busy city streets, but that’s just the cost of innovation.
Amazon pioneered the asset-light business model
Amazon started operations in July 1994 in Seattle. It quickly went toe-to-toe with giants like Barnes & Noble and then with the likes of Target and Walmart.
In 2016, Amazon’s total market value matched Walmart’s at US$250 billion. However, the former took just US$35 billion to build what the latter took US$154 billion to create.
Amazon was the pioneer of the asset-light business model, and it too is ‘fattening up’ with technology and infrastructure investments, preparing to disrupt not only retail, but other industries as well.
Take a look at Amazon’s financials. Total assets (long-term assets) grew from US$54.5 billion in 2014 to US$64.74 billion in 2015, US$83.4 billion in 2016, and US$131.31 billion in 2017. This is consistent with its investments in data centers, video content, delivery fulfilment centers, and other projects.
Being one of the world’s biggest disruptors, it’s natural that the company is slowly beefing up its investments in technology and infrastructure, leaving its preference for an asset-light business behind. And although the shift might be temporary, it’s definitely going to help the company.
So, the future is definitely going to be exciting, with new technologies becoming “road-ready.” The internet of things and 5G along with driverless vehicles will make the marketplace more interesting – but it might not come cheap, forcing asset-light startups to go in search of more capital.
4 December 2023