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Release 0.9: When 2.0 -- Adding the Fourth Dimension

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Back in the late 80s, I went to a conference on "revenue management," or the art of pricing airline seats in order to maximize yield. Too high, and you lost business; too low, and you got less than people were willing to pay. Most of the speakers were from the airline industry, which already knew many of the tricks. Many of the listeners were from the hotel business; they were just learning. As for me, I was a customer...and I felt as if I had penetrated the enemy's strategy session.

Over the years I watched as more and more markets picked up two related concepts: time-based pricing, and overall more efficient use of so-called vanishing assets - or capital goods that could generate revenue only as they were used. In the old days, before computers, it was hard to manage complex pricing - or for that matter to reach the right customers with specific time- or location-based offers. Hotels and airlines were a special case: Their business is dependent on shared use of capital assets.

Of course, some businesses do use blunt versions of time-of-day or seasonal pricing. We take it for granted that health clubs charge more for premium memberships that include peak hours; restaurants have early-dining specials. In New York City, the transit authority is considering whether to offer discounts for weekend and off-peak travel. But in general an asset is an asset...and you can still hear complaints from people who don't understand why the guy next to them in an airplane paid a different price.

Now, however, with realtime information about customers' needs and vendors' offers combined with a new concern for efficiency and optimization, there's a widespread shift to make use of the opportunities for granularity and personalization of offers around location and time. The cost of complexity and targeting has dropped even as the demand for return on assets has increased.

You can see this already in a number of vertical markets, including (of course) housing rentals, hotels and hospitality, and rental and leasing in general. There are some exciting developments such as ZipCar, which lets people share cars. (Let's hope the Chinese discover this before every person in China buys their own car! It's a pity the US has already developed a personal-car culture.) Five-year-old Worktopia is an online marketplace for business meeting rooms in hotels, business centers and the like. With meeting room occupancy mostly below 50 percent in most venues, Worktopia monetizes fixed meeting-room assets for incremental revenue, using yield-management criteria set by the property, even displaying pricing and availability based on the user profile and assumptions about how much food and beverage and how many guest rooms would be sold. On the non-professional side, individuals occasionally rent out their homes, but generally that's a complicated process.

Overall, I see a broad shift from understanding assets as something you have, to looking for a stream of utility. (Wall Street understood this long ago and went overboard, but now the trend is reaching small businesses and consumers.)

When When 2.0? Now!

To illustrate, here are three start-ups that take the concept to individuals or small businesses; call it peer-to-peer timesharing. (And yes, I am betting on this trend: I'm an investor in one, LendAround, and considering an investment in the other two.) LendAround is a US venture started by UK entrepreneur Tim Jackson. The idea is for individuals to lend their DVDs to strangers, with the process managed by LendAround (for a fee); it's a peer-to-peer version of Netflix, in which the members own the DVDs and lend them to one another. A DVD is about the smallest, cheapest thing where the logistics costs don't outweigh the value...and this market probably won't last forever. But I suspect LendAround ultimately may move on to other items. For now, DVDs are a convenient, commodity-like kind of thing to start with: Once you have specified which title, there's no variation in quality (unlike with houses or other goods) or terms and conditions.

Next is Xtify, founded by long-time entrepreneur Andrew Weinreich, which is focused on time-of-day pricing targeted at people who are nearby and reachable on their cell phones. To some extent it's an echo of Weinreich's other current venture, MeetMoi, a real-time dating site that uses cell-phone location technology and interest profiles to help users find like-minded strangers. Xtify lets its users - small retailers and service providers, mostly - offer real-time pricing or discounts with the added precision of targeting by real-time geo-location. With Xtify, service vendors can appeal to customers who are conveniently placed in both space and time. I.e. come in now for a 50-cent discount on your latte. The ingredients of the latte will still be available, but the space in the shop and the work of the people who will prepare the latte is a vanishing asset. Xtify's challenge will be to get distribution; users will need to add the app to their cellphone in order to be targeted by anyone from a manicurist to an airport massage booth.

And finally, most broadly, there is Rezz.it, focused on larger, planned transactions... but again, ones that might not have happened because willing seller would never have found eager buyer. Rezz.it is still just a start-up, so I can speculate wildly on what it will someday have, even though it will start with a limited range of capabilities. The basic idea is that people can post things they have to rent, with a broad variety of descriptions and conditions. You can limit the visibility to people you know. The function may be to make money, or simply to remind your brother-in-law that you really need the leafblower back by next Saturday. If he forgets, Rezz.it will remind him so you don't have to. And if you do want him to pay, Rezz.it will help you to collect without feeling like a cheapskate.

Or you may have a set of dining room chairs that you don't use much. You don't particularly want to lend them out every day, but if someone is willing to pay, say, $1000 to rent them for a dinner party, the trouble would be worth it. So you can set a high price to offset the inconvenience...and make a little income on the side.

And you can post different prices for different times: $20,000 to rent my house in Vancouver for a week during the Olympics, $10,000 over Christmas, and just $1000 any other time.

At the other end of the spectrum, you could start a small business renting baby clothes for three months at a time... just as many people have started businesses selling things on eBay.

In the end, it's not likely that Rezz.it will replace current real-estate rental sites, but its software may well provide enabling technology for some of them. And it will enable other markets - for everything from leafblowers to clothing, handbags, cooking equipment - to become more efficient.

The first impact could be to lower demand for such goods, since one leafblower can serve more people... but it will also lower the cost of using them, so in the long run it may even increase demand. Just imagine if there were no way to use an airplane other than to own it. By sharing capital equipment, we make it more accessible to more people and ultimately increase the demand.

This piece was previously published by Project Syndicate.

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