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Lean platforms, monopoly rents, disposable workers

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On-demand platforms are not affecting just software and consumer goods, though. One of the earliest stabs at an on-demand economy centred on manufactured goods, particularly durable goods. The most influential of these efforts was the transformation of the jet engine business from one that sold engines into one that rented thrust. The three big manufacturers – Rolls Royce, GE, and Pratt & Whitney – have all moved to this business model, with Rolls Royce leading the way in the late 1990s. The classic model of building an engine and then selling it to an airline was a relatively low margin business with high levels of competition.
Over the past 40 years the jet engine industry has been characterised by very few new companies, and no companies leaving the industry. Instead the three major firms have competed intensely among themselves by introducing incremental technological improvements, in an effort to gain an edge. This technological competition continues today, when the jet engine industry pioneers the use of additive manufacturing. (For instance, GE’s most popular jet engine has a number of parts that are now 3D printed, rather than welded together out of different components.) But margins on the engines themselves remain small, and competition tight. By contrast, the maintenance of these engines involves much higher profit margins – seven times higher, according to estimates.
The challenge with maintenance is that it is quite easy for outside competitors to come in to the market and take the profits away. This prompted Rolls Royce to introduce the ‘goods as a service’ model, whereby airlines do not purchase the jet engine but pay a fee for every hour one is used. In turn, Rolls Royce provides maintenance and replacement parts.
The raw material of data remains as central to this platform as to any other. Sensors are placed on all the engines and massive amounts of data are extracted from every flight, combined with weather data and information on air traffic control, and sent to a command centre in the United Kingdom. Information on the wear and tear on engines, possible problems, and times for scheduling maintenance are all derived. These data are immensely useful in blocking out competitors and in securing a competitive advantage against any outside maintenance firm that may hope to break into the market. Data on how the engines perform have also been crucial for developing new models: they enabled Rolls Royce to improve fuel efficiency and to increase the life of the engines, and generated another competitive advantage over other jet engine manufacturers. Once again, platforms appear as an optimal form for extracting data and using them to gain an edge over competitors. Data and the network effects of extracting them have enabled the company to establish dominance.
In the context of everything that has just been described, it is hard not to regard the new lean platforms as a retrogression to the earliest stages of the internet-enabled economy. Whereas the previous platforms have all developed business models that generate profits in some way, today’s lean platforms have returned to the ‘growth before profit’ model of the 1990s. Companies like Uber and Airbnb have rapidly become household names and have come to epitomise this revived business model. These platforms range from specialised firms for a variety of services (cleaning, house calls from physicians, grocery shopping, plumbing, and so on) to more general marketplaces like TaskRabbit and Mechanical Turk, which provide a variety of services. All of them, however, attempt to establish themselves as the platform upon which users, customers, and workers can meet. Why are they ‘lean’ platforms? The answer lies in an oft-quoted observation: ‘Uber, the world’s largest taxi company, owns no vehicles […] and Airbnb, the largest accommodation provider, owns no property.’ It would seem that these are asset-less companies; we might call them virtual platforms. Yet the key is that they do own the most important asset: the platform of software and data analytics. Lean platforms operate through a hyper-outsourced model, whereby workers are outsourced, fixed capital is outsourced, maintenance costs are outsourced, and training is outsourced. All that remains is a bare extractive minimum – control over the platform that enables a monopoly rent to be gained.
The most notorious part of these firms is their outsourcing of workers. In America, these platforms legally understand their workers as ‘independent contractors’ rather than ‘employees’. This enables the companies to save around 30 per cent on labour costs by cutting out benefits, overtime, sick days, and other costs. It also means outsourcing training costs, since training is only permitted for employees; and this process has led to alternatives forms of control via reputation systems, which often transmit the gendered and racist biases of society. Contractors are then paid by the task: a cut of every ride from Uber, of every rental from Airbnb, of every task fulfilled on Mechanical Turk. Given the reduction in labour costs provided by such an approach, it is no wonder that Marx wrote that the ‘piece-wage is the form of wages most in harmony with the capitalist mode of production’. Yet, as we have seen, this outsourcing of labour is part of a broader and longer outsourcing trend, which took hold in the 1970s. Jobs involving tradable goods were the first to be outsourced, while impersonal services were the next to go. In the 1990s Nike became a corporate ideal for contracting out, in that it contracted much of its labour to others. Rather than adopting vertical integration, Nike was premised upon the existence of a small core of designers and branders, who then outsourced the manufacturing of their goods to other companies. As a result, by 1996 people were already voicing concerns that we were transitioning to ‘a “just-in-time” age of “disposable” workers’.
Whereas firms once had to spend large amounts to invest in the computing equipment and expertise needed for their businesses, today’s start-ups have flourished because they can simply rent hardware and software from the cloud. As a result, Airbnb, Slack, Uber, and many other start-ups use AWS. Uber further relies on Google for mapping, Twilio for texting, SendGrid for emailing, and Braintree for payments: it is a lean platform built on other platforms. These companies have also offloaded costs from their balance sheets and shifted them to their workers: things like investment costs (accommodations for Airbnb, vehicles for Uber and Lyft), maintenance costs, insurance costs, and depreciation costs. Firms such as Instacart (which delivers groceries) have also outsourced delivery costs to food suppliers (e.g. Pepsi) and to retailers (e.g. Whole Foods) in return for advertising space. However, even with this support, Instacart remains unprofitable on 60 per cent of its business, and that is before the rather large costs of office space or the salaries of its core team are taken into account. The lack of profitability has led to the predictable measure of cutting back on wages – a notably widespread phenomenon among lean platforms.
Ref: Platform Capitalism, Nick S.

Written by amitdipsite

November 2, 2017 at 8:47 pm

Posted in Uncategorized

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