In February 2013, my wife and I moved to Singapore. Exactly at the same time, Uber has announced it started operations in the country. Now, my wife and I agree on a lot of things, but using Uber was definitely not one of them. While I was excited about the technology and how maybe we don't need to own cars anymore, she felt that every Uber car is here to steal jobs from taxi drivers. And Sarah was not the only one.
As the Ubers, Airbnbs and Amazons of the world — what we call "online marketplaces" — as they started expanding their presence, we have heard, all of us, countless policymakers worried about how to deal with these new risks of job destruction, lower wages and tax leakage. We've also heard company leaders worried about aggressive competition from global platforms eating up their local businesses. And on the rational level, of course I understand. After all, this is basic supply and demand economics. If, in any market, you dramatically increase supply, you should expect prices, profitability and growth to go down for existing players.
But in my personal experience, I've also seen the other side of the story. Where online marketplaces, like Gojek in Indonesia or Jumia in Africa, have helped their business ecosystems and the communities around them. The positive side I have seen demonstrated itself in a woman, a taxi driver in Egypt, that now had the opportunity to work without the harassment she faced in the taxi business. It demonstrated itself through a village in Kenya that got an economic boost, because the nearby beautiful but completely unknown lake is now becoming a national ecotourism spot.
Online marketplaces will continue to grow. And they will transform the way we shop, the way we travel and the way we transact with each other. So we really need to understand where is the truth between those two stories. Should we expect more of the bright side or more of the dark and worrying side? And is there a way to get the first without getting the second? I believe there is.
As a strategy consultant, I study businesses for a living. And as a mathematician at heart, I couldn't live with something and its opposite being equally true. So, I went back to fundamentals, and I asked the question: What do online marketplaces really do? What do they do?
Well, at their core, they're doing something very simple. They match sellers and buyers. That's it. For drivers and passengers, you get Uber, Grab in Southeast Asia or DiDi in China. For matching merchants and consumers, you get Amazon, Alibaba or Jumia in Africa. And for housing, you get Airbnb; for fundraising, you get Kickstarter — the list goes on. What all these examples have in common is that they transition this basic functionality of matching sellers and buyers from the physical world to the digital world. And by doing so, they can find better matches, do it faster and ultimately, unlock more value for everyone. In fact, online marketplaces' core benefit is that they get us more from the same amount of effort.
For example, if you're a taxi driver in San Francisco and you decide to work 10 hours per day, then you're actually having a paying passenger in your car for four hours out of the 10. If you take the same car and put it on a platform like Uber, you can have paying passengers for an additional one and a half hours. This is the same car becoming 40 percent more productive. And the same has been proven true for other online marketplaces. By design, they create more value for the economy.
Now, we need to figure out who gets this additional value. You can give it to the drivers — more passengers, more income. You can give it to consumers, if you reduce prices. Or you can decide that the platform gets to keep all of it. What usually happens is that all three of them would somehow split it. But what about the rest of us?
We can also be impacted without being on either sides of this business. If my neighbor decides to rent his apartment on Airbnb, and we have more people coming in and out of the building, more noise than usual, then I'm getting an unpleasant side effect of this productivity magic. This is what economists would call a "negative externality." The negative externality of Uber cars becoming more productive is taxi drivers seeing the value of their licenses drop by as much as 30 percent in New York, for example. This is the dark side. And this is what sparks street demonstrations and sometimes, sometimes, even violence.
I profoundly believe this is avoidable. And it became clearer to me the more I have spent time in emerging markets. In fact, during my time in Singapore, I spent half of any given week traveling in the region, between Malaysia, Thailand, Indonesia, and I became a user — actually, more of a fan — of online marketplaces that were not that well-known back then.
But some of them made interesting strategic trade-offs that dramatically reduced their side effects, their externalities. Take Gojek, for example. They're basically Uber for motor bikes. They are one of the most liked online marketplaces in Indonesia, and this has a lot to do with the role they chose to play. Instead of picking a fight with every other transportation option out there, they choose to gradually integrate them within their own platform, so that without leaving the Gojek app, you can check the public transportation schedule and choose to take a bus for a long distance. Then, maybe, a motorbike or a traditional taxi that you can order and pay for from within the same app. If you look at Gojek today, nine out of 10 previous motor taxi drivers believe their quality of life has improved after joining the platform. And nine out of 10 consumers — nine out of 10 — believe that Gojek has a positive impact on society in general.
Now, this level of trust is what allowed Gojek to grow into what is today a super online marketplace for everything from food to grocery even massages and laundry pickups. It all came from a deliberate trade-off to be an orchestrator of a bigger ecosystem where others also have their role to play, instead of a single winner, a hero, that takes for himself what would, at the end, be a smaller pie.
Another interesting example is Jumia. Jumia is the equivalent of Amazon in Africa. But they don't generate the same level of fear in the small-business community. And one of the reasons for that is because they have decided to actively invest in African entrepreneurs, to grow them into the digital age. Now keep in mind, Jumia is operating in countries with some of the lowest digital literacy and digital connectivity scores in the world. Now they could have dealt with that the usual way, through lobbying for reforms — and they probably do that — but they have also built Jumia University, an e-learning platform where merchants can come and learn basic digital and business skills.
We have studied online marketplaces in Africa last year. And during that study, we have met one of Jumia's merchants. His name is Jomo. He was fired from his job in 2014, and at that time, he decided he wanted to become his own boss. He wanted to be independent. He also wanted to never be fired again. So at that time, Jomo had no clue what a business is. So he needed to go through a series of trainings to learn how to select products, how to price them and how to promote them online. Today, Jomo has a 10-employee online business. And as of a few months ago, he just opened his very first brick-and-mortar shop in the suburbs of Nairobi. Now, through its university, Jumia has the potential of helping a huge number of Jomos. And we have estimated that together with other online marketplaces on the continent, they can generate three million additional jobs by 2025. And they would do that either directly, or through their impact on the wider community.
And sometimes, taking that wider impact into consideration or forgetting about it can make or break a platform. To illustrate that, let's go back to Singapore. So, when we decided with my wife to leave the country last year, Uber decided to do the same. At the same time, again, we started to see that pattern, but maybe it's a coincidence. In reality, Uber lost the ride-hailing battle to a Malaysian-born start-up called Grab.
Now, interestingly, my wife didn't have the same level of concerns with Grab, because when Grab started, it had a different name. It was called MyTeksi, and as the name suggests, it started as a platform for taxis. So when Grab started expanding the driver pool beyond taxis, it was seen as gradual and reasonable. They were also very careful while doing so. They thought of what kind of social safety net they should bring to all drivers. So they put in place special insurance packages and even financial education programs.
Now, compare that with what happened in London, in New York, in Paris, where taxi drivers didn't feel that the platforms understood they had to pay 200,000 euros for their license — and mostly in loans. When you don't take that kind of social environmental information into account, you get strong reactions.
I'm not trying to argue that the trade-offs by either Grab or Jumia or Gojek are risk-free. Did they slow down growth at some point, temporarily? Maybe. But look at them today. Gojek is worth 10 billion dollars. Jumia is one of only three unicorns in the whole of Africa. And Grab, well, they pushed out Uber out of the whole region of Southeast Asia. And I also think these trade-offs have nothing specific to emerging markets. Amazon or Uber or others can learn from them and adapt them to their own realities.
In the long run, this doesn't need to be a zero-sum game. In the long run — and this is maybe the Asian side of me speaking — it pays to be patient. It pays to reconsider your goal and your priorities in the light of a much bigger equation that includes you and your users, of course, but also it includes regulators, policymakers, your communities. And I would argue, above all, it includes the very businesses you are meant to disrupt.