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PHIL HARDWICK — ‘Connectors’ are where the new profits are found

PHIL HARDWICK

PHIL HARDWICK

One of the benefits of international travel is to experience more of the local flavor by staying in someone’s home or apartment instead of a hotel. These days it is relatively easy to connect with someone who will let you stay in a room in their home, rent the entire home to you or just let you sleep on their sofa. Websites such as tripadvisor.com, vrbo.com and homeawy.com that find a property for you and connect you to your host are rather plentiful and easy to use.

My wife and I have used all of the above websites for travel in the United States. Two years ago we decided to try Airbnb for visits to Germany and Austria. Airbnb.com allows the user to search properties that have been listed by their owners. The search results include everything from photos, to location maps to rate information. What I place most credence in is the reviews section on the websites. There one can find comments and reviews about the property and the host. For our trip to Germany we connected with the owner of an apartment building in Munich about rates and available dates. An agreement was made and I paid a deposit through the Airbnb website, but then when we arrived paid the balance directly to owner. Upon arrival, our host met us and instructed us on the particulars of the building, gave us tips on things to do and even had some pastries and wine waiting for us. When we departed a few days later we wrote a review of our stay on the Airbnb website and the owner wrote a review of us. A very pleasant experience indeed, and only the first of several times we have used Airbnb. I figure we have saved hundreds of dollars and met interesting and wonderful people we would never have done so had we stayed in a hotel.

Have you noticed the surge in these new type of companies? I call them the connectors. They are companies that get their revenue not from selling a product or service directly to the consumer, but from putting two parties to a transaction together. Not only are existing ones growing, there are more entering the marketplace. Examples of these connectors are Airbnb, Angie’s List, Alibaba, Uber, Travelocity, Kayak and so on.

And they are growing fast. Airbnb is now the largest accommodation provider in the world, but it owns no real estate. Uber, the world’s largest taxi service, owns no cars. Alibaba, perhaps the world’s largest retailer, carries no merchandise inhouse. Facebook, now the world’s most popular media company, creates no content.

This is not to say that connectors have not been around for a long time. I’m most familiar with real estate brokers. They do not own the real estate or buy the real estate. They simply put the buyer and seller together and earn revenue from doing so. They are also required to be licensed and they are defined in state law as follows:

“The term “real estate broker” within the meaning of this chapter shall include all persons, partnerships, associations and corporations, foreign and domestic, who for a fee, commission or other valuable consideration, or who with the intention or expectation of receiving or collecting the same, list, sell, purchase, exchange, rent, lease, manage or auction any real estate, or the improvements thereon, including options; or who negotiate or attempt to negotiate any such activity; or who advertise or hold themselves out as engaged in such activities; or who direct or assist in the procuring of a purchaser or prospect calculated or intended to result in a real estate transaction.”

Real estate brokers and agents are a bit different from the more recent connectors because they actually represent one of the parties in the transaction. These new connectors are merely facilitators. And their revenues are growing. Airbnb is approaching $1 billion in revenues. Uber, which connects taxi drivers and riders and keeps 20 percent of the tab, was projected to hit $2 billion in revenue in 2015. Angie’s List, which connects “high quality service companies and health care professionals” with member consumers, reported 2015 third quarter revenue of $87 million.

These connectors are also known as disrupters because they “disrupt” the traditional transactions that they replace. One of the reasons for doing so is that connectors seem to thrive in markets where there are perceived to be high prices and unreliable services. Also, they do not have to invest directly in the product or service, only the consumer interface portion of the transaction, i.e. software and marketing.

What’s the future of connectors? Don’t be surprised to see the original connectors begin lobbying for regulation and licensing when newer connectors come along and disrupt the disruptors. That’s because regulation makes it more difficult for newer entries to the marketplace. That’s what happened in the real estate brokerage industry.

Finally, think about how your business might be affected by a connector. Is there a way that a connector could bring more customers to you? Are there parts of your business that could even become a connector?

We are living in rapidly changing times. Connectors are accelerating that change.

» Phil Hardwick is a regular Mississippi Business Journal columnist and owner of Hardwick & Associates, LLC, which provides strategic planning facilitation and leadership training services. His email is phil@philhardwick. com and he’s on the web at www.philhardwick.com.

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About Phil Hardwick

10 comments

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  7. These same apartment cleaning services Los Angeles use 100% biodegradable and green products.
    The places that are found in this lovely area
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    To begin with, you would need an office, some people who will clean the apartments and also some cleaning
    equipments.

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