Non Social Networking and Great Start-ups


Not all online networking is social, and it’s this non social networking that has become the most disruptive to the status quo. It’s in this space that the newest, most successful start-ups are found.

The status quo in the business world consists of established industries that are inextricably intertwined with different levels of government. Examples include companies that sell to the government, like defense contractors, but less obviously also includes companies that are heavily regulated by the government, and in return are protected by special interest legislation that has erected barriers to entry. This isn’t a moral judgment on these companies, but simply the way things are, or at least ‘were’ until recently. In a growing number of instances the connectivity enabled by the Internet, and in particular by the rise and dominance of mobile devices, has broken down many barriers to entry for new companies entering previously stagnant markets, and this is where the most fascinating, thriving, high tech start-ups are found.

Here are some examples: airbnb, which used to stand for “airplanes, bed and breakfast”, is an exciting and useful new start-up with a simple business model: Want to book accommodations anywhere in the world, in either offbeat, very desirable, or cheap accommodations? Go to airbnb.com. This site matches people wanting to rent, depending upon their budget and tastes, either a room, a house, a houseboat, a penthouse apartment, or an air mattress on the floor; with people who have such spaces to rent and who would like some extra money. Now we can all be hoteliers, thanks to airbnb, which  has ccomplished all this with just a beautiful, smoothly functioning website and a small staff……but what a revolution this is in the travel industry, and for hotels in particular. Airbnb, a six year old start-up, is currently valued at about $10Bn, which is more than major, long existing hotel chains such as Hyatt are worth. Unbelievable! Go check out the site by clicking here.

The amazing thing to me is that this idea is probably worth the $10Bn. The hotel business is about as regulated as it’s possible to be, and they operate hand in glove with government—each supports the other. The government certifies that hotels are clean and safe, plus enforces many other rules and regulations, and in return collects a whole lot of tax revenue from customers, as well as plenty of fees from the hotels. Last time I booked a room in Manhattan the taxes were at least 33% of the bill……..state tax, hotel tax, city tax, county tax, meals tax; all of which doesn’t even included the hidden taxes of higher costs to offset fees paid and regulations followed by the hotels. And for all that money, the rooms, unless you are paying $1,500 a night (of which at least $500 is taxes), are nothing special. Go search for accommodations on airbnb.com, and you can stay a whole lot less expensively in much nicer places. And just like on eBay, the venues are rated so you know what you’ll get, and there are pictures galore. It’s a win/win game, with the owners of the rentals collecting extra cash, and unless I miss my bet, keeping it all by not reporting the income. Of course the only people invited to this game are the travelers and the owners of the penthouses or air mattresses. Neither the established hotels nor the government are dealt a hand in this game.

This incredibly simple but powerful idea is made possible only because we now are all wired together with mobile devices and the apps that come with them. We don’t need a travel agent, and we don’t even have to know the person we’re renting from—that’s why it’s not a “social” network—it’s just a plain old network that everyone with Internet access belongs to. All we have to do is log on the site, pick a spot to stay, pay by credit card, and show up after exchanging some emails to work out details. It’s straightforward and simple, but completely and incredibly disruptive to the status quo.

The cab industry is experiencing similar issues. Hand in hand with the government, cab companies are protected from ‘illegal competition’ (to keep us safe) by regulations and most of all, entrance fees to be able to own a cab. These entrance fees would make the most exclusive country club blush. Medallions, which are necessary to put a cab on the road in most cities, cost upwards of $1,000,000 per cab in places like NYC. It was a great gig for established cab companies and the government, but now you, as a consumer, don’t have to use a cab. Instead, visit a website for one of the start-up ‘ride sharing’ companies like Lyft, SideCar, Uber, and Gett. Just like airbnb, these firms are thriving because we’re all networked. We can log on, find someone going to wherever we’re going, and catch a ride, for a price.

The special interests (established business and government) are fighting back, but it’s a tough and probably unwinnable battle. It’s really hard to find a reason why a person can’t rent out their own living room for a few nights—after all, it’s their house, and people are electing to stay there of their own free will. Same with catching a ride…….the government has been promoting ride sharing for 20+ years, and no one complained until it started to take off, thanks to our connectedness. This is just a more formalized version of government sponsored ride sharing, and in fact the clients of these start-ups might get to work faster because they can use the HOV lanes created to encourage ride sharing.

Perhaps the most spectacular example is WhatsApp, which Facebook recently purchased for an astounding $18Bn. Talk about a disruptive business. The major carriers like Verizon, T-Mobile, and AT&T have been charging a fortune for bundled data plans that allow texting. Now all of a sudden there’s a major messaging service that charges about $3 a month, and just sends texts over the Internet. All that lobbying done by the major carriers, along with the tremendous amounts of fees collected by the government, are starting to swirl their way down the drain, once again thanks to the Internet and the non-social networks that exist. Just for the record I don’t happen to think WhatsApp was worth it, since a lot of other companies are doing, and have been doing, the same thing—it’s just messaging over IP.

What’s the takeaway from this? It’s the rise of peer to peer business transactions over non social networks. Individuals dealing directly with other individuals they don’t know, to provide services, outside of established mechanisms. Who knows where it will lead? We’ve got kayaks and live on a lake. Maybe we could start a boat sharing website. As the old joke goes, the two happiest moments in a man’s life are when he gets his first boat, and when he gets rid of it. However, if you can rent that boat and make some money at it, maybe you can stay happy with your boat relationship for your whole life and avoid ‘boat divorce’. Pet walking, car repairs, tennis lessons……the list is endless. It’s as if our connectedness has made it possible for everyone to have their own small business.

Social networks disrupted advertising and local news reporting—want to know if school for your children is canceled?—look on Facebook, which will have the news first. Digital publishing disrupted print publishing. Now it’s peer to peer networking’s turn to turn us all into small business owners.

Further reading:

The economic impact of airbnb.com

TechCrunch's take on it