The Future, This Week 23 June 2017

Introduction: The Future, This Week Sydney Business Insights. Do we introduce ourselves? I'm Sandra Peter, I'm Kai Riemer. Once a week we're going to get together and talk about the business news of the week. There's a whole lot I can talk about. OK, let's do this. 

Kai: Today in The Future, This Week: rogue bikes, Amazon Wholefoods and the exorcism of Uber. 

Sandra: I'm Sandra Peter. I'm the director of Sydney Business Insights. 

Kai: I'm Kai Riemer. I'm a professor here at the business school. I'm also the leader of the Digital Disruption Research Group.

Sandra: The Future, This Week is travelling this week. I'm going from Nanjing to Shanghai currently at 274 kilometres an hour. And Kai is joining us from Greece. 

Kai: Yes I'm in Greece at a conference and so this is a bit of an experiment. We're coming straight from the future to you this week but we have a few short stories for you none the less. So Sandra what happened in the future this week? 

Sandra: Rogue bikes. So we're going to talk about ride sharing. Bicycle sharing has been a phenomenon around the world since about 2007 when Paris had its first bike sharing scheme, ride sharing scheme where private citizens can borrow bikes that the city will provide then ride them and leave them in designated bays and since then it's been widespread around the world with places like San Francisco and London and Australia (Melbourne and Brisbane) joining and also all of China joining in on the bike. But what we're talking about today is rogue bikes so this private ride sharing bicycle companies where private companies without discussion or coordination with the local government or with any other companies provide bikes around the world. So we're seeing this in San Francisco with companies like Blue Gogo that entered without a permit. And in China where I am at the moment they're very widely spread with companies like Ofo and Mobike. Mobike has got a million bikes since the beginning of this year alone. 

Kai: So the article that we're discussing this week is in broadsheet.com.au and it talks about Sydney. So Sydney gets its first bike sharing service next month it says. And it's one that is fully smartphone controlled so there's no docks, there's no chains, bikes will be anywhere in the city where people leave them and you basically use your smartphone to find a bike to unlock the bike. It's all GPS tracked. It's all very convenient and it's launching soon. It's done by a graduate from University of Technology and it's supposed to be one of many to follow and that is one of the problems that are being discussed in the media at the moment is that this is really not something that is well planned or that is in accordance with city planning this is just happening because private operators are bringing these services in. And we've seen in China that it can become very crowded in this space literally. 

Sandra: Yep so in China as you've mentioned we're seeing these bike sharing schemes that are dockless unlike the ones that you would have around Europe where you have to return the bike to a specific docking station, in China the nonofficial bikes that are being shared only require the app as you mentioned that reads a QR code on the back of the bicycle you get messaged a combination and then you unlock the bike you ride it to wherever you want it and then you just drop it wherever on the side of the road. 

Now what's happened with this is that of course bikes are no longer equally distributed around the cities so you have areas around the CBDs or around tourist areas where bikes are clogging the areas. And also you have quite a few vacant lots where thousands and thousands of these bikes are being dumped by nobody knows who yet, probably the moped drivers who are losing business because of the bike sharing schemes because people no longer rent them for short trips that they used to use them for. So this raises a number of questions for us overall. First is around the financial viability of these bike sharing schemes. So in terms of financial viability in the US for instance in San Francisco for these bike shares and this will be true for Australia as well in order for them to break even they would need about four rides a day for every single bike and they would have to last for at least a couple of years to be financially viable which at the moment is not necessarily something that we're seeing happen especially with the numbers of these companies that are coming up. The second issue is in cities around China and let's not forget that 13 of the 15 largest bike sharing cities are in China. So for instance Hangzhou which is about an hour from Shanghai is just slightly larger than London and London is one of the successful bike sharing cities in Europe. So it's a slightly bigger than London but it has five times as many bikes as London. However they've got quite big problems with user education. 

So where do you leave the bikes and people leave them behind locked doors or just leave them on the side of the road where they interfere with pedestrian traffic or other kinds of traffic so the government is spending quite a bit of money on user education for instance painting bays where people would leave the bikes so that they don't interfere with the pedestrian traffic or with car traffic for that matter so that they do not break the bikes. So the savings that you would get in cities like Copenhagen the savings from people using the bikes that would pay for the infrastructure and everything else is not really returned in the same way in these cities. 

Kai: So there are some questions about the viability of all of this whether those private operators can actually break even and let's not forget that there's costs involved. So these companies have to employ people who fix the bikes, who collect bikes and redistribute them when people leave them in undesirable places and the question is then can those jobs be any good and be above the minimum wage and does this all work out. And the comparison that one of the articles makes is between city run schemes and the private operators. So those city run schemes they're not exactly new in some cities like Paris they have existed for a decade now and they're actually quite successful. So the article makes the point that integrating ride sharing into city planning and treating them as an infrastructure that allows cities to improve the quality of life across its various suburbs is something that can be really quite desirable, that can also be a scheme to create jobs in low income areas. So it can be something that is really benefiting the community. And the point that is being made is that rogue operators, private operators, can get in the way of this goal of using bike sharing as a way for social good because they might not be interested to distribute bikes in areas where they might be most needed in low income areas. They might actually be only interested in putting them in the CBD high income areas where professionals will use them for short rides in high tourist areas and in those areas we might see a glut of those operators and then a lot of competition which will serve no one in the end.

So the article raises the point that really this should be something that is being coordinated with the cities because it might also lead to just having lots of bikes in places where they just clog up walkways and things like that. So what are we going to do about this? 

Sandra: So it will be interesting to see because as we mentioned before Blue Gogo which is one of the Chinese companies have controversially started operations in San Francisco without this official permission and Mobike which is another company is targeting London where we already have bike sharing schemes in places like Birmingham and Manchester and I think also it's on its way to Cambridge. So it will be interesting to see the interplay and whether eventually these bike sharing companies do start working with the government. So we've seen some strides in that respect with companies like Mobike actually trying to implement a credit system where you get deducted points if you damage the bike or if you dump it in a location that is inappropriate and so on to try to link the price of renting that bike to your quality as a rider of the bike but it's slow progress at the moment. 

Kai: So there's no doubt that bikes are an important part of the puzzle in solving the transport problems in large cities and I think Australian cities Sydney in particular are in dire need of solutions and I'm also very fond of bikes. I spend a lot of my time in Muenster Germany which is very much a bike city where on average every citizen of Muenster has two point something bikes so everyone has a good bike and a work bike. 

Sandra: Same for me I moved from the Netherlands where everybody rides a bike and it's quite common sense. There I think a big difference for where we're used to riding bikes to Australia which is the helmet laws. None of these companies actually offer the helmets. 

Kai: No that's not quite true. There's one that I saw where the helmet will be in the basket on the bike and you unlock the helmet and can take it out of the basket when you unlock the bike with your smartphone app so there is some solutions to that but it's just one more thing that can break, that can get lost and time will tell whether they actually...

Sandra:...That needs to fit your head.

Kai: Yeah absolutely. But also there's a bigger problem because in cities in the Netherlands or in Muenster for example there's bike paths everywhere and bikes have the right of way at many intersections. That's far from the case in Sydney where literally put your life on the line in places where people are just not used to bikes on the streets or just not tolerant of bikes in the street. And so it remains to be seen to what extent bikes will catch on in the Sydney CBD and the inner suburbs. But it's also an open question around what will be the best model for doing this. So if we look at the terminology around this people call it bike sharing but it's really bike rental because those bikes are owned by a company and you just rent them and you pay for it on your smartphone. when we look at the car sharing or car rental then of course we have traditional car rental companies but we also have car sharing such as Go Get in Sydney which is more like the communal models for bike sharing... 

Sandra: Like Bla Bla car and friends. 

Kai: Yeah. Bikes are actually owned by a community so it's a membership model so people jointly own those bikes or cars and then you can actually access those bikes so it's a much less transactional, more of a relationship membership model. And it's also serving the members so any proceeds go back to the membership pool. And so there's no external party who wants to make a profit from these services so it's a very different model that is more around sharing and social good in city development. So it's an open question to what extent those private or rogue bike companies will have a role to play in solving this problem and putting more bikes on the streets. So while every individual company that comes in can argue that yes putting more bikes on the street is actually a good thing at this point in time. Long term having a lot of these companies stream into the market might actually be counterproductive. 

Sandra: Long term to be successful and equitable, people from all areas both high income and low income neighbourhoods must be able to find a safe bike and a high quality bike and have sufficient coverage to be able to use it for transport at a cost that is actually not prohibitive.

Kai: By and large we think this is an interesting case of smartphone technology digital technology are trying to help solve an important transport problem. And of course these transport problems need solving and bikes will be an important component but the jury is still out on which model is the best one. 

Sandra: So our story for this week is Amazon buying Wholefoods for $13.7bn. This was the big news that's come out earlier this week where the online retail giant Amazon is buying Wholefoods and we've got an article in BBC pretty much outlining that Amazon is now going into traditional retailing by buying Wholefoods. Wholefoods of course was a pioneer in doing natural and organic foods and has started out of the US out of Texas and it's got now a few hundred stores across the US and Canada and the U.K. And it's employing almost 100,000 people. 

Kai: So this is a big deal not just because it made news in almost every media outlet. 

Sandra: Literally a big deal. 

Kai: Yes literally a big deal in terms of dollar value. It has really set the Internet alive. There's a lot of memes on Twitter quite hilarious really. People commenting on you know I just spend 14 billion dollars at Wholefoods and all I got was a bottle of almond milk. So commenting on the fact that Amazon is buying a very high priced retailer there but there's a bigger story to this right in the development of an online retailer buying one of the well known so to speak offline retail brands. 

Sandra: So the question here is first of all why is this happening. So why did Amazon go and buy really what is one of by far their largest acquisition yet. So Wholefoods 14 billions and then the next one down would be probably something like Zappos or Alexa. All of which are a billion or under, so very sizable investment in the area where they have made earlier strides things like Amazon Fresh and opening pick up stores in Seattle and so on. 

Kai: Yes so for many this is the growing up of e-commerce, of online retail which means we can just scrap the online. Amazon is now a retailer. Their competition is no longer other e-commerce companies it's now Walmart, it's now the biggest retailers in the world in any market that they engage in it's a signal that yes this is starting in the U.S. but we're coming for other retailers in other markets as well. 

Sandra: So Amazon for quite awhile has had the mission of anything you might want to buy online they will have it. And now they've moved towards the earth's most customer centric company. So first this move really comes at the end of repeated moves by online service providers and really Amazon is a service provider rather than a retailer. And on the other hand moves by companies like Walmart and even whole foods are doing large scale technology investment to try to meet somewhere in the middle to try to create these hybrids that would exist in the online space as well as in real spaces. 

Kai: Yes it's finally doing away with the distinction between online and offline. So it's signalling that any retailer going forward will have to be in both spaces and they're really blending. And so Amazon is filling a gap in its portfolio because they were able to compete with Walmart in every aspect other than food. And so Wholefoods is a first step in filling that gap and becoming a full range retailer.

Sandra: So this can also be seen as a turning point really for the economics of these major industries where there really is one winner takes it all and something the size of Amazon with now Wholefoods has such positive returns to scale that there really is no competition. On the other hand for Amazon this is also the moment to really acquire another customer so we can think of whole foods as really a customer for Amazon because what Amazon does is about 40 percent of sales on Amazon are really by third party retailers and are fulfilled by Amazon but are not directly sold by Amazon. 

So you can think of Wholefoods as just another customer that now Amazon has added to this ever growing number of retailers and you can think of this as the starting point for Amazon where Amazon could add for instance home delivery. Because right now it has acquired Wholefoods but it could move more into home delivery. It could also become a supplier for instance for restaurants or other things. But really what it has managed to do is to get access to customers who would be doing their grocery shopping elsewhere. And now the problem with grocery shopping is that if it makes up almost a quarter of what we spend our money on then this would be a huge problem for Amazon in the long run because these customers could be swayed by other organisations such as Wholefoods for instance trying to move into that space and then adding a whole other range of services.

Kai: Yeah. So the point is that when we're going out shopping so every opportunity to shop and spend money most of those opportunities relate to grocery shopping. So if you're going to Walmart or places where you do your grocery shopping they basically have access to the customers so they have then the opportunity to upsell them with other things that are non-food items. And we see this with Aldi doing this very successfully adding non-food specials every week to their food shopping. So really this is about access to customers more so than adding the extra income from grocery shopping which let's face it grocery shopping has razor thin margins so it's not for the actual profit that they make from grocery shopping alone. It's really the bigger picture that they're after the contact with the customer and the creation of opportunities to sell to the customers.

Sandra: And we see, indeed you brought up Aldi, we do see this as already signalling to the market that winner takes it all proposition that we discussed earlier might be a real threat. So on the day that this deal was announced it pretty much wiped 22 billion dollars from other retail grocers in the US and it added about three billion dollars worth to Wholefoods which really makes it worth it now. 

Kai: Yeah absolutely. So to wrap this story up we also want to point out that this is part of a bigger picture phenomenon whereby the distinctions between online and offline, between new economy old economy, between innovative business models and the more traditional business models are being blurred and we see this in the media industry, in entertainment. There was an other article in Wired this week talking about how Netflix is becoming more like HBO going into programming and having to deal with the mixed success of some of their TV series. So really what we're seeing is the growing up of digital and the way in which digital is becoming the new normal across a range of industries.

Sandra: And indeed Amazon might be on its way to becoming the first trillion dollar company. 

Kai: So speaking of growing up the last story is about Uber finally outgrowing its start up bro culture with the resignation of its CEO Travis Kalanick. 

Sandra: This has come at the end of a very long line of scandals and problems for Uber that have stemmed out of a range of issues whether it was hiring practices or sexual harassment discrimination not treating their Viber partners as they should, not cooperating with local cities and local governments and so on. 

Kai: So really a range of scandals and breaking of the law.

Sandra: So Travis resigning after he had decided to take a break to rethink Uber and Uber 2.0 and himself 2.0 has come after a period when Uber really had an almost unchecked power in its founder and basically the ability to decide and let's remember Uber is now worth 60 or 70 billion dollars. So really unchecked power to decide what he wants the company to do and how he wants to achieve what he wants to achieve.

And the interesting thing is that regardless of how many bad things we have read about Uber in the media and that these are not new stories we've seen these stories late last year and all the way this year just coming up one after another. Really people haven't been unsubscribing from Uber they've still been using the service and over all the company has still been doing quite well. So the question that we want to ask yeah I think is really how come that we know of all of these things we disagree with everything that has happened here whether it's the morality of it or the economics of it and so on and so forth but still choose to use the service. 

Kai: So while there was recently a couple of articles that basically made the point that many people don't care about all these scandals as long as Uber is successful. I think we finally reached a tipping point where those problems could no longer be ignored where even the most stoic investors had to face up with reality that the culture is counterproductive. What they do is counterproductive and that this is really not the way in which a company should be run. And so on the back of this commentary has changed a lot and there was an article in Blomberg which basically made the point that every one of us using Uber, ignoring Uber or even the media commenting on Uber is to blame for what has happened. That this is really something that we can't just externalise we can't just turn around and say oh look at Uber, they're so terrible. So the point is that it's really on all of us who have been using Uber for its convenience and its simplicity that we're all complicit in creating the monster that Uber has become and that therefore we all have a role to play in humanising this monster and trying to tame the monster. There was some strong language being used in one of the articles right. 

Sandra: Yes indeed Time magazine mentioned the Holder Report which was looking into all the problems that Uber had internally and it mentioned that the Holder Report in the end didn't recommend reform as much as it recommended exorcism which is pretty much what we've seen now with Travis resigning.

Kai: Yes. Some strong language being used finally in recognition of what has become an untenable situation in a company that for a long time was the poster child of Silicon Valley innovation that has fallen from grace. 

But at the same time has become an exemplar and an archetype for a start up culture gone wrong really the dark side of the pressure cooker environment that is Silicon Valley and the anything it takes attitude to grow, to win, to break into markets and to outsmart or in that case basically cheat your competitors out of the market. 

Sandra: So I think it is important to point the finger not just that Uber but all the other stakeholders in this. So if we think about the press in general we tend to glorify technology and glorify disruption and Uber did as you mentioned was the poster child for disruption. We also tend to glorify the CEOs that are pushing the envelope. So think about not just Travis but people like Steve Jobs earlier that eventually changed but in the beginning they were CEOs who rocked the boat who challenged the established status quo. Aside from the press we also see investors who really have given unchecked power these founder friendly investments as they're called where the economics of it really trump the morality of it. And we the users of the service are somewhat to blame as well. I use Uber quite extensively and much like we use the iPhones that might be made in China where we don't tend to care about the conditions under which they are made or the wages that are paid to the people making them. A similar situation we see in the case of Uber. So it's really a bigger picture problem rather than just one company or once a year. 

Kai: So Sandra this has been an interesting experiment you travelling at 270 kilometres an hour somewhere in China and me being on a Greek island is really pushing the envelope of what you can do with modern technology and recording a podcast. And we hope you will enjoy whatever we could master here at a distance during this podcast.

Sandra: And that goes to show you that you can do all kinds of shit with technology these days. 

Kai: And as always...

Sandra: But we can't finish this without the one segment can we.

Kai: No, that's right. So we will finish this with this.

Robot: Robot of the Week.

Kai: So the Robot of the Week is Japanese sumo bots and they are hilarious. Two bots fighting it out in a makeshift sumo ring in front of an audience and camera. And those little things boy they are fast.

Audio playing 

Sandra: So much like you would watch to a large man in little loincloths imagine two robots doing the complete opposite trying to go at this at lightning fast speeds and with no loincloths. So it's so much like Andrew Collins who wrote this article. The two of us are still giggling at the spastic violence in the corner of our screen. Just watching these little monsters go at each other. 

Kai: Yeah so you really need to watch this video and we're reposting the link in the show notes and that's all we have time for. Thanks for being part of this experiment of The Future This Week. 

Sandra: Thank you for listening. 

Outro: This was The Future, This Week brought to you by Sydney Business Insights and the Digital Disruption Research Group. You can subscribe to this podcast on SoundCloud, itunes or wherever you get your podcast. You can follow us online, on Twitter and on Flipboard. If you have any news you want to please send them to sbi@sydney.edu.au.