I’m no mathematician or economist, but I was fascinated when I discovered “The Clothesline Paradox.” I first heard about it in relation to the sharing economy, which is based on the idea that we don’t need to “own” everything we need or want, as long as it’s available on demand. The Internet provides the platform, and apps connect buyers with sellers.
Think Lyft and Uber, 2 paradigm breaking “taxi” or “ride-share” services, or Airbnb, which allows you to rent unique places to stay around the world, including yurts, treehouses, castles, or just a spare room. You beat the system by avoiding high hotel rates, and get to stay in neighborhoods where hotels aren’t available. And then there’s Blade, an Uber-like helicopter service offering 40-minute commutes from NYC to the Hamptons. The NY Times Sunday Styles section reports that “on the Fourth of July weekend alone, Blade ran nearly 100 trips in and out of the Hamptons.” Turns out that even multi-millionaires like to take advantage of the access and the savings the sharing economy has to offer.
But what, you ask, does this have to do with The Clothesline Paradox, a term made popular by Steve Baer in a 1974 article challenging how we quantify business value? (Sounds a little dry, I know, but hang on—it’s really fascinating.)
It’s a simple concept. Let’s say you put your clothes in the dryer. Once dry, you can measure the energy used and the cost of that energy (electricity or gas.) But if you hang those same clothes on a clothesline to dry, the energy used disappears from the economy. The job gets done, but nothing quantifies either the savings or the cost.
Thomas Friedman has been writing about the booming sharing economy for some time. He recently interviewed Brian Chesky, the founder of Airbnb. Here’s what he learned: (NY Times 7/20/14)
• It took Airbnb nearly 4 years to book its first million guests. Now, one million guests stay in an Airbnb listing every month. Today, Airbnb has over 3,000 castles, 2,000 treehouses, 900 islands and 400 lighthouses available to book. (Just try to find those on a traditional hotel website.)
• July 5, 2014 was Airbnb’s biggest night ever. “Its platform hosted over 330,000 total guests staying around the world—in thousands of cities and over 160 countries,” said Chesky. In Paris alone, nearly 20,000 people were staying in Airbnb rooms on July 5th. In 2012, that number was under 4,000.
The internet, via apps, smartphones, and social media, has hyper-connected us to each other and created a platform of trust that allows us to share just about anything. As with any disruptive innovation, there are a lot of people that are unhappy about that. Big corporations and long standing traditional models are threatened by what they see as the destruction of their profit centers. That’s why the London taxi drivers recently went on-strike in protest of Uber, and why cities are bringing lawsuits against Airbnb for violation of city rental codes. Their argument is that companies like Airbnb and Uber have an unfair advantage by not having to buy permits, pay high occupancy-rate taxes, or adhere to the same regulations imposed on the big corporations.
I see their point, but that argument only acknowledges revenues that aren’t being generated via traditional channels. It doesn’t take into account all the revenue hanging on the clothesline.
Come again? Think about all the people that Airbnb brought to Paris over the 4th of July. Those visitors, many of whom couldn’t afford the high cost of hotels, ate in cafes, went to museums, paid admission to the famous sights, and shopped in stores. Those expenditures are like the clothes drying on the clothesline; even though it can’t be quantified, value was created and money was put back into the economy all the same.
There’s another angle on this fascinating paradox. Those people renting out their spare bedrooms or giving a ride to someone who chooses not to use a taxi are making additional income that will undoubtedly find it’s way back into the economy in one form or another.
You can take advantage of the sharing economy in several ways. First, you can make money on the things you already own (your house or your car). Secondly, you can have experiences that you wouldn’t otherwise be able to find or pay for (renting that yurt or commuting by helicopter.) Thirdly, by not having to own everything you might need, you can have more experiences in total.
As with any disruptive innovation, it’s a big booming deal.