How online marketplaces can help local economies, not hurt them

In February 2013,
my wife and I moved to Singapore.

Exactly at the same time,

Uber has announced
it started operations in the country.

Now, my wife and I
agree on a lot of things,

but using Uber was definitely
not one of them.

While I was excited about the technology

and how maybe we don't need
to own cars anymore,

she felt that every Uber car
is here to steal jobs from taxi drivers.

And Sarah was not the only one.

As the Ubers, Airbnbs
and Amazons of the world --

what we call "online marketplaces" --

as they started expanding their presence,

we have heard, all of us,
countless policymakers

worried about how to deal
with these new risks

of job destruction, lower wages
and tax leakage.

We've also heard company leaders

worried about aggressive competition
from global platforms

eating up their local businesses.

And on the rational level,
of course I understand.

After all, this is basic
supply and demand economics.

If, in any market,
you dramatically increase supply,

you should expect prices, profitability
and growth to go down

for existing players.

But in my personal experience,

I've also seen
the other side of the story.

Where online marketplaces,

like Gojek in Indonesia
or Jumia in Africa,

have helped their business ecosystems
and the communities around them.

The positive side I have seen

demonstrated itself in a woman,
a taxi driver in Egypt,

that now had the opportunity to work

without the harassment
she faced in the taxi business.

It demonstrated itself
through a village in Kenya

that got an economic boost,

because the nearby beautiful
but completely unknown lake

is now becoming
a national ecotourism spot.

Online marketplaces will continue to grow.

And they will transform the way we shop,

the way we travel

and the way we transact with each other.

So we really need to understand

where is the truth
between those two stories.

Should we expect more of the bright side

or more of the dark and worrying side?

And is there a way to get
the first without getting the second?

I believe there is.

As a strategy consultant,
I study businesses for a living.

And as a mathematician at heart,

I couldn't live with something
and its opposite being equally true.

So, I went back to fundamentals,
and I asked the question:

What do online marketplaces really do?

What do they do?

Well, at their core,

they're doing something very simple.

They match sellers and buyers.

That's it.

For drivers and passengers,

you get Uber, Grab in Southeast Asia

or DiDi in China.

For matching merchants and consumers,

you get Amazon, Alibaba
or Jumia in Africa.

And for housing, you get Airbnb;

for fundraising, you get Kickstarter --

the list goes on.

What all these examples have in common

is that they transition
this basic functionality

of matching sellers and buyers

from the physical world
to the digital world.

And by doing so,

they can find better matches,

do it faster

and ultimately, unlock
more value for everyone.

In fact, online marketplaces' core benefit

is that they get us more
from the same amount of effort.

For example,

if you're a taxi driver in San Francisco

and you decide to work 10 hours per day,

then you're actually having
a paying passenger in your car

for four hours out of the 10.

If you take the same car
and put it on a platform like Uber,

you can have paying passengers

for an additional one and a half hours.

This is the same car
becoming 40 percent more productive.

And the same has been proven true
for other online marketplaces.

By design, they create
more value for the economy.

Now, we need to figure out
who gets this additional value.

You can give it to the drivers --

more passengers, more income.

You can give it to consumers,
if you reduce prices.

Or you can decide that the platform
gets to keep all of it.

What usually happens
is that all three of them

would somehow split it.

But what about the rest of us?

We can also be impacted

without being on either sides
of this business.

If my neighbor decides
to rent his apartment on Airbnb,

and we have more people
coming in and out of the building,

more noise than usual,

then I'm getting an unpleasant side effect
of this productivity magic.

This is what economists would call
a "negative externality."

The negative externality
of Uber cars becoming more productive

is taxi drivers seeing the value
of their licenses drop

by as much as 30 percent
in New York, for example.

This is the dark side.

And this is what sparks
street demonstrations

and sometimes,
sometimes, even violence.

I profoundly believe this is avoidable.

And it became clearer to me

the more I have spent time
in emerging markets.

In fact, during my time in Singapore,

I spent half of any given week
traveling in the region,

between Malaysia, Thailand, Indonesia,

and I became a user --

actually, more of a fan --

of online marketplaces
that were not that well-known back then.

But some of them made
interesting strategic trade-offs

that dramatically reduced
their side effects,

their externalities.

Take Gojek, for example.

They're basically Uber for motor bikes.

They are one of the most liked
online marketplaces in Indonesia,

and this has a lot to do
with the role they chose to play.

Instead of picking a fight

with every other transportation
option out there,

they choose to gradually integrate them
within their own platform,

so that without leaving the Gojek app,

you can check the public
transportation schedule

and choose to take a bus
for a long distance.

Then, maybe, a motorbike
or a traditional taxi

that you can order and pay for
from within the same app.

If you look at Gojek today,

nine out of 10 previous motor taxi drivers

believe their quality of life has improved
after joining the platform.

And nine out of 10 consumers --

nine out of 10 --

believe that Gojek has a positive impact
on society in general.

Now, this level of trust
is what allowed Gojek to grow

into what is today a super
online marketplace for everything

from food to grocery

even massages and laundry pickups.

It all came from a deliberate trade-off

to be an orchestrator
of a bigger ecosystem

where others also have their role to play,

instead of a single winner, a hero,

that takes for himself what would,
at the end, be a smaller pie.

Another interesting example is Jumia.

Jumia is the equivalent
of Amazon in Africa.

But they don't generate
the same level of fear

in the small-business community.

And one of the reasons for that

is because they have decided
to actively invest

in African entrepreneurs,

to grow them into the digital age.

Now keep in mind,

Jumia is operating in countries
with some of the lowest digital literacy

and digital connectivity
scores in the world.

Now they could have dealt with that

the usual way, through
lobbying for reforms --

and they probably do that --

but they have also built Jumia University,

an e-learning platform

where merchants can come and learn
basic digital and business skills.

We have studied online marketplaces
in Africa last year.

And during that study,
we have met one of Jumia's merchants.

His name is Jomo.

He was fired from his job in 2014,

and at that time, he decided
he wanted to become his own boss.

He wanted to be independent.

He also wanted to never be fired again.

So at that time,

Jomo had no clue what a business is.

So he needed to go through
a series of trainings

to learn how to select products,
how to price them

and how to promote them online.

Today, Jomo has a 10-employee
online business.

And as of a few months ago,

he just opened his very first
brick-and-mortar shop

in the suburbs of Nairobi.

Now, through its university,

Jumia has the potential
of helping a huge number of Jomos.

And we have estimated that together
with other online marketplaces

on the continent,

they can generate three million
additional jobs by 2025.

And they would do that either directly,

or through their impact
on the wider community.

And sometimes,

taking that wider impact
into consideration

or forgetting about it

can make or break a platform.

To illustrate that,
let's go back to Singapore.

So, when we decided with my wife
to leave the country last year,

Uber decided to do the same.

At the same time,

again, we started to see that pattern,

but maybe it's a coincidence.

In reality, Uber lost
the ride-hailing battle

to a Malaysian-born start-up called Grab.

Now, interestingly,

my wife didn't have the same
level of concerns with Grab,

because when Grab started,
it had a different name.

It was called MyTeksi,

and as the name suggests,
it started as a platform for taxis.

So when Grab started expanding
the driver pool beyond taxis,

it was seen as gradual and reasonable.

They were also very careful
while doing so.

They thought of what kind
of social safety net

they should bring to all drivers.

So they put in place
special insurance packages

and even financial education programs.

Now, compare that
with what happened in London,

in New York, in Paris,

where taxi drivers didn't feel
that the platforms understood

they had to pay 200,000 euros
for their license --

and mostly in loans.

When you don't take that kind
of social environmental information

into account,

you get strong reactions.

I'm not trying to argue
that the trade-offs

by either Grab or Jumia
or Gojek are risk-free.

Did they slow down growth
at some point, temporarily?

Maybe.

But look at them today.

Gojek is worth 10 billion dollars.

Jumia is one of only three unicorns
in the whole of Africa.

And Grab, well, they pushed out Uber

out of the whole region of Southeast Asia.

And I also think these trade-offs
have nothing specific to emerging markets.

Amazon or Uber or others
can learn from them

and adapt them to their own realities.

In the long run,

this doesn't need to be a zero-sum game.

In the long run --

and this is maybe the Asian
side of me speaking --

it pays to be patient.

It pays to reconsider
your goal and your priorities

in the light of a much bigger equation

that includes you
and your users, of course,

but also it includes regulators,

policymakers, your communities.

And I would argue, above all,

it includes the very businesses
you are meant to disrupt.

Thank you.

(Applause)