I recently saw this chart on the valuation of the top ten startups, and I was floored!
Leading the list is Uber Technologies, a transportation networking company that develops and operates the Uber mobile app. This app allows consumers with smart phones to book a ride with Uber drivers who use their own cars. Uber was founded in 2009 and the first app was available in June of 2010. It started in San Francisco and is now in 58 countries and over 300 cities.
Xiaomi, Inc. is a privately owned Chinese electronics company that is currently the third or fourth largest smartphone company in the world. It has been selling Android based smart phones nearly at cost since 2011. It sells phones in some of the most populous countries in the world like, China, India, and Indonesia, as well as Malaysia, Singapore, Philippines, and Brazil. The company uses the hardware sales just as a means of delivering software and services, and considers themselves to be an Internet and software company. They sell through their online store and market through social networking. They have a “Design as you Build” process that can incorporate customer’s requests in a matter of weeks.
Airbnb was started in 2008 by two people who initially rented out three air mattresses in their living room and included home made breakfast so that they could afford the rent of their San Francisco loft. Initially called AirBed and Breakfast, they changed the name to Airbnb and created a website for people to list, find, and rent lodgings in over 34,000 cities in 190 countries. Earlier this year when the United States began to ease the embargo on Cuba, Airbnb was up and booking lodgings in Cuba by April, servicing the huge pent up demand for expats, business men, and tourists to travel there. How long will it take for traditional hotels to be in Cuba? What if the traditional hospitality businesses built hotels in Cuba and the political situation in the United States changes and the embargo is re-established? These businesses would have millions of dollars of capital assets locked up in Cuba, while Airbnb would simply close down their website.
The list goes on with many of these ten startups being in existence for less than 8 years. The exceptions are Palantir(2004) and SpaceX(2002). But even these exceptions are young for companies that have a valuation that is 10 billion USD or more. How do they do this?
Many of these are Internet software companies that are selling to a new type of customer. Analysts are beginning to coin the term “prosumers” as opposed to “consumers” (Forbes article on “prosumers” here) . In the case of the hospitality business a “consumer” books a room at a hotel and pays the standard rate for a standard deluxe room. A “prosumer” goes to Airbnb and has a choice of lodgings from a house, a flat, a spare bedroom, or an air mattress in a living room, a choice of locations, and a choice of rates. He can proactively choose his lodgings.
Are there many customers who want to do this? If you compare the market cap of an established hospitality company like Marriott, founded in 1927, at $20b and Airbnb founded in 2008 with a market cap of $25.5b, the answer seems to be yes.
Get ready for a brave new world!