Why does everyone want to be the 'Uber of something'?

Everywhere you look, there’s an Uber for something nowadays, whether it is healthcare or heavy equipment. The tremendous excitement about companies termed as Network Orchestrators makes one wonder if a dramatic discovery has been made in the world of business.

Platforms like Uber or Ola connect drivers with riders and take a share of the transaction value. Zomato or Foursquare connect restaurants with customers through an exchange of information (menus, photos, reviews, etc.); as they add advertising or delivery transactions, the platforms make money through revenue share.

Similarly, Facebook and Twitter connect people with other people or businesses through information; revenue is made through advertising or transactions.   

In essence, network orchestrators enable ‘buyers’ and ‘sellers’ to discover and transact with each other. Most of these companies are rather asset light, and their intrinsic value is a function of the number of participants in the network. If you were the only person on Facebook, zero connections would be made. Two persons would create one connection, three persons three connections, and six connections would be possible with four persons. Which means, a network of “n” participants gives rise to (n2-n)/2 connections, i.e. the number of transactions is an exponential function of the number of participants. While traditional business models grow linearly when their customer numbers increase, networks grow exponentially when their participants increase.

However, the idea of networks is not new. They have been around for centuries. We can see them all around us. Financial exchanges are networks that connect buyers and sellers of shares; telecom networks connect speakers with listeners; banks connect depositors and borrowers; and shopping malls connect stores with shoppers. Brokers, whether they be of real-estate, wedding, or acquisition deals, have been around for a while too. Someone once jokingly said that Sage Narada from Indian mythology ran the first information network.

So, what is all the excitement about? Why is there so much hype now about network models, and more importantly, why are such high valuations chasing them? There are three major reasons:

First, technology – a combination of the Internet, mobility and location-tracking – is enabling unprecedented scale to the networks. A real-estate broker was constrained by her time and also the localities which she could cover; an online brokerage has no such limitations. A retail store has constraints of time, location and (physical) space; an e-commerce site has no such issues. The use of technology and automation enables each platform to potentially reach every human being who can theoretically be targeted for that product or service; consequently, value increases exponentially.

Second, networks are being discovered in industries that were not seen as “network-friendly.” For instance, the automobile business was not considered a technology business; however, Uber is playing on the emerging mindset that customers do not need cars, they need a transportation service. Most “traditional” businesses probably have network models hidden in them; the orchestrators are just creating more efficiency and customer satisfaction, thereby taking significant market share away from incumbents.

Third, many of the traditional network businesses lost sight of their core operating model somewhere along the way. Banks, for instance, became asset heavy with lots of branches, systems and people; they are no longer efficiently connecting savings and loans. Similarly, many telecom operators moved to asset-based, monthly rental models from transaction led, per minute pricing. This has given an opportunity to new-age players to build more efficient networks. Lending Club, an online marketplace for peer lending, connects depositors and borrowers at a fraction of the cost of traditional banks. Internet-based telephony and messaging company, Whatsapp which rides on others’ telecom infrastructure and provides free services, has 800 million active users, more than any mobile operator in the world. 

Network business models are not new; neither are they technology businesses. The most successful of them use technology to accelerate their growth, discover hidden networks in traditional industries and create highly efficient, asset-light business models. Every company can gain from network business models; they just need to know where to look.

Srinivasa Addepalli is the founder of GlobalGyan, a management education firm, and is a visiting faculty at IIM Ahmedabad and NMIMS. Earlier, he was Chief Strategy Officer at Tata Communications. Twitter: @addepalli