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Bluntly ignoring the rules and realizing massive growth in the mean time, doesn’t sound like a very sustainable business formula. Yet this is what the loved ones of Silicon Valley like Airbnb begin to understand as well.

Platforms within the sharing economy seemed the ultimate solution to many. Needy landlords were able to cover their costs through Airbnb and tourists found a unique experience for an attractive price. But these platforms are negatively reported on ever more frequently. The relationships, having been constructive in some cases, are strained. What will the future bring? No one knows, but to contextualize the coverage of these developments, one has to understand how these platform’s strategies have been designed.

Blessing or curse?

To many a man platforms like Uber and Airbnb are both a pearl as well as the excrescence of the so-called peer-2-peer platform economy, sometimes also titled sharing economy (although mostly unjustly). A ‘new’ economy in which consumers offer each other temporary access to their possessions and services through an online platform, whether or not for a charge. The transaction is facilitated by an online market place which, mostly build on smart technology and algorithms, lowers both side’s thresholds as far as possible in order to help users find and trust one another, and finalize the transaction.

Markets most open to the rise of these kinds of platforms are markets where the unease is the greatest at the consumer side of the deal. This unease is addressed and the platform consequently offers a far better consumer experience, oftentimes at a competitive rate. As early as 2014, Rachel Botsman, an Australian pioneer in the sharing economy, presented in her “areas ripe for disruption“, in which she chooses a consumer perspective to explain which markets are ‘ripe for disruption’ according to her opinion.

This picture aims at the end-user, but ultimately there has to be an interesting business case as well. In order to be attractive for entrepreneurs, a platform has to comply with these four criteria:

  1. It concerns a regular recurring activity;
  2. It concerns a market where consumers already spend millions with a market potential of several dozens of billions;
  3. It concerns a fragmented market without one party fulfilling a monopoly position;
  4. It concerns a market where the provided services or products are fairly universal and therefore reasonably easy to scale internationally.

Take Uber in mind: in all larger cities taxis are a popular means of transport. People do pay more money for it, than for the use of public transport. There is no monopoly position and a taxi is a universal term. Hence, it isn’t surprising that Uber, with a market value of about 70 billion Dollar, is the figurehead of the potential of this platform economy.

Growing exponentially in the platform world can only be achieved if you fail to do certain things, and fail to take on certain responsibilities.

There is a good chance that these kinds of platform players show up in many more markets in the years to come. They aim at the markets where the the biggest improvements can be made, and where the most can be earned.

Facilitation with limited risk

Because of the fact that market places facilitate, but don’t own or produce products or services, they are able to grow exponentially. This is what Airbnb has done over the last few years.

The success also has downside: by lowering the thresholds for short-term rentals, some cities are flooded by tourist. Investors have bought half streets to consequently rent out apartments illegally as hotels.

Exponential growth in the platform world can only be achieved by failing to do certain things, and failing to take on certain responsibilities. The fact that Airbnb doesn’t own the bricks, doesn’t mean the bricks don’t exist. Airbnb isn’t responsible for the accommodations, but the responsibility lies by the individual landlords.

The same applies to Uber, which is world’s largest taxi company without owning a car. But the cars are driving around, cause accidents and break down. In stead of a risk department determining the real risk and the financial department calculating the effective revenue per ride after, amongst others, deduction of taxes and depreciation, the full responsibility lies with the individual driver.

In the media, these platforms are either highly appraised or cursed. One thing is clear: this development will continue and it is therefore important to understand what strategy these platforms have and why they do what they do. As an expert in this field, I have gained important insights over the last couple of years. These are the four most important things you have to know in order to understand the real agenda and impact of these kind of platforms.

“If it didn’t exist before, it isn’t regulated. There are no laws.”

  1. Conviction: We are not the evil ones

Entrepreneurs within the platform economy have, just like many other tech entrepreneurs, their ‘own’ view of the truth. Kees Koolen gave a presentation on ‘The Next Web 2016’. Koolen made Booking.com great, used to be the COO at Uber (until he found out that his capital could not be moved to the US easily) and at the moment he is busy building the largest farming company on earth. Bottom line: Koolen knows how to make something grow in a short time.

He says about regulations:

“When your doing something disruptive, it means it that you’re doing something that did not exist before. To me it is very simple. If it didn’t exist before, it is not regulated. There are no laws. So, by default it means that you are maybe not within the law. … If you are going to look at the law and think, I can’t do it, that is a pity for you, because your company won’t be big.”

One could describe Koolen as a barely self-critical cowboy entrepreneur. It is this blind conviction that gives these kind of entrepreneurs a completely different starting point, than what were used to from entrepreneurs until now. An attitude that might get one really far, but which is a disastrous attitude on the long run from a leadership point of view (including exemplary behavior). Because leadership also includes responsibility.

De conception ‘without laws, I can’t break the rules’ is also recognizable in several court cases against Uber and Airbnb all over the world. Some of the extremes being the continuation of the service Uber Pop in the Netherlands, although the judge had prohibited the service, and the Greyball affair in which Uber identified the accounts of inspectors with smart technology. These inspectors where shown a shadow app of Uber in which no taxi could be found anymore.

Such a platform enters the market with the conviction that it remains within the grey zone of the law.

  1. Innovation process: upside down

According to prof. Koen Frenken (University of Utrecht) platforms like AirBnb and Uber turn the ‘normal innovation process’ upside down. He states:

“Traditionally, innovation is researched scientifically, followed by a normative discussion about its desirability, consequently politics comes up with regulations, and only then a new product or service will be launched.”

This is the exemplary process for new medicine, new airplanes, new food products: first research, secondly safety testing, thirdly regulations and finally market introduction.

“Platforms like Airbnb have turned this process around. Companies launch their platform first, consequently a normative discussion follows, and then the scientific research is initiated.”

Such a platform enters the market with the conviction that is has entered in a grey zone of the law. By using smart marketing actions and a pleasant service, they usually know to quickly satisfy many clients. Enthusiast client are usually great ambassadors. They don’t only help to get the word out, but also come in action against parties that try to slow down the growth.

Recently, Airbnb openly requested its users to protest against the reporting obligations in Amsterdam, the Netherlands. With many supporters and some great stories the entrepreneur enters into the conversation with the government which, like we all know, doesn’t want to build a reputation as ‘innovation killer’.

The reason these platforms can keep this strategy up is because they don’t invest in the things that are being traded on the platform. They see themselves as a technology company, although Bruxelles is already of a different opinion.

Governmental request are only going to be more, never less. Of course, platforms aren’t eager to make any commitments.

  1. Cooperation: we’re all searching

It’s easy to call the entrepreneur the bad guy, and position the government as sluggish and prehistoric. But bare in mind that both parties simply don’t know what ideal cooperation looks like. Sometimes a platform changes along the way into something different. Uber started as a limousine service, but transitioned to ‘on demand mobility’ later on. The potential of the app became completely clear when founder Travis Kalanick had a meeting at Google and got in a self-driving car for the first time. From that moment on Uber dreams about a super efficient service with self-driving cars, without those cumbersome drivers.

But even when you have the model in mind in an early stage, it’s still a quest to find the right balance between meeting local regulations, revenue, and growth. This implies that they are looking for universal, easy implementable solutions. Every concession with a (local) government is the absolute minimum limit in the negotiations with the next. What is requested by a government is only going to be more, never less. Of course, platforms aren’t eager to make any commitments.

For example, Airbnb has agreed upon programming local regulations in certain cities into its platform. Surely, there could be better options, but don’t forget that it is almost impossible to legally ban a platform and that the huge challenge for the future lies in the growth of the number of platforms which don’t want to talk with (local) governments. Ultimately a platform of independent enforcement should be established.

Another challenge are local governments working with outdated or unorganized data. From government perspective, there is a huge challenge to connect with the digital outside world to construct a workable cooperation.

The term ‘disruptor’ or ‘innovator’ is a temporary cover under which one can achieve a lot, but ultimately one has to grow up.

The ‘prehistoric’ speed of the government has an advantage: it provides time to see a development grow, so no hurried decisions are taken, and no energy is lost to developments that fade away within a few months.

Even without obstacles from government side the growth curve of a platform like Airbnb will weaken over time. The number of houses and tourist is limited in the end, limiting growth on the long run. Though, this won’t keep entrepreneurs from entering new markets when they see possibilities.

  1. Disruption is a temporary cover

Did you ever meet a business that has offered the same service or product for 20 years and is still disruptive? I don’t. Like Koolen  stated earlier on, ‘disruption’ is always of temporary nature. Ultimately someone overtakes you, or jour plans are embedded in the society. The term ‘disruptor’ or ‘innovator’ is a temporary cover under which you can achieve a lot, but ultimately you have to grow up.

When you grow out of you cover and leave it behind, your company has not become pious at once and still can’t be trusted blindly. Trust is important, unless it veers to naivety.

Conclusion

Not only platforms, but also governments and society will have to face their challenges. With the growing number of platforms, it is impossible to make agreements with all platforms. Banning a platform is impossible given the current juridical boundaries and enforcement through users is very laborious without the platform’s data.

It’s time for urgency within governments to draw up a vision and a policy in the areas of digitalization and the platform economy. These developments can only be directed well, if one understands what is currently going on and what the future has in store, has organized his own affairs, and knows his position in the ecosystem. It wasn’t without reason that the Rathenau Institute recently published the report ‘Sharing economy puts public values under pressure‘.

And, when nothing happens? The rise of platforms will be an even greater challenge for everyone, in order to create a workable solution and a (societal) desirable environment.

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Trust: the key to succes in the sharing and collaborative economy. In Copenhagen I had a nice talk with Sara Green Bodersen, co-founder of Deemly. Deemly is a platform independent reputation tool. We talk about the added value of online trust (systems), transparency in data, the added value of platform independent services like Deemly, the need of a more solid digital identity an much more.

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The so-called “sharing economy” or “collaborative economy” has in recent years increasingly attracted attention as a “disruptive force” in the economy, and as such has generated much discussion among scholars and policy makers. At the same time, the sharing economy provides ample opportunity for research on innovation, trust, sustainability  and other topics. On March 15 the Utrecht University organized a multidisciplinary symposium at Utrecht University titled “Advancing Research into the Sharing Economy” where a range of speakers from inside and outside the academy shed light on the latest developments  in this very active field.

The crew of Crowd Expedition and Deeleconomie in Nederland attended the symposium. We are proud to share the video’s of the keynotes in this blog.

Maarten ter Huurne: Linguistic Features of Seller Profiles Predicting Perceived Trustworthiness in the Sharing Economy’

This study examines which linguistic features in online profiles of sellers in the sharing economy predict their perceived trustworthiness. In the sharing economy consumers directly transact with peers mediated via an online platform. They are typically strangers to each other and little information is available about both of them and the product or service involved. Therefore, establishing trust between a buyer and seller is a precondition for a successful transaction.

One of the main sources to develop trust, from a buyer’s perspective, is the online profile page of a seller. An essential part of such a profile page is the textual self-description, because it conveys a certain, intended or unintended, impression of the seller. The aim of this study is to investigate the influence of linguistics on perceived trustworthiness of sellers in the sharing economy.

Koen Frenken: The Rise of the Sharing Economy as a Process of Institutional Entrepreneurship

Sharing platforms have raised controversy, in particular, because they claim that existing regulations in the markets they operate in, do not apply to sharing platforms and their participants. Hence, the platforms’ institutional strategy is to try to avoid the institutional logic of states (product regulation) and professions (licences, diplomas). Instead, platforms frame their business as belonging either to the new institutional logic of “tech” and the older institutional logic of the family (that is, the private sphere).

Drawing on the theory of institutional entrepreneurship (Battilana et al., 2009, The Academy of Management Annals 3), this paper investigates these strategies for five platforms in The Netherlands (SnappCar, Airbnb, UberPop, Airdnd, Helpling), and explains why these strategies increasingly differ from one another and why all, so far, have been quite successful.

We will also discuss some implications for possible regulations in the near future, in particular, discussing the pros and cons of granting platforms a “Right to Challenge”.

Bilgehan Uzunca ‘Is sharing shaping? How sharing firms shape their institutional environment to gain legitimacy in the U.K., the Netherlands, and Egypt

New technology firms such as Airbnb, Blablacar, and Uber have recently spurred the advent of the Sharing Economy (SE), where participants routinely share commodities such as spare rooms, cars, and even food with fellow participants.

Despite their societal benefits, SE platforms are facing resistance and protests in several countries. National governments and municipalities face a dilemma between not smothering this innovative phenomenon by excessive, ill-suited, and outdated regulation and protecting the public welfare from potential risks of sharing practices.

This poses an urgent challenge about understanding different strategies that SE firms employ within and across countries to actively legitimize their products/services. This paper examines how SE firms attempt to gain legitimacy by shaping their institutional environment.

This is the first cross-country, cross-sector study of SE to address the impact of firms’ society shaping activities on all key stakeholders. In-depth qualitative analyses of diverse socio-economic characteristics and infrastructural conditions in the Netherlands, the U.K., and Egypt contribute to our theoretical understanding of market emergence, firm entry strategies, and institutional entrepreneurship, as well as help policymakers about regulating SE in a welfare-enhancing way.

Paolo Parigi: ‘A framework for researching trust online’

The sharing economy is profoundly changing our cultural and technological landscapes. To provide social exchange at a global level, sharing economy companies leverage interpersonal trust between their members on a scale unimaginable even a few years ago. The mechanisms at work in enabling trust between strangers are not well understood.

In order to counterbalance the natural tendency to treat trust as purely a byproduct of social affinity, i.e., homophily, sharing economy platforms typically employ some form of reputation system that extends trust toward more diverse others. We test this argument using an online experiment based on an investment game with 8,906 users of Airbnb, a leading hospitality company in the sharing economy. We vary demographic and reputation features to study the interplay between homophily and reputation.

Our findings show that reputation systems can significantly extend the trust between dissimilar users who occupy broader distances in the social space. We also used real world data from one million interactions on Airbnb to confirm that our experimental results hold on the platform. We use these findings to discuss the role of reputation for building trust online.

Karla Münzel, titled: ‘Carsharing Business Models in Germany: Characteristics, Success and Future Prospects.’

Carsharing provides an alternative to private car ownership by allowing car use temporarily on an on-demand basis. Operators provide carsharing services using different business models and ownership structures. We distinguish between cooperative, business-to-consumer (B2C) roundtrip and one-way, as well as peer-to-peer (P2P) carsharing.

The study characterizes these different types of business models and compares their success in terms of diffusion using a comprehensive database of all 101 German carsharing providers in 2016. The key results hold that fleet size is significantly different across business models ranging from a few cars (cooperatives in small towns), to a few hundred (B2C roundtrip in larger cities), to over a thousand (B2C one-way in largest cities), up to multiple thousands (P2P across the country).

By analyzing for each operator the number of cars per capita in the city they operate in, we do not find significant differences across business models indicating the viability of each separate business model type. Hence, we conclude that business models will continue to co-exist for a while, although some of the business models may well converge in the longer run due to Internet-of-Things applications and the introduction of self-driving cars.

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rating reputation platform economy

Online valuation systems are overrated. Most systems are flawed and become less and less important as trust in the brands of platforms like Airbnb and Uber grows.

At the time, in 2007, when Brian Chesky and Joe Gebbia came up with the idea of creating an online platform on which anyone could rent a room to a completely unknown tourist, they drew many odd looks. How could you know an overnight guest can be trusted? In the mean time, over 100 million nights have been booked through the platform in 191 countries. I’m talking about Airbnb. The secret: online trust through valuation systems.

Sharing rooms and houses has been existent since time began, but thanks to Airbnb the threshold has been lowered and the activity grows exponentially. There is a growing number of online platforms that link up individuals using the same principles. Uber links up drivers with people who want to travel from A to B and the Dutch SnappCar links up car owners to people who need a car for just a short time. In the Netherlands, already over 140 platforms actively mediate between individuals. Every platform’s promise: Carefree pleasure. Trust is their key.

Trust through online platforms is created in two different ways:

  1. Interpersonal Trust: The trust among users. This is created by personal profiles filled with information about yourself and through reviews of others about you. When you rent a room through Airbnb, you will evaluate the host and he evaluates you afterwards. The more transactions, the better the view on the trustworthiness of users;
  2. Institutional Trust: The trust users have in the system. Platform builders do all they can to ensure problems are avoided and solved as soon as possible. Preventive measures are, for example, profile scans and automatic processes like credit checks to keep people with wrong intentions out. Reactive measures are a valid insurance or a well-reachable customer service. These together create trust in the brand of the platform.

It has to do with both trust in the platform, as well as trust in other users. Valuation systems (e.g. reviews, stars) serve several purposes: they cause bad apples to be quickly removed from the system, they ensure that people will be chosen according to their proven quality, and they enforce certain desired behavior. At the time you misbehave (or you do not behave as per the applicable or desired standard), you’ll be slowly excommunicated and you’ll end up at the sideline.

Online evaluation in practice

How does online evaluation practically work? Most evaluations are based on a 5 star system. Besides this, most platforms offer a possibility to add a certain explanation to your evaluation in a text box.

When you look at the average number of stars in Uber, it appears that the differences between good, medium, and bad aren’t that big at all:

The impact of only one low grade can be big in case you don’t have many evaluations yet. And one low grade lowers the chance that someone else will choose you the next time. Is this current system the ideal?

Let’s take a ride in an Uber taxi as an example. That particular day, you woke up at the wrong side of the bed, the taxi ends up in heavy traffic and you miss out on an important business meeting. Chances are that you will not give this driver a great evaluation. In this example the context is independent of the evaluation.

Another example: A carpenter offers his service on Werkspot.nl. In his first year, as a beginning carpenter, he does not have the same experience as an old hand in the trade. Over the years he develops himself as an expert, though negative reviews of his first year still weigh in his reputation forever. Such a system doesn’t account for any learning curve.

Reputation and valuation 2.0

A party that, in my opinion, has thought things through really well, is the Dutch Meeting Review: a platform to evaluate event venues. They improved online evaluation in four different ways:

  1. Linear depreciation of reviews: a review is depreciated over a time of 4 years. After 1 year it’s weighed by a factor of only 75%, after 2 years 50%, 3 years 25% and the ratio becomes 0% after 4 years. This ensures that your mistake won’t be counted against you forever and your most recent performances contribute the most to your overall evaluation;
  2. Possibility to follow up on a negative review: In the Uber-example, you may imagine that a client calms down and realizes that he has given a too low valuation. At MeetingReview you are allowed to change you evaluation in hindsight.
  3. The feedback loop: As receiver you are allowed to enter into a conversation with your feedback supplier to find a reasonable solution. So, not only a future client will profit, but also the current user of the system. This feedback loop is based on the good intentions of the evaluated person and the insight that he wants to learn from his mistakes;
  4. Manual checks: With a scoring system ranging from 1 to 10, all deviating scores below 5 and higher than 8 are being checked manually. This prevents good friends or competition to affect the average score unjustly.

Such a smart valuation system is an exception at the moment. Most platforms still work with the simplest ratings. Though choices that are made, based on this output, may be drastic.

Added value of interpersonal trust in the future

First of all, more and more often algorithms make the first selection of the supply. With Uber, the algorithm makes a match between you and the taxi. Only afterwards you’re able to see the valuation of the driver. Due to the fact that this car is your fastest option, you’re not likely to decide to cancel this ride. Also on other platforms we see automated linking appear. In Airbnb you’re already able to rent many houses by ‘direct booking’, i.e. without the explicit confirmation of the landlord.

What we see happening is a movement from interpersonal to institutional trust. Ultimately, you trust the platform to have all their scans and checks up and running. And, moreover, that the platform will fix things in case it would go wrong. The role of valuation systems will be moved to the background more and more, and will end up as no more than a control mechanism.

Conclusion

Interpersonal trust played a big role when the institutional trust wasn’t yet developed. In 2007, nobody had heard about Airbnb, there was no trust in the brand, and besides people were asked to do something they had never done before. The interpersonal trust through online profiles played an important, though temporary, role. The ofter we use these kind of platforms, the greater the trust in the institutions behind these sites.

Be honest: What was the last time you asked your favorite airline for the online valuation of the pilot of your airplane? Exactly.

This post was originally posted on the website of Intrapreneur.nl, a knowledge platform of Trivento.

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Question @RenseC on Twitter: “Doesn’t the fact that eBay reputations are still influential contradict with your theory?”

Answer:

Yes and no. I think that a certain balance between interpersonal and institutional trust will always remain. The question is about the proportion of each of these, and is determined by several factors:

1. The trust and reputation the platforms has developed. Included are elements as trust in the brand, position compared to competition, how screening of users works, if quality checks are in place, what measures are taken when things go wrong, and which securities (e.g. insurances) the platform offers. For example, in case you know that Airbnb excludes every one with a score under 90% from their platform and profiles are filled well, and these elements are evaluated and checked, the necessity to look beyond to the reviews is smaller;

2. The core of the product or the service. Is the product or service standardized? Take a taxi ride through Uber: there are two certain quality standards that provide security (car type, certificate of good conduct, etc.). Besides, the desired behavior (response time, accepted score, etc.) is smartly directed through de app. Therefore it doesn’t matter if driver A or driver B provides you the ride. You want to go from A to B and that’s your reason for choosing the (brand) promises of the platform. Interesting note on the side: maybe the reputation of the demand side will be more important in the future: I’ve seen several Uber forum discussions about the question if you should pick up a client with a score of 4.3, cause it is guaranteed trouble;

3. The transaction taking place with physical contact or not; With a physical meeting (especially outside the personal living space) you’ve got more input on trust and the other party has a harder time not keeping his promises;

4. If the transaction is about a regular thing (taxi ride) or a once in a lifetime transaction (purchase of some product on eBay);

5. If an algorithm provides the match. In other words: are you able to make a choice based on the full supply, or does a algorithm provide you a match and does the profile only serve you to possibly refuse the choice made for you;

6. Choice: if there is (like traveling with BlaBlaCar from Utrecht to Brussels about noon tomorrow) not much to choose from, you’ll be less picky;

7. Urgency: do you need something fast, or may it wait for a bit;

8. What are you about to lose, when something goes wrong?

9. Probably, I’ll think of some more reasons later on 😉

Conclusion: I think the proportion of interpersonal <> institutional differs per platform and per service/product. I’m of the opinion that a strong institutional trust, trust in / familiarity with the service, small uncertainty, automated or preselected match and the urgency of the matter influence the impact and lower the requested the interpersonal trust .

To concretely answer Rense’s question regarding eBay: At eBay you may trust the institution in the way they handle their processes, but there are many uncertainties –e.g. not being able to check the quality of the product or not know the product to well yourself. With anUber ride things are organized much tidier, for their focus is on only 1 thing: a car driving from A to B while providing a good user experience. Actually, I’m curious if there is a difference in results of people that have picked up their products personally or when it had been shipped.

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Agile processes, Minimal Viable Product, speeding up and embracing uncertainty. These are the words you mostly hear in IT-company’s offices, but this time they’re uttered by Estonian government officials. The government of Estonia is very digitally engaged and open. Late 2014 they made their country available for the rest of the world. The government wants to grant everyone on earth a digital identity and excess to the ICT-infrastructure of their country through project e-Residency.

ICT as USP

E-Estiona’s story starts with the collapse of the Soviet Union and its independence in 1991. At that time the country faces two challenges. Firstly, the leadership of the country, with just over one million inhabitants, recognizes their obscurity. This makes their state vulnerable. To become known, the country has to stand out. To use marketing terms: Estonia needs a Unique Selling Point (USP).

The second challenge is the establishment of a whole new governmental apparatus for relatively small number of in inhabitants. A traditional approach would be unaffordable for the government. There must be another way to organize this.

The answer to both questions became: ICT.

A clean slate

However budgets are limited, the Estonians do have one great advantage: they can start with a clean slate. So, the government is building a basic platform on which al ICT-infrastructure might be connected. Data for a new ICT-project will be retrieved from this source which prevents for duplications. Inhabitants receive an ID-card with a chip which, in combinations with a pin code and an USB-reader, forms the digital identity of the inhabitant. Once logged into the system the inhabitant has access to all his data. And he is able to see who has seen his data. The majority of violations of e.g. curious doctors or officials will be discovered by the inhabitants themselves.

Thanks to this approach, 97% of all schools are online in 1997 and the government has constructed a free WiFi network in all inhabited areas in 2002. Since 2007, it is possible to vote digitally, and by 2017 the average Estonian takes only three minutes to complete his tax declarations. That 71% of Estonia’s GDP originates from services might have to do with it. All this is facilitated by the safest, privacy friendliest system ever build by a government.

All this has put Estonia high on several international lists:

  • 1st in ‘International Tax Competitiveness Index’
  • 2nd in Internet Freedom (Freedom House 2015)
  • 8th in ‘Index of Economic Freedom 2015’ (Wall Street Journal/The Heritage Foundation)
  • 16th in ‘Ease of Doing Business Report 2016’ (World Bank)

No paperwork

E-Residency Managing Director, Kaspar Korjus: “In digitalization, most often you find processes being digital, though finally something has to be signed on paper. Not here, as even new laws have to be signed digitally. I can’t remember myself going into a voting booth anymore, everything here works digitally.”

That the approach is bringing forth its fruit is described by journalist Jeremy Epstein and Shai Franklin in their article ‘How Estonia can save Western civilisation’: “The investment in infrastructure has not only reduced government expenditures by the equivalent of 2 percent of gross domestic product (GDP) (500 million dollar), it has also given rise to one of the world’s most entrepreneurial and innovative countries, with the second-largest number of startups per capita.

Thinking outside borders

In December 2014, an idea is launched by the ‘governmental startup project’, which states that not only Estonian inhabitants, but everyone in the world, may use the country’s infrastructure. The literal goal is to give every person on earth a digital identity. The advantage for Estonia is that the country becomes well-known and it stimulates the economy.

Korjus tells how that project is handled: “We like to keep things simple and do not directly think in terms of end products. For the idea of e-Residency we created a page on Launchbase: a platform to share your idea briefly and where people can subscribe to be kept up to date. When the managing director woke up the next morning, 4.000 persons from 150 countries had already subscribed. It was beyond doubt, we had to continue with this plan.”

“We developed the idea, and build a Minimal Viable Product. Therefore we had to change some laws. By working with a dedicated team ánd with the support of the government it worked to set out with this plan within a few months. None of this would have been possible without a total commitment to technology and innovation by both the public and private sectors in Estonia.”

e-Residency

Through the website, every non-Estonian of 18 years and above can request an e-Residency. Against the cost of 100 Euro, you are able to pick up your card an code from over 200 locations worldwide. The Physical contact moment (don’t forget your passport!) is the moment the link between your physical and digital identity is made.

With your card and pin code you’re granted access to Estonia’s user interface and you’ll receive a digital authorization tool. Besides this, anyone on earth can acquire access to European payment providers. And you may, wherever you are on the world, start your company digitally. Korjus: “The e-Residency could give financial and technological inclusion to 73 percent of world’s population excluded from financial tools.”

Jeremy Epstein and Shai Franklin: “With e-Residency individuals can start their own company within the European Union within 24 hours, open an European bank account, and subscribe digital documents to be accepted within Europe and beyond.”

New projects come with setting goals. At the start of the e-Residency project the team set themselves the goal to reach 10 million e-Estonians in 2020. Korjus states it is not a ‘mandatory goal’ though. He tells over 17.000 e-Residents are registered, who together started over 2.000 companies. “In comparison: In Estonia are 30.000 companies listed. So even this is a huge number for our country”.

Growth by facilitating others through APIs

“However our speed, as government, is above average, we do understand very well that we’re always 10 times slower than the market,” tells Korjus. “With cases like the payment provider and digital identity we now cover 80 percent of the inhabitants needs. For the remaining 20% we’re building APIs in which others can create their own solutions. We currently offer two APIs. One can be used to integrate the ID card with a website to offer secure login and user authentication. The other is a more niche API that can be used by business service providers to register companies for e-residents in the Estonian business register.”

Positive side effects

The population is proud. “Technology is almost seen as a religion here,” says Korjus. “In case you would ask an Estonian where he is from, he’ll answer: from the country that created Skype and Transferwise.”

The great international attention in the media about the e-Residency project definitely contributes to this pride and Estonia’s profile as important ICT-nation. Something on which marketing smartly utilizes. E.g. they invited the Britons after the outcome of the Brexit referendum to remain digital Europeans.

Lessons learned and future

Kaspar: “Whenever you try to disrupt the status quo, in this case questioning the traditional notion of residency and citizenship, you run into problems. We have learned to be patient and to work through the big problems as they come, one at a time. Although our team is backed by the government, we approach our work with a lean startup mindset.”

“A study conducted by the American company Intuit suggests that there will be over 100 million new online workers by 2025. Through e-Residency, countries like Estonia will be in a position to attract people like this by becoming the best place to run a location independent business in the world. We think that countries will soon be competing for citizens, residents, and e-residents just like private companies compete for customers now.”

Conclusion

In a time that governments attribute more value to country borders than to entrepreneurs, I think Estonia has taken a unique and promising road. By making clear choices, facilitating others, and by simple doing, they achieved impressive results in a relatively short period. Will e-Residence be a success? I do give them a chance and just requested my e-Residency. Simply, because it is a beautiful project to be part of.

Food4thought: Country as a service?

April 1st, 2016, Estonia jokingly launched the website ‘ Country OS ’, where countries may get a ‘country as a service’ subscription. Maybe this sounds crazy, but when you read Ben Hammersley’s quote in this article in Wired, he might provoke you somehow: “In other words, a nation is now competing with its neighbours on the basis of the quality of its user interface. Just as you might switch your bank to one with a better mobile app, the Estonians hope you’ll switch your business to a country with an infrastructure that is easier to use.” 

This blog was published in Dutch on Intrapreneur.nl

Video interviews about e-Estonia and e-Residence:

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Google, Facebook, Uber and Airbnb: four companies, which became dominant market players in their segment in a very short time. Uber, for example, grew in seven years to the world’s biggest logistics company. Platform-expert Martijn Arets unravels the success formula of these services.

1. Facilitation in stead of control

During the industrial revolution the trend was to centralize both people and resources. To the effect that maximum efficiency could be reached. It used to be he ideal formula, as at the time most products and services where produced by the dozen. Or like Henry Ford stated, “Any customer can have a car painted any color that he wants, so long as it is black.”

The downside of this decentralization was a lack of flexibility; changing existing processes went slow and was burdened by big inventorial investments. When we look at a platform like Airbnb, we see the opposite. Airbnb as a company itself doesn’t invest in property, though connects (private) owners of existing property (which may be rented out for leisure purposes) to people who see the need to rent it. The platform works as an intermediary with a client base, which may grow exponentially, through a (relatively) non-capital-intensive strategy. Facebook, Airbnb, Booking.com and Martkplaats.nl work all in the same way.

The great challenge of a platform is the need for two sides: the demand and the supply. The art of starting a platform is to realize a healthy balance between them. Uber does a smart job. The taxi platform governs the deployment of drivers by using dynamic tariffs. When the demand outgrows the supply, fares are raised. This motivates drivers to get their car started and demotivates the clients to task for a taxi right now. Thus, the supply increases and the the demand decreases, which immediately restores the balance.

Key learning point: Go back to the core of your company and see how you may set up your service as a platform.

2. The innovation process upside down

A second obstacle to platforms is their way to turn innovation processes upside down. Professor in Innovation Studies, Koen Frenken, calls this ‘reverse technology assessment’. He explains, “Normally speaking, an innovation is first studied scientifically, second a public discussion about its desirability takes place, then politics come up with regulations, and finally an innovation is marketed.”

This is process in place with new medicine, airplanes, food or farming methods: first research, then safety tests, next regulations, and finally market introduction. Though with the sharing economy the process is reverted. Companies launch their new platforms first, which will consequently be follow by a normative discussion, and only then scientific research.

The problem is that platforms, by doing so, knowingly violate laws and regulations. Uber knew that UberPop, a gypsy cab service, was illegal. By applying the reversed innovation process, Uber created a satisfied market first, by which it was much harder for public institutions to prohibit the service.

Key learning point: Some impertinence from time to time doesn’t hurt. And sometimes it’s better to ask for forgiveness after the event, than permission up front.

3. Use the newest technology optimally

Many activities we perform by using platforms nowadays, aren’t new. Sharing has always existed. Platforms only lower the thresholds. For example, transaction costs are lowered, and strangers may be trusted, thanks to reviews and reputation scores. The added convenience fosters a rapid increase in usage.

Let’s take uber as an example. Where it used to be troublesome to get a cab, nowadays it can be done with 3 ‘taps’ on your smartphone. The fact that both the driver and you own a smartphone, makes it possible that many operations are automated. The algorithm matches you with the closest driver. At the end of the ride you rate the driver and the driver rates you. This reputation system filters out bad performing drivers and asocial clients in no time. Linking your credit card ensures you that you don’t have to give the payment process a second thought.

Key learning point: Use technology and algorithms to simplify processes and make them self-managing.

4. Extreme focus on creating convenience

One of the key agenda points in the development of online platforms is to create convenience for both the client and the supplier. Processes are becoming simpler and more and more services are being integrated in existing apps. It is even possible to directly order an Uber from Google Maps and also KLM has integrated the Uber API connection into its website.

The next step is to look ahead to the future. The now Uber app links to your agenda and registers your daily rhythm. This in order to give you the right suggestion to order a taxi at the right time.

A Mayor point of interest in this development is of course privacy. To what extent would you be able to trust a commercial party with your personal data? That is something about which start-ups can learn a lot and where existent companies are absolutely well ahead.

Key learning point: See how you may use technology to find ways to serve your clients proactively.

5. Think in categories, not in niche markets

Uber isn’t a taxi company, but a logistics platform, and Airbnb isn’t a renting out accommodations, yet offers “unique (local) experiences”. Though many people talk about Uber as if it is a taxi company, in the mean time they’ve started to deliver food (UberEats) and are developing the platform for self-driving trucks and cars. Airbnb is aiming at the complete travel experience and not only at accommodation; hence the platform newly offers tours. This way platforms embrace the opportunity to become the all-in-one solution in their category, and that doesn’t leave much space for competition.

Key learning point: Think outside your own niche market, but think of all-in-one solutions.

This blog was published in Dutch on Intrapreneur.nl

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Dear Brain, Joe, and Nathan,

What a crazy educational rollercoaster the last few years must have been: from an air mattress in a living room to a platform with accommodations in 34,000 cities spanning 191 countries. Your strategy has been different from other ‘disruptive’ organizations like Uber. Whereas they, for example, chose a collision course with the market from inception, not taking drivers’ interests or the rest of the market too seriously, you apparently decided to take a more social approach. The past years appear to the outside world as one big success story, sounding something like achieving the American dream, though like any entrepreneur and thinking person may understand, success didn’t happen overnight.

I say success, as I am convinced you have successfully connected millions of people, which would have never found each other otherwise. I myself, for example, stayed with Ayala in Helsinki in a room where Lenin supposedly slept once, and lodged in Tel Aviv with 63-year-old Mati, who told me all about the country. Furthermore, in Elodie’s apartment, I felt for one week a true Parisian.

This very success forces you to make the right choices; the greatest of all choosing between short-term exponential growth or long-term, durable raison d’être. Growth is an intentional choice, as I was taught once by a well-known businessman. Just like you, I’m well-versed in the discussion regarding the perils of city councils being less than thrilled with your growth. I see them struggling. On the one hand, they are happy with the new influx of tourists, but on the other hand, they are in office to protect the interests of the city and its inhabitants.

City councils have to find their way around modern policy with developments like Airbnb. Policy regarding housing affordability, public nuisance prevention, and fair processes in general. Whereas you deal mainly with three parties (yourself, the guests, and the hosts), the city councils’ playing field is completely different.

To get to the point where a community might functionally live together, rules are put into place. Amsterdam’s city council, for example, came up with three rules:

  • No more than 60 days out of a year
  • No more than 4 people at a time
  • Not in social rental housing

In an agreement with the city of Amsterdam, you defined these rules and rewarded the council by taxing tourists through the platform. Other cities were about to follow suit.

Lately, however, I’m reading more and more articles of cities where Airbnb rentals are getting out of hand. Pawn brokers withdrawing houses en masse from the housing market in order to rent them out as illegal hotels. Neighborhoods being impoverished by the uncontrollable stream of tourists. Municipalities creating cumbersome solutions like registration requirements and licenses, spending millions a year on never up-to-date inspectors, and commonly evicting unsuspecting tourists from their apartments. Complications even to the point where they see no other recourse but to ban your service.

Your reaction: ‘Sorry, we’re just an intermediary platform and out of respect for the privacy of our clients we can’t offer you any client details.” When I read your founding story and then this, I’m pretty sure something went horribly wrong. The excuse concerning privacy is –let’s be honest– right down nonsense. You don’t have to release data, as it can’t be too hard to program local regulations into the platform.

Do I live in Amsterdam and would I like to rent my apartment for the 61st day? Impossible. Do I live in social rental housing and would I like to host someone in my house via Airbnb? Impossible. With the in-house knowledge you have acquired, programming this into the site is relatively easy. Just think of what else it might offer you in addition to discussions with municipalities? You’ll be making friends. Everyone would be happy. Short-term, slightly less profit from ‘illegal’ hosts in exchange for a long-term raison d’être. Not that hard of a choice, so it seems to me.

So, in the case that you choose short-term profit, you will only create opportunities for your competitors. Success rises or falls on the trust users place in your services. The power of the Airbnb concept lies mainly in the careless stay, just like a local, in a complete stranger’s house. The power of your concept lies as well, in contrast with Uber (which strives to build a network of autonomous cars and hence their careless attitude towards drivers) in the goodwill of the community. Something you don’t want to risk. Do you?

Dear Sirs, after a turbulent growth, you’re facing two diverging roads: will it be short-time profit maximization and a quick exit strategy, or do you choose to stick it out for the long-term? I can’t imagine that extraordinarily penalized hosts, guests evicted from their apartments, and authorities banning your service, fit into your ideals. You choose.

Thoughtfully,

Martijn Arets

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Organizations you partner with for over many years are sometimes the ones whose history and core values you’re completely oblivious of, just because you’ve never taken the time to talk about it. This week I visited Seat2meet’s Lenneke van Rossum for a conversation about their expedition. What follows here is what I took home from the interview.

The roots of Seats2meet aren’t found in an overly spectacular sector, namely meeting room rentals. At the moment the crisis arises, Seats2meet notices the drop in requests for rooms directly. What a moment to start thinking about the questions ‘Who am I’? and ‘What value do I add to clients?’. ‘Facilitating meeting spaces for people’ turned out to be an accurate description of their core value. From this point they started building.

Sharing of abundance

Nowadays, many people equate ‘continuously building’ with ‘spending money’. Yet, you might also look at what it is that you already possess, and consequently ask yourself how you could use it differently or more consistently in reaching your goals? Thinking from abundance in stead of lack. Sounds easy, though it proofed not to be. Seats2meet earned money with meeting rooms, but faced a mostly empty lobby in the mean time. All basic facilities (internet, heating, etc.) where paid, so opening this space was a mere logical choice in hindsight. Note that ‘logical’ doesn’t equal ‘easy’ or ‘greatly celebrated by colleagues’.

Growth by letting go

The company Seats2meet saw a major growth over the last few years. Starting from one location in one country, they quickly expanded to 150 locations in 25 countries, still working with only 6 FTE in their headquarters. The freedom Seats2meet offers locations to personalize the main concept, and the way in which they lower thresholds to others to DO is impressive. Impressive, as well as the core of their success. Only by letting go and positioning yourself as facilitator, you might encounter such a growth. Not by trying to do and control all yourself, but rather by letting go. Honestly, it is much more fun to facilitate others and see them being empowered, while you are working on the bigger picture. So, it seems to me.

Linking two worlds

The one transition I noticed most clearly from outside is the way Seats2meet has learned that the only way to change the world is by making connections. In the beginning their message concerned, in my opinion, too much a far future –sometimes with the tendency to disguise the now. I notice that Seats2meet’s team has grown to a club seeking connections by taking people by the hand, especially during last years. Continuously moving ahead, step by step.

Growing within your own core

Where I just remarked the core of the company as ‘facilitating meetings’, I understood during our conversation, they had taken quite some steps as well. From facilitating meetings, from a traditional role in location rental, to facilitating dynamic and relevant meetings. The tool they use is called ‘The Serendipity Machine’: an online tool in which users show their skills and needs. The system then creates the link.

Future

So, Seats2meet grew from a meeting room rental service to a … let’s say… facilitator in connections and meetings. With the (Artificial Intelligence) algorithm which is now being build for the arrangement of dynamic and relevant meetings. Combined with the company’s hospitality roots –hospitality professionals know like no other to centralize the customer, and don’t need this wisdom written on the walls, to be reminded accordingly– they ensure a possible growth in a countless number of branches and functionalities, with which they are well prepared for the future. I’m curious to see how their expedition continues!

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Recently, I was one of the 25 participants in a Delphi research regarding the energy transition. A wonderful experience, especially because it dealt with a subject that isn’t headlining my daily schedule. Meanwhile, the results have been published, though are not yet available in English.

During last week’s ‘inspiratieHUB Delphi Energieransitie’, I got on a soapbox and briefly pitched my opinion about this transition. Finally, I’ve chosen to share what I see happening in the world with a broader audience. My observations may be separated in three phases. Below I’ll share my thoughts:

3 Phases:

  1. Now as a starting point
  2. Pushing against the status quo
  3. From controlling to facilitating

Phase 1: Now as a starting point

    • Less trust in large institutions and readiness to take action;
    • Historically low interest rates, big money on the market, and a few market makers with more money than a single country;
    • Technology and experiments are becoming cheaper;
    • Emergence of peer2peer platforms > sharing knowledge, money, labour, and stuff, fueled by the increased use of mobile devices;
    • Startups become extremely scaleable and use ‘reverse technology assessment’ > reversed innovation processes. Doing first, talking later. However, still centrally managed and short-term funded;
    • Startups are seen as a hype, and not yet respected for its real value;
    • New technologies making existing parties (publicly and privately) discover/proof there raison d’être anew, especially by asking the short term question about competition and regulation in stead of ‘how to be a more qualified organization / government by using new technologies;
    • People start to see that property isn’t the most ideal solution (95% of my time i’m driving my Volvo V70 all alone);
    • People always choose the solution that is best for themselves.

Phase 2: Pushing the status quo

    • New initiatives are faster than the rest, mostly sprouted form frustration or amazement;
    • Existing organizations mostly react short term and complain about their legacy is if it were a handicap;
    • New initiatives are praised to the skies and mature organizations are depicted ‘slow, cumbersome and moribund’
    • Extremes arise; things are either good or bad. You are either for or against;
    • Techno-optimism: techniques solve all problems. Result: no responsibility;
    • Experiments with new organization models and techniques: blockchain, cooperative models, etc.
    • Entrepreneurial activism, like ‘Follow This’ and ‘Shell’.

Phase 3: From controlling to facilitating

    • Please understand we’re due to look for balance;
    • Existing organizations are to see their legacy as more than a handicap;
    • 3 Stakeholders:
      • Civilian: consumer /prosumer
        • think for themselves
        • want more control on where where products originate from
        • will prefer their own convenience and don’t act rationally
        • have tools to organize themselves quickly and arrange things for themselves. Financing through crowdfunding, shared property as part of the sharing economy, etc.
      • Ecosystem lowers thresholds for large groups of stakeholders.
        • offers consumers segregated niche services
        • become quickly the best in the niche they inhabit
      • Parties controlling and managing the bigger picture (they don’t have to be today’s ones)
        • offer a platform (WordPress) on which a consumer may create its own space and the ecosystem may integrate services
        • think in all-in-one solutions, take burdens away, and create many new business opportunities.
    • Platform minded governments (Estonia), process optimization, influence on robotization, and heavily discussing ‘how to foster a purpose filled life and embrace new developments as opportunities, rather than seeing them as threats…

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Commonly, media attention focuses on the platform initiatives that are growing exponentially, which makes us forget the number of proper functioning platforms that have already been integrated into our daily habits. Those platforms that do not grow exponentially, though they keep steadily recording positive growth figures –some for over a decade. An effort other platforms still have to proof themselves capable of.

A couple of moths ago, I visited the (until recently) traditionally Dutch Werkspot, where I spoke extensively with CEO Ronald Egas. We had met last year during a Tegenlicht Meetup about the sharing economy. Now, as one of the questions that concerns me today is ‘labour in the platform economy’, the time was ripe for a more comprehensive discussion. Werkspot.nl is a platform where you may post a description of your project and where 7,000 professional handymen (yes, mostly men) may send you their best bid. Reference the video to see the interview, listen to the podcast, and/or read my most interesting findings and thoughts below.

No sham constructions

Internationally, there are many ongoing discussions, and court cases, regarding the responsibilities platforms should  have toward the people who earn money through their platform. Platforms basically don’t want to profile themselves as employers, which is ‘understandable’ from a profit and growth perspective. For a platform like Uber, this is an interesting discussion. The driver is, after all, completely dependent on the platform. He makes himself dependent by making an investment (i.e. buys a car), to which he is bound for a couple of years, and he is particular vulnerable to one-sided changes in the terms and conditions executed by the platform. I assume, the discussion about (the impoverishment of) labor relations through platforms will become a trending topic. Along with the labor market generally becoming more and more flexible. This discussion will be partially fueled by the high costs and risks involved for the employer.

I do consider Werkspot exempt from this discussion: Handymen may only register themselves on the platform if they have also been registered with the Dutch chamber of commerce (i.e. no fiscal challenges), and Werkspot is in most cases a (minor) addition to existing business, thereby avoiding excessive dependency on the platform. I prefer to view Werkspot like a smart marketing and sales tool for handymen, who would rather spend their time on what they do best: fixing things.

Revenue model in its infancy

Currently, about 7,000 handymen are affiliated with Werkspot. According to Ronald, tasks acquired on the platform are usually a last minute addition to their regular business. Handymen pay Werkspot an annual fee to be allowed to post a certain number of bids on consumer requested tasks. This way they are at the very forefront of the requesting process. The price of each bid is relatively low, because Werkspot doesn’t know the quality of each project request and accordingly has no clear picture of the handyman’s final revenue. I think that were they to put more effort into the collection of qualitatively high prospects for the handymen, the price per lead could be raised considerably. If this, based on the same number of handymen, would result in greater revenue for Werkspot is doubtful, though I think this strategy would convince more handymen to sign up. As of now, it is still quite complicated for a handyman to acquire a job on the platform. The consumers post a, due to lack of knowledge, improper or incomplete job description on the platform. Consequently, only about 5 handymen reply to each query. Chances that you will end up with the job are 20%, in which, for convenience sake, I’ve neglected to account for the risk of a task being postponed or being awarded through any other (legal or illegal) means. The question is how much effort handymen will make to write a proper proposal with these low success rates. Right now Werkspot could provide better suited leads for the handymen, which might reduce their browsing efforts, the price for a lead could be raised, and more handymen could be expected to join the platform. In the end, this is the bottleneck in the platform’s growth, according to Ronald. There are sufficient job proposals, yet the supply of handymen generally lags behind.

From loose crowd to community

This leads me to my point that Werkspot could grow even more from loose handiwork crowd to a real community. To increase the added value for handymen, they could also make other features available besides ‘sales and marketing stuff’. I’m talking about pension schemes, insurance, collective procurement, and maybe even an internal sharing platform. The greater the added value of Werkspot to the daily life of the handymen, the more attractive the platform becomes to existent and potential handymen subscribers. Great for long term business, but also beneficial to one’s own pocketbook. It is still important to work with the right partners: those who share the same values and won’t reinvent the wheel. So, focus on the core and search for the best partners you can find. This way you may accelerate in the short term, and also build a durable model for the future.

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