It took Airbnb only five years to reach $10 billion in valuation, half the time as LinkedIn and less a third the time as Chipotle Mexican Grill. Why? That is the question I have been asking myself all summer... Back in early June I published an article titled Social Capital: The Secret Behind Airbnb and Uber. As shown below, the higher a company moves up the Social Economy Pyramid, the faster the rate of value acceleration as it is able to access multiple social value drivers. But to be honest, I felt like a bit of a fraud as I didn't actually understand what was driving the $10 billion valuation of Airbnb and the $18 billion valuation of Uber, I just knew somehow they were defying the laws of traditional economics.

The Social Economy Pyramid: Years to Reach $10 Billion Valuation Mark

Note: $10B valuation is based on market capitalization for public companies and private valuation for Airbnb and Uber, Starbucks took 16 years to reach $10B valuation from the date Howard Schultz joined the company Source: Brady Capital Research, Bloomberg, Company press releases

Web 2.0 Laid the Foundation for a New Form of Commerce

This compelled me to do a crash refresher course in microeconomics, which I hadn’t looked at since I studied for the CFA (Chartered Financial Analyst) exam back in the mid-1990s. Back then, the world of commerce was very different - the Internet was still new, the start-up Amazon was an online bookstore, and the dotcom wave was just starting to rise. I was oblivious to all this, however, as I was living in the Industrial Age, working as an Associate Analyst looking at forest products, oil and gas, and auto companies. Fast-forward a decade… In early 2010, I embarked on a 2 1/2 month road trip with my fiancé around the United States, attending the SXSW Interactive Conference in Austin and the #140 Conference in New York City. These conferences opened my eyes to how Web 2.0 companies (user-generated content and social networking companies) were going below the depths of corporate ecommerce to create a new undersea social world of transparency, authenticity, and engagement focused on individual empowerment, community, and collaboration. And this summer, as I immersed myself in the new Sharing Economy, I realized how the massive global network of highly connected individuals created by these Web 2.0 companies laid the foundation for the emergence of a diverse and self-sustaining ecosystem that now enables people to transact beyond the depths of the corporate ocean.

Where the Long Tail Meets the Blue Ocean

Two of my all-time favorite business strategy books are “Blue Ocean Strategy” and “The Long Tail”. But it wasn’t until I re-read my notes on them this summer, that I realized companies like Airbnb and Uber are accessing not only what W. Chan Kim and Renee Mauborgne refer to as “blue oceans” of market demand, but also discovering what Chris Anderson refers to as new “long tails" of supply, with no capital or time constraints. The result is abundance in both demand and supply, inspiring the title for our new in-depth research report “The Abundance Economy: Where the Long Tail Meets the Blue Ocean”. In simple terms, the Abundance Economy is comprised of companies with two-sided markets that enable people and businesses to monetize under-utilized/latent assets, goods, and services by providing them with structural and customer capital. And while the definition of economics (i.e. the science of choice under scarcity) works for Industrial Era companies, it longer applies in this new world of abundance. So we came up with a new term - introducing "copianomics”: the science of choice under abundance.

A Deep Dive into the Top Fifty Abundance Economy Companies

In our in-depth research report, we categorize the top fifty Abundance Economy companies on the basis of the source of their value origination into five classes:
  • Assets – Short-term rentals of homes, cars, boats, commercial space
  • Goods – Reselling apparel through the new Closet Sharing Economy
  • Delivery Services – On-demand goods delivery and personal chauffeuring
  • Commodity Services – On-demand home and caregiver services
  • Specialized Services – Online marketplaces for specialized skill providers
To gain insights into the potential for each company to achieve abundance, we developed a qualitative analytical framework featuring ten economic characteristics. Based on this, the most attractive classes are Assets and Specialized Services, with the top-scoring companies being Airbnb, RelayRides, PivotDesk,Storefront, Uber, Lyft, Vayable, Good Eggs, and Sherpaa. We note Getaround,etsy, Gumroad, Skillshare, and Quirky also ranked favorably in terms of their competitive position. The most challenged companies, which we expect to face an increasing competitive environment, appear to be the “Closet Sharing Economy” companies in the Goods class, the goods Delivery Service companies, and the household/caregiver Commodity Services companies.

The Disruptive Power of Abundance

In only six years, Airbnb has created a long tail of over 800,000 listings, surpassing the 690,000 hotel rooms of nearly century-old hospitality company, Hilton Worldwide. And Airbnb’s potential to disrupt the $163 billion US lodging industry is massive given the exponential size of the long tail relative to the head (e.g. 4.9 million guestrooms represent less than 4% of 133 million personal homes) and the fact that Airbnb only has 148,000 listings, or 0.1% penetration of this tail.   In only five years, Uber has expanded its operations to 205 cities in 45 countries and is adding drivers at a current rate of 50,000 per month. Unlike Airbnb, Uber is not just creating a long tail, it is aggressively attacking the existing global taxi infrastructure on both the supply side (i.e. taxi drivers) and demand side (i.e. taxi passengers) and setting out to completely destroy the highly fragmented privately owned taxi companies swimming in the corporate ocean. And along with car-sharing companies Getaround and RelayRides and its competitors, Lyft and and Sidecar, Uber is also threatening to disrupt the $24.5 billion US car rental marketplace as the 1.96 million fleet of rental vehicles represents less than 1% of the long tail of 254 million registered personal vehicles which are parked 95% of the time. And if we see an accelerating structural shift from ownership to access, this could reduce future demand for new vehicles, disrupting the $480 billion auto industry.

The Smart Money is Starting to Flow to the Abundance Economy

The top fifty US Abundance Economy companies have raised a total of $4.6 billion to-date from over 130 venture capital firms, with Airbnb and Uber accounting for half of this and 20% of the firms investing in three or more companies. And with the upcoming IPO of Lending Club and the potential IPOs of Airbnb and Uber, we expect to see a lot more investor interest in this space, especially from growth-oriented institutional investors. And this nascent and exponentially growing space still offers attractive opportunities for entrepreneurs looking to build the next “Airbnb of” or “Uber of”, especially in the Assets and Specialized Services classes. In my two decades of looking at and valuing companies in a wide range of sectors, I have never been as fascinated about researching a space as the Abundance Economy. It is refreshing to come across a universe of highly innovative and disruptive companies founded by social mission-driven entrepreneurs. I am excited to dive deeper into how this new form of commerce provides the Abundance Economy companies with the unique power to achieve accelerated value creation as they crush the economic moats of incumbents and defy the laws of traditional economics. Disclaimer: I have a LONG position in Chipotle Mexican Grill Inc. (CMG-NASDAQ), LinkedIn Corporation (LNKD-NYSE), Starbucks Corporation (SBUX-NASDAQ), and Zillow Inc. (Z-NASDAQ). A special thanks to Nikhil Anand, our summer intern Research Associate, who is now back at the Rotman School of Management, University of Toronto finishing up his MBA.