Tag Archives: product strategy

Amazon and eBay rentals – business model of the future?

Isn’t it amazing that neither Amazon and eBay let users lend and borrow items between themselves? There are plenty of websites chasing the rental market currently, so why aren’t the e-commerce giants chasing it as a business model?

Connectivity = efficiency = sustainability

Connectivity within a system allows for greater efficiency, as it allows different elements of a system to pool resources and reduce the duplication of effort. From a sustainability standpoint, the rise of the internet is incredibly exciting as it facilitates the sharing of resources, meaning fewer items need to be fabricated for human use, which in turn reduces the total amount of effort and investment wasted on items that have a low usage factor.

Prior to the internet, the pool of objects and items that human beings could “leverage” (i.e. use) to achieve their goals without an outright purchase was mostly limited to those held by their within their own network of friends, neighbours and family. This was a pool constrained by the mind’s numerical capacity for relationships, the lack of a complete and quick way to search a person’s hypothetical inventory of items available for use, and also by the ability to convince others of trustworthiness.

Internet marketplaces facilitate sharing

The internet can disrupt this status quo through the use of marketplaces that can be used to connect borrowers and lenders of items. Items could be listed as available for borrowing/renting, and potential users could search for them. Possible features include:

  • rating the condition of an item by both parties before and after the transaction
  • insurance products could be offered to cover the item
  • payment (if needed) could be handled via the marketplace site/app
  • location of the borrowers/lenders could be matched quickly through mobile GPS
  • the option to buy the item could be provided if desired

There are startups working on this very concept as we speak, such as StreetBank in the UK. Watch their company trailer below:

Business case for Amazon and eBay rentals

Given the interest in the rental model by many startups around the world, driven by the fundamental capability shift that has been enabled by the internet, I find it intriguing that Amazon and eBay do not offer their customers the opportunity to search for rentals (with the exception of holiday home rentals on eBay and Amazon’s e-book and online film/movie rentals).

In my mind, allowing customers to lend/borrow in addition to buy/sell would be a source of additional traffic to the site, adding additional opportunity to grow revenue. The rental model itself would also be extremely appealing to the two companies as, in the case of popular items or items rented for long periods of time, it could yield regular cashflow. For example, it would be perfect for those who want to rent big items like TVs or sofas.

This business model would also hedge their position against a potentially disruptive market force and allow them to stay ahead of the curve (and potentially kill any upstarts dead in the water).

But why don’t they want to offer it as a service to clients? There may be a few reasons:

  • They do not want to lose the focus on their primary business model
  • They don’t want to create a new market that could potentially disrupt their current operations
  • They don’t believe their is a real demand for the service
  • They do not believe that the potential revenue streams do not justify the costs of lost sales and investment in their site infrastructure

I believe that the last two are the more plausible ones, as Amazon in particular are not known for shying away from innovation!

One thing worth noting here is the ingenious “Subscribe & Save” feature of Amazon that allows users to create a regular repeat transaction for an item they buy regularly (such as food or toiletries) and save up to 15% of the cost in the process. This is win-win for both parties: customers save money and Amazon gets a regular cashflow. The service is a step in the direction of the rental model and creates much more of a recurring relationship between the parties (making the user of the site a “client” rather than a “customer”).

Disrupting the very concept of “ownership”

Having wider access to use the items around us (i.e. having greater “personal leverage” of your community’s assets) will suddenly change the very concept of ownership. If an item is readily available to be lent or borrowed by thousands of people via an online marketplace, who will really “own” the item? Technology will blur the lines between group and individual ownership and the old definition of ownership being “the moral right to categorically control something” may begin to feel like an anachronism.

The economist and activist Jeremy Rifkin recently wrote an article for the New York Times heralding “the rise of Anti-capitalism”. He argues that the “zero marginal cost economy” being driven by technological mega-trends such as the Internet of Things will increase collaboration. This will reduce the opportunities for capitalists to make profits and increase the relevance of social enterprises and non-profit organisations.

Given how this could represent a threat to megacorporations, this is a concept worth serious consideration.

Business case for rental not sales

In my mind, this highlights the potential business case for companies renting items to us rather than selling. This is the lifetime cost model versus the upfront cost model of a transaction.

Upfront cost model characteristics

  • immediate access to cash = lower risk of cash loss via customer churn or default
  • Lack of cash flow predictability
  • Upfront cost is a barrier to customer acquisition
  • Vendor has no incentive to take responsibility for maintenance or disposal of product = higher margin

Lifetime cost model characteristics

  • Lower initial cost = lower barrier to purchase = more sales
  • High predictability of cash flow
  • Greater emphasis on client relationship = greater emphasis customer service = greater chance of add-on sales/repeat business
  • Responsibility for life cycle of product (maintenance and disposal) = incentive for sustainability = better quality products made and less wastage

Can you imagine a world where, instead of buying a pair of Jeans outright, you would instead rent them? The borrower would sign up for a certain amount of time (say 5 years) and the lender would be responsible for ensuring they last the allotted length of time (perhaps offering a post-back service to have them fixed or tailored).

This business model would reduce the amount of unused, unnecessary items in circulation, would save customers money, and would allow more responsible and competent companies to thrive. I for one would be keen to see this model take off!

Internet of Things: Smart Home Security Systems and Burglar Alarms

Google recently paid $3.2 bn to acquire Nest, the makers of connected smart thermostats and smoke alarms. It is a strategic coup for the company, partly because it brings Nest’s CEO Tony Fadell on board, an engineer with a proven eye for design honed during his time as Apple where he lead the design of the iPod. However, it is also a major move as it positions Google strongly to capitalise on a new frontier: enabling web-enabled devices in the home, more commonly known as the “Internet of Things”.

This is a pretty grand ideal in theory, but what concrete, near term opportunities are there for the company to innovate? Specifically, what are the “low hanging fruit” of the Internet of Things?

Home Security System/Burglar Alarm

A prime example of a pre-digital device that is essentially redundant in its current form is the home security system or burglar alarm. Great though they must have been during an age of tight-knit local communities, the audio signal emitted when an alarm is triggered nowadays is delivered to a largely unconcerned audience. Close neighbours in big cities or even towns are largely unknown to each other, so burglar alarms tend to just add to the cacophony of the urban ether rather than acting as a call to action to apprehend burglars or call the police.

Connected Home Security Systems: the burglar alarms of the future

Features of a smart burglar alarm

A smart burglar alarm would be able to send the signal to the relevant parties by SMS, email or signal to an app on the user’s smartphone, tablet, or other connected device. In addition, GPS trackers on the devices of nominated parties (relatives, friends, and maybe the emergency services) would show the central system of the app when they are near to the house and if they are within a certain response time, they will be also sent an alert by the app so that they can intervene if the householder is too far away to do it themselves.

Nature of pre-smart alarm signal is redundant

Another critical characteristic of pre-smart burglar alarms is that the information carried by the signal is too generic to call for action in a compelling or efficient way. They are binary, with an off state (“silent”) or an on state (LOUD NOISE!!!). This leads to a confusing call to action, as there is too much ambiguity for an actor to investgiate: is there really an intrusion or is it a false alarm? Is the burglar still inside the house? Has somebody already been informed and are they already in the process of dealing with it?

A smart home security system concept

The exponential decrease in the cost of sensors means that a smart burglar alarm could actually convey more specific and hence useful data to the nominated parties, enabling a more effective call to action.

For example, the specific trigger point could be communicated (roof, ground floor windows, front door) so that the alarm points can be investigated quickly and the possibility of a false alarm ruled out in less time. Infra-red cameras could measure if there are people inside the house, counting them and perhaps even identifying them using facial recognition.

The triggering app would allow the user to see who precisely has been signalled, who has acknowledged the signal, who is acting on it, their estimated response time, and their current location.

Competitors and Innovators

Piper’s Home Security System and Mobile app interface

There are some impressive innovations in this field such as Piper and Canary, which are standalone video and sensor units acting as a “mini sentinel” in the home. Piper, which is already available for purchase, also acts as a household device controller and could therefore turn on lights in the home if signalled to do so. They both have the awesome idea of adding video to the equation, meaning that if the motion sensor is triggered, the user could immediately switch to video to see who the intruder is. I imagine the video stream could also be recorded for legal purposes in the event of a burglary.

Home CCTV enabled by Piper

Priced at $239 and $199 respectively for a single basic unit, the issue is that the devices only cover one room each, which makes them an expensive solution for a whole home, although a promising start and a massive leap forward. Canary smashed its request for crowdfunding on IndieGogo so expect to see the first units available later this year.

The miGuard alarm system from Response Electronics uses an integrated mobile phone SIM card to communicate with your phone by GSM/SMS and has a total system cost of £269.95 (about $452). This is a much more attractive price point for a whole-home system, but the technology is not smart enough to capture the full range of possibilities offered by the rapidly decreasing costs of technology and increasing connectivity of web-enabled devices.

miGuard Home Security System – schematic diagram

Other potential players

Of course, this concept is not just a possibility for Nest and the innovators outlined above, as there are other innovative technology companies who are trying to get into the smart home space.

As a Brit and Imperial college alumnus, the most notable example I can think of would be Dyson. My rationale here is that Dyson are one of the great innovators of UK industry and a global pioneer in domestic technology, highlighted by its recent partnership with Imperial College on robotic vision with a view to implementation for autonomous vacuum cleaners.

This is an intriguing partnership, given the promise of Imperial’s recent contributions to the field of Simultaneous Localisation And Mapping (SLAM) in addition to the fact that the unlocked value of Dyson’s disruption of household technology markets runs into the billions.

AlertMe, the British home monitoring controls company could also have a say in the development of this industry on the software side through their Smart Monitoring platform, linking all devices in the home.

Conclusion

A connected home security system is a complex endeavour, given all the possible flows of information and control that are being unleashed by the digital revolution. There is a range of possible ideas already in the market, addressing the various price points that could be considered by consumers.

The advantage that Nest could have if they developed a smart home security device or burglar alarm is that they already have two products on the market that could feed into it, not to mention their experience of successfully designing the necessary user interfaces and hardware for mass consumer uptake. Combined with Google’s expertise with algorithms and handling large data sets, it is a mouthwatering prospect to think what they could do together in this area.

Given the fact that smart burglar alarms will be such an improvement on the pre-digital state-of-the-art, I wouldn’t be surprised if the eggheads at Nest have already been incubating something like this for some time. This guy has even mocked up a great example of how Nest’s existing thermostat interface could be converted into a burglar alarm.

Nest’s Thermostat as a Burglar Alarm

I would not be surprised if there are further acquisitions in this sector in the coming months. These are very exciting times for this emerging technology market.