Interview With Arun Sundararajan: Masters in Business (Audio)

n y U Sterns School of Business. The professor is a technologist and an economist and studies what we have come to call the sharing economy. He likes to call it crowdsourcing capitalism, and we look at a whole bunch of different companies and platforms and technologies that are changing

the way people interact with each other. If you've ever used Uber for a ride, if you've bought or sold something on eBay or eggs List or or Etsy, if you've stayed at an air b and B. There are hundreds and hundreds of different companies, platforms, etcetera that allow people to either monetize they're unused real estate, hardware, ortomobiles, whatever, or other people to only purchase a fractional usage of it. UH. The professor is is certainly well known amongst technology circles.

You might not have heard of him if you go on YouTube and look at any of his presentations. They're quite fascinating and they're always filled with these amazing tidbits. I don't want to spoil anything from the actual podcast, but I have to just share this one little data point with you. In the United States, there are approximately eighty million electric drills. I have one, actually I have to the second one UH is out at the vacation house, and the data point on those drills is quite amazing.

The average usage over the lifespan of that drill is a mere thirteen minutes. Now, stop and think about it. A decent drill you're paying a hundred or two hundred dollars for and essentially you're barely using it. So a platform that allows people to rent or loan or what have you drills has a certain appeal because it you're taking something that actually has a value on a cost and you're recapturing some of that cost. On the other hand, if you only need a drill for five minutes, why

do you want to spend two hundred dollars. That is the essence of the sharing economy, whether it be a spare room or a ride in someone's car, or rent the runway, a a any sort of couture dress that you don't want to spend five thousand dollars on to wear just once. Uh. The professor not only thinks this is the future of retail, but he thinks that's going to have a very beneficial impact on people in the

bottom half of the economic strata in terms of income. So, without any further ado, here is my conversation with Un Sundarajan. This is Masters in Business with Barry Ridholes on Bloomberg Radio. My special guest this week is Aurun Sundarajan. He is a professor at n y U Stern School of Business and is fascinated by how digital technology shapes the economy and transforms our lives. His scholarly research analyzes what makes

the economics of technology, products and industries so unique. He is a member of the World Economic Forums Global Council on Technology Value and Policy, and he advises governments around the world on digital regulation. He is also the author of a new book called The Sharing Economy, The End of Employment and the rise of crowd based Capitalism are in Sundarajan. Welcome to Bloomberg. Thank you, Barry. I'm delighted to be on your show. Well, it's a pleasure to

have you. I enjoyed the book very much and it raised a whole lot of questions. Let's jump right into this from a broad perspective, what exactly is the sharing economy? Well, that's a great question to start with, because that's the question that I hope to answer in the book. UM. The label sharing economy can often be distracting because it conjures up an image of something that it's not, which

is why I prefer the term crowd based capitalism. But in the battle between what should we called the book between me and my publisher, sharing economy one of a crowd based capitalism um. So. I think of it as a new way of organizing economic activity where we are taking out a lot of what used to happen within an organization and decentralizing it to a distributed crowd of providers. So A, B and B hosts who are running their

small short term accommodation businesses through the platforms. Uber drivers who are driving through the platform get around renters who are running tiny car rental businesses, et C sellers, funding circle lenders, and I expect that this model will sit aside the traditional industrial capitalism model in the twenty one century as one of the dominant ways in which we

organize economic activity. So what you're describing sounds very much like what used to be called peer to peer or many too many as opposed to a centralized distribution where one company manufactured, they ship it, it goes to their stores, and then consumers come and buy it. That model seems to be challenged by let's call it, crowd based capitalists. Yes, I think that peer to peer is certainly a precursor.

You might think of the eighteenth century economy as being almost entirely peer to peer, the Adam Smith market economy us individuals or small businesses sold to other individuals. And then we saw a resurgence of some of that kind of activity in the late nineties with eBay and with Craigslist. But what's different about the sharing economy and crowd based capitalism is two things. One is that it scales this kind of activity to the point where the crowd based

alternative can be the largest provider in the industry. A B and B is already the largest provider of short term accommodation in the world. They have three times as many listings as Marriott's Star would have rooms. If I recall hearing one of your presentations, once you mentioned last night a hundred and fifty thousand people stayed at an Airbnb. Is that number still accurate? Well, that was probably a couple of years ago. Um, that's amazing, that really is right.

I mean, they own no assets. This is entirely other individuals running their businesses through the platform. So the ramifications of this or are going to be significant. And you've you've discussed the blurred lines between personal and professional, between casual labor and someone who's working full time for someone else. So how does this new change affect everything? What is the ramifications of the way these digital technologies are going

to impact our lives? Um? See the blurring of lines between personal and professional I think is central to a lot of the challengers that the sharing economy has faced in the last decade, because if you think about it, there are lots of activities that fall under the personal umbrella. Naturally, if you own a car, you've probably picked someone up from the airport. Sure, you've probably cooked a meal for someone at your and had them eat it at your home.

You've had house guests. You may have picked your friends kids up from soccer practice. You may have lent money to a friend. You didn't need any special permit for this. This was all under the personal umbrella. And then you had taxi drivers, you had professional bankers, you had restaurant owners, you had bed breakfast owners who were on the professional side and for whom all of the regulations were developed.

And so we're now entering an economy where these lines between personal and professional up blurring, and so the regulatory structures that we have developed to regulate, say accommodation or transportation, which expect a full time professional provider on the supply side, are being challenged because you've got people who are hosting occasionally on a B and B, who are driving occasionally for left, who have become little car rental businesses, who

have become little bankers. Here in New York City, there's been a number of complaints from condos and co ops about buildings originally not made for taking guests, And suddenly you think you own a private co op in a apartment building and you discover there's random strangers in your building. How does an Airbnb deal with that? How does the

city of New York deal with that? Well? Um dealing with the new world of short term accommodation I think requires a fundamental rethinking of a lot of different dimensions of regulation, because we are creating, in some sense, a new form of mixed use real estate where the personal home can also become a commercial, short term accommodation source for people who are visiting the city. We're challenging ideas of zoning, and we're challenging sort of this separation between

long term and short term accommodation. It's really a situation where we have to think about how do we change the laws in a way that accommodates this activity. Because a lot of people want to host on a B and B, A lot of guests want a B and B, so society wants this service. What I think will happen in the long run is a couple of things. One is that we will in fact change the laws around that prevent people from renting for less than thirty days

and go on. But I think but also going to delegate a lot of the responsibility to partties other than the government. I'm Barry Ridholts. You're listening to Masters in Business on Bloomberg Radio. My special guest this week is our on Sundarajan. He is a professor at n y U Stern School of Business and is an expert in digital technologies and sharing economy. So there are sort of three levels of of sharing economies when it comes to accommodations.

On the high end, you have one fine Stay, which is a way for people with lovely high end homes or other properties to generate a little income with them. You have Airbnb, which is pretty middle of the road. It's way that anybody can rent out a room or an apartment or what have you. And then I kind of like CouchSurfing dot com, whose business model essentially, hey, we have a couch for you to crash on and no money exchange his hands. What is that business model?

How does that company that has venture investors, how do they make money? Well, their revenue sources. The revenue sources that couch surfing have are pretty limited. Um, they have been making money for a while by charging people for a verification service, where if you want to stay with people who have been verified, then couch surfing gets a fee. UM. They switched recently from disavowing advertising to adopting an advertising

business model. This is in the Google tradition of like, you know, sort of going from anti advertising the pro advertising um. But you know, I think focusing on the revenue model of couch surfing UM takes us away from what's fundamentally different about them. They haven't been set up as a commercial business. They are a pure gift economy,

so it's really more of a social network than anything else. Really. Yeah, I mean the typical couch surfing user when they go to a new city, they're not saying where do I find accommodation? They're saying, you know, where's the party? Or you know, how do I meet the interesting people? And the exchange of accommodation is sort of the gift that

cements the connection. It makes a lot of sense. And there are some people who only seem to host others, and there are other people who are traveling around the country only. Couch surfing absolutely and ABNB in some ways represents a middle ground between the commercial and the gift. In that sense, I mean, it's decidedly commercial. You are pricing, you are managing inventory. If you're a supplier. As a guest, you are paying for something that is a service that

you're getting from the host. But there is also some gift element and some sort of embracing of imperfection that the guest experiences, where you don't expect all the towels will be the same color and perfectly folded. Um. There's a connection that forms with the host. Even if the host is not there, you get to see how they have made up their home. There's an intimacy associated with staying at someone else's home. It's like a bend and breakfast.

And I was amused I learned in your book that the name Airbnb came out from the idea of an air mattress as as a place for people to to crash. Let's let's shift away from a combination and talk a little bit about travel. So uber has been a huge success globally. Lift also has experienced a tremendous amount of growth. Um. So here's the question, how much of this is a function of the entrenched industries complacency. And let's be honest, at least as a New Yorker who who here doesn't

eight taxis. There aren't enough of them. As soon as it starts to ring, you can't get one, and heaven forbid, if you want one during rush hours, some idiot has decided that's when we're gonna do the shift change, and there's no taxis available. So would Uber have been this

successful if you didn't have a complacent, dominant and trench business. Um. I certainly think that the placency of the entrenched businesses opened the door for Uber and left because the bar was pretty low and it was easy to create a product, a service that was dramatically superior. You know, I've lived in New York for a long time and I've had

the same frustrations with the yellow cabs. But if you think about the United States, New York has by far the best taxi service in the country, really, and so that that's horrible. Yeah, I know last Las Vegas maybe comes close, but that's pretty much it. I mean, I used to go to l A and I wouldn't know how to get around without renting a car, and then I'd be driving on the highway at sixty miles an hour having not driven for three months. So you know,

that's how the door was open. But that's not going to determine the long run success of the company's because they're not really going after the taxi industry. They're going after the automobile industry. They want to shift our spending on buying new and used cars towards getting transportation on demand as a service. So they're not going to the eleven billion dollars we spend on taxi every year. They're going after the one point two trillion dollars we spend

on buying new and used cars. So, so let's talk about that for a moment. You discuss the importance of idle capacity and share ability. So, and it's not just cars. Let me throw a statistic out, and again this is from an earlier presentation of yours. There are eighty million power drills in the United States. Each drill is used over the course of its total lifetime a grand total of thirteen minutes. Yes, that seems like an enormous waste

of idle capacity. Absolutely, And I think that the sharing economy sort of came to be because we decided that there must be ways of tapping into capacity that is underutilized. And once we got the smartphones, we were equipped with the technology that allowed us, in some ways to think about re engineering our consumption in the same way as that the company sort of re engineered their businesses twenty years ago when they got the PCs and the Internet

and the ethernet. UM. But and if you think about the two industries we're talking about accommodation and transportation. UM. Part of the reason why they're so visible is that they reflect the two most valuable personal assets that the average individual has, their home and their car. And so we've managed to create sharing markets for these assets, even though the transaction costs are still pretty high. It's been harder to create markets for power drill rental, or for

vacuum cleaner rental, or for you know, tent rental. All of these underutilized assets. What what about some of them? The high end designer clothing. I know there's a number of companies that rent high end dresses and I forgot some of the names of Absolutely, there's rent the Runway. It does this on demand as a business. There's another one called Style and that I really like that does this peer appear where you can sort of monetize your

wardrobe by renting things out? Um. The logistics are still sort of the economics, the unit economics of the logistics are still being worked out on that front um, but I think that things are going to get a lot easier once drone technologies take off and we have the ability to sort of tap into you know, if an object knows how much it's being used where it is and can call on transport on demand, which will be

possible in about a decade um. You know, with drone technology so far off in the future, not at all, then we have the spectra of not just sort of drones flying above, but carrying power drills. I'm very results you're listening to Masters in Business on Bloomberg Radio. My special guest today is Professor Arun Sundarajan. He is a professor at n y U Sterns School of Business specializing in the impact of digital technologies and how they shape

our economies. He is not only a member of the World Economic Forums Global Agenda Council on Technowlogy, he is also the author of a new book called The Sharing Economy, The End of Employment and the Rise of crowd based Capitalism. Let's jump right into the technology backdrop of of the collaborative economy. Um, you've talked about the iPod as the first successful mass market product that was developed for consumers rather than businesses or governments. So what is the consumerization

of digital technology mean for us? Well, I think that this was the consumerization of digital technology represented a radical shift in the focus of the industry producing the technology. Because if you think about the sixties, seventies, eighties, and nineties, technology products were built for business or government and meaning meaning computers, phones, all those various texts. Didn't consumers eventually

take advantage of those. They did, But if you think about the primary focus of R and D in all of the companies except Apple, the business was the primary focus. The PC was built for business, and then a home computer version was developed. The larger computers were built for business. Software was built for business frames, databases, etcetera. That's that's

really very interesting. So and so there was a shift in like you know, the late nineties, because computer technology got cheap enough and fast enough that you could conceive of mass market consumer products, and the iPod was the first big one. But what this has done is that it shifted the focus of the technology industry away from businesses and to consumers. If you look at the big innovations of the last ten years, social media, tablet, smartphones.

They were built for consumers and then adapted for businesses. So so let's talk about you mentioned Apple. Let's let's talk about from iPod to I phone. How much of the sharing economy is really directly dependent on the iPhone coming out and just upending the mobile phone market and then everything else that that fouled from there. Is that

the prime enabler of all these technologies. Um, I think that the iPhone or smartphones becoming mass market is one of the enablers of a number of industries that have been changed by the sharing economy. You can't imagine uber without a g Press enabled smartphone or knows where you are, knows where the car is yep. And there's a whole bunch of labor markets that have become possible because you know, if I have a smartphone, then I become a potential

source of labor to a market. They don't have to equip me with one of those devices that the ups drivers have. But I think that there was a broader adoption of digital technology and a comfort level we got using this technology and interacting with other people through an interface. We digitized a lot of our social capital on networks like Facebook and LinkedIn. Explain that because you you discuss that frequently the what do you mean by we've digitized

our identity and we've digitized our our trust? Well, if you think about pre two thousand five, we carried around a driver's license, and this established through a government system that you were who you said you were, and you had a professional and a personal network that was known to you, but wasn't translatable into information that could make

someone else who didn't know you trust you. So what Facebook and LinkedIn now represent is a lot of connections on Facebook and LinkedIn are meaningless, I agree, but a lot of it represents real world social capital, professional capital that you have built up over your lifetime that makes you more credible as a trading partner. When someone says, well should I rent my car to this person? Or should I trust this person enough to sleep in their spare bedroom, or should I sort of like you know,

borrow money from them? Should I lend them money? This becomes part of a trust infrastructure. Along with tech oologies that allow you to hold up your driver's license in front of your webcam and have it verified. So you referenced earlier Craigslist and alf Rowan Wikipedia, But one of the earliest of the tech companies was eBay. And the way eBay built in their trust verification is if you want to buy something from someone and you say, oh, this guy has a five star rating and there's ten

thousand transactions, they're fairly trustworthy. Is eBay the first entity to digitize that trust factor. eBay was definitely the pioneer in using these pure feedback systems or to create reputation some ways. They created the equivalent of a digital institution. You didn't have to have courts of law or contract. You could just rely on the feedback. The thing with eBay is that, um, the stakes were low receiving a package from someone, or you need to get paid by someone.

The worst thing that happens is that you don't get the product, the products broken, you don't get paid. These are very different stakes from trusting someone enough to let them into your apartment, trusting someone enough to get into

their car and be driven to another city. Um. And so we needed the social capital and the identity to come in and to pair up with the peer to peer feedback systems, which all of the sharing economy platforms use before we could see these high stakes activities emerge and assume these sort of population scale businesses that we're seeing today. I'm very hults. You're listening to Masters in Business on Bloomberg Radio. My special guest today is Professor

Arun Sundarajan. He is a professor at n y U Stern School of Business, an expert on digital technologies and the sharing economy. Let's talk a little bit about crowdfunding because there's some really interesting companies. Kickstarter, Kivalone Angel List are the first three that come to mind. Let's start with simply, what is crowd based capitalism. Well, crowd based capitalism is my conception of a new model of how

we organize the world's economic activity. So if you apply it to the funding space, what we're talking about is shifting the way we finance things out of the hands

of an institution that gives you money. Could be a bank, could be a venture capital fund fund, could be like a foundation that is giving grants to support the building of a theater, and shifting that towards a platform that still collects all the information that you would give a bank or a foundation or a VC but then gets the financing through a distributed crowd of financiers, whether it's um individuals buying equity in your company through angel list,

whether it's individuals contributing towards a loan that is then given to you through funding circle, whether it's individuals who are you know, becoming philanthropists through a platform like Kickstarter. So angel list, I think is the easiest to understand. There's a list of potential cl it needs to interview. You could either invest in anyone or into a whole group at once. That that follows the traditional angel investing model, only minus the uh, the venture capitalists or the angels.

It's the crowdfunding. So I think most people get that. Let's let's talk about Kickstarter a bit, because I think Kickstarter sort of crosses the lines. We we've seen and other similar groups to Kickstarter, there's a few of them. We've seen people who have said I'm thinking about recording an album I'm not, and people who are famous musicians. If enough people say they're interested, if we raise fifty tho,

I'll record this album and they do. Or we want to put on a play, we need this much money here. My prior plays if you like to see me do another one that makes perfect sense. And you're a contributor, you're you don't get any of the upside of that, but you helped bring something to light. But then there's something like oculus left and I thought that was sort of I thought that was sort of a great, great

situation and wrote about it. Look, it's clear the people who were contributing to Kickstarter, no, they're not equity investors. But you get a company that raises a couple of million dollars and then turns around and sells himself to Facebook for a couple of billion dollars. That sort of leaves a bad taste in people's mouth. How do we define what kickstarter is and how do we make sure that we're not being taken advantage of if we like, oh that's a cool idea, let's fund that, and and

then the founders cash out. Well, I think the Oculus rift investment on Kickstarter happened at a time when kick startle was a lot of different things to a lot of different people. Um, they were a philanthropic crowdfunding platform. They were a platform for demand generation where you say, here's my product. If you sort of contribute to my campaign, you will get one of the early instances of that product. And so they were sort of estimating demand there, and

there were companies like Oculus that were getting off the ground. Um. I don't think we're going to see another Oculus on Kickstarter for two reasons. One is that for a company like that, there are far better platforms today where you actually do sell equity and you get access to a much more sophisticated bunch of equity investors. Give us a few examples of those platforms. Well, angel Lists is certainly

one of them. There's another one called circle up. Um. I've been hearing a lot about one called we funder. All of these are where you can become a tiny venture capitalist by like you know, tapping into people who are listing their businesses. Um. But Kickstarter has also shifted direction and positioned themselves more squarely as a philanthropic site, and so they're less likely to attract investors into the

next Oculus Rift. That's that's quite fast. And I mean, if you ask me, I figure that the right thing for Oculus Rift to have done would have been to sort of give back some of the equity to all of its early funders, even though they didn't have to. I think that would have been that would have been the right thing to do. Yeah, much nicer end to end to that story, turns out that some folks are

nice than others. What are you gonna do? And and again, they didn't do an oculus rift, didn't do anything wrong. They never promised that they were going to actually give capital back to people. But anytime there's a two billion dollar windfall on a two million dollar investment, it's piggish not to at least do something for the people who

got you off the ground with that. But that that's just my perspective, and I think we're going to see sort of a similar thing, a similar sentiment among the providers and the sharing economy when Uber and Lyft and b and Big Public because the providers on these platforms on shareholders, especially the drivers or the host So what have you? And didn't Etsy do something with some of its early I may be misremembering this is either Etsy

or another um. Well, there's a new platform called Juno that is an Uber competitor that has reserved fifty of its equity for providers for drivers whoever the driver will participate in the upside YEP, it's funny because you know there's the old joke the second maskets the cheese. Uber was the pioneer. They they did all the heavy lifting. I wonder if someone else could come in and jiu jitsu them with the technology. Hey, we're just like Uber, only you get equity and when we go public, it's

part of yours. It seems like a really interesting twist um on the model. It really is, And I think it's compounded further by the fact that the relationship between providers and platform is not employment, but it's more hands a So there's nothing like a non compete. I mean, you couldn't sort of build a Walmart next to Walmart and steal all their um, you know, sort of well qualified and highly screened workers. But you can do that with Uber. So so let's talk about what you just reference,

the gig economy. So we have fifty three million freelance workers here in the United States. Um, I think the numbers are one in far one in four? Do it for some supplemental income? Is this gonna ever replace full time work or is this always going to be a side gig um? I think it's gonna replace full time work for a lot of the workforce over the next

couple of decades. Um. I think what we're gonna see is a shift in the role of the individual in the economy away from someone who provides talent and labor for a wage and towards someone who runs a tiny business through a platform in exchange for a share of

the revenue that the business generates. And you you called this a micro business, yep, or I call these people micro entrepreneurs, and you know, I think that that's really the future of work because a lot of things that are done by human labor today are going to be done by machines in the future. Algorithms are reading everything

absolutely and um. We're also seeing the emergence at scale of these crowd based capitalism platforms, both on the finance side and on the sort of the real world services side. I expect we'll see platforms like this in the energy sector.

Once battery technology gets good enough to store the solar power that you generate, we'll see it emerge on the low end or the easy end of healthcare, once trust gets high enough that you can sort of go onto the platform and get a registered nurse to come and stitch up the finger that you cut cooking and so at that point, and you know, I'm already seeing platforms like this for accounting, for law, for architecture, forum sales, for high end computer programming, where you can start to

run your own tiny business as an individual rather than working for someone else. So it's definitely the work model of the future. And we've really got to rethink our education system in a way that prepares our kids for this world of work where they're not going to be joining a well structured job that gives them a career path, but they're gonna have to make it up on their own. It's ongoing skills and continuing to accumulate and improve them

in order to do those micro entrepreneurial tests. That that's how fascinating. So all of this raises a fascinating question. We we know GDP is not a terrific measure of what the economy is totally producing. And then what's probably my least favorite data point in terms of its accuracy is the productivity numbers, which I think completely failed to capture all of the impact of technology and how it the fact that we have tens of millions of people

running micro businesses is not reflected in those data. So two questions. First, are we no longer accurately measuring the economy based on the changes in digital technology? And second, how do we catch up? How can we accurately capture of those metrics. Well, on the first point, I do think that there is a growing gap between what the government statistics say and what the state of the economy really is in terms of the size of the economy, in terms of the amount of employment, and in terms

of like the value creation from technological innovation. Um. You know, the BLS has a tough job because, um they've got to capture these changes in real time, in real time, but they also need to maintain historical consistency because we want to see trends, so they can't just sort of throw out their survey and pull in a new one. I do know that they worked over the summer and adding new questions to the current Employment survey to try and capture some of these effects, but I don't know

if they will be enough. They make these changes very slowly over long periods of time. It's a real gradual shift, and it's almost imperceptible, and by the time they make the change, it's already having a substantial deviation from from what they should be measured absolute Lee and I think that the fundamental shift that we're going to see is away from measuring employment by counting jobs and towards measuring um activity by human beings in terms of the total

amount of work. We've been speaking with Professor are runs Underajan of n y u Stern. If you enjoy this conversation, be sure and stick around for our podcast extras, where we keep the digital tape rolling and continue discussing all things economic, finance and investing. You can check out my daily column on Bloomberg View dot com or follow me on Twitter at Rid Halts. We love your comments, feedback and suggestions right to us at m IB podcast at

Bloomberg dot net. I'm Barry Ri Halts. You've been listening to Masters in Business on Bloomberg Radio, brought to you by Bank of America Merrill Lynch seeing what other have seen, but uncovering what others may not. Global Research that helps you harness disruption. Voted top global research firm five years running, Merrill Lynch, Pierce, Finner and Smith Incorporated. Welcome to the podcast, um Aaron, thank you so much for doing this. This

is really interesting. I enjoyed the book. I found it to be an intriguing way to sort of reorganize in my mind what's going on in the broader economy, and and there's some really fascinating things in it. UM. Let's talk about a few things that we missed during the broadcast portion. There was something you had written early in the book that I thought was interesting about three technological invariants. I thought that was really intriguing digitalization, exponential growth, and modularity.

I think most listeners know what each of those three things are. Why is that unique to technology and why is it unvarying? Well, it's UM trying to come up with three things that don't change about digital technology was in response to the fact that so many things do seem to change or digital technology, and so how do you frame what the future is going to look like?

And so UM to me, these the combination of these three things, like, you know, the digitization of information UM, exponential growth in bandwidth and computing power and storage, and the idea that you can call on the capabilities of a digital machine through software UM and you don't have to sort of rebuild the capabilities into a new machine you can just call on it. All of these are unique to digital technologies. There's what they sort of set them apart from say the steam engine or the other

general purpose technologies in the past. And I think that that's These are the three things that are causing um the pace at which digital technology is changing the world. The second derivative, the rate of change is accelerating and accelerating in a in an ever faster mode. Yeah, in in some ways, the consumerization of digital the fact that we've got sort of handheld computers that we can use

and carry around with a morble portable. Yeah. And then on top of that, the app economy has allowed for these really specialty, narrow purpose driven products, and that continues to explode because the digitization and the exponential growth or what put the smartphone in your hand at an affordable price, and it's what makes one be able to predict twenty years ago that this is going to happen. And then the modularity means that you don't have to build all

the capabilities into the phone when you buy it. You can start to sort of download them and extend what your phone does for you in a modular way. Over time and well, and that basically is what's going to be the ongoing development of information technology. Those three and and this is gonna explode even further as three D printing comes of age. So your reference that it's it's the old format was reductive. You you know, I I forgot whose quote I'm stealing. Um, maybe it was michel Angelo.

I start with a block of marble and take everything away. That's not the final sculpture, which is a little glib. But three D printing is the opposite. It's additive. You're adding layer on top of layer, and it's the design that matters, not not necessarily the physical skill and in

producing it. And so what happens because of additive manufacturing is that you might start to see what happened to the newspaper industry happened to other industries where, you know, the newspaper industry also relied on the movement of physical goods. The newspapers, the distribution networks. Music was the same thing, the retailing channels. All of that went away when the products became digitized. Now, if you're selling jewelry in ten years, um,

you may not need a physical distribution network. You may just have to come up with the best designs because everybody is printing the jewelry that they want and adapting it on their home three D printers, So a whole host of new products start to become purely digital in terms of selling them, and the consumer by themselves sort of renders the design into physical form in the same way that we're rendering the news into something that we could read, or rendering the music. So so h three

D printing. Has There been some nice three D printers, but it's not the sort of thing. Just about every house in the United States has refrigerator, has a television as a washing machine, but not every house has a digital printer, a three D digital printer. How far off in the future is that and what does that mean for consumption of future goods and physical retail stores. Well, I think that it's about ten years in to the future.

On two fronts. Um you will probably have a sort of a limited functionality three D printer in your own home, but there will be a network of print shops in your neighborhood that will start to play some of the role that the local retailer plays. Where you know, you may not you for the more complicated items that need

to be printed. You may not want to do it at home, but you just sort of walk down the street and you know, send your design to the three D printing shop and then pick up the object and bring it back. This. You know, this is one of many forces that is going to change physical retailing over the coming decade. UM And I assume you're not a big investor in large retail shopping malls. No, I'm not a big investor in shopping malls. I'm not an investor

in power companies either. Why is that that's interesting? Well, I'm starting to see us getting close to a point where there will be good enough battery technology for us to start to think of the individual as the producer of power for the neighborhood. I mean, there are some people who have a lot of roof space and they don't need as much power. There are other people who

need more power they don't have enough roof space. And so, you know, solar power technology right now is a I install it for myself now, once we have good battery technology that can store the power um and ways in which we can retransmit it to people in our neighborhoods, either overrid or smart grid where that routes it and knows who's supplying and who's consuming it. Yeah, that's one way. Another way is to actually transport the batteries themselves, physical batteries,

the physical batteries. That happens when it's local. Then then you start to sort of realize that the fundamental underlying economics of producing solar power dramatically superior to the coal and gas technologies because they're not mechanicals. You don't lose so much of the power as you're generating it. But there's still solar still relatively inefficient. The photovoltaic cells capture a tiny percentage of the solar energy that hits it. We lose some in transmission, we lose some in storage.

How far away is that technology from? How many years away is technology from what you're describing a higher efficiency photo vote ex l and a much lower loss and much longer lasting battery for for the storage of that energy. Well, both those technologies are progressing rapidly, the photovoltaic technology perhaps

sort of more rapidly. Um, But I think what the real key missing piece of the infrastructure here is is the storage technology where you don't sort of lose it, use it or lose it um And once that happens, the critical infrastructure won't be the distribution infrastructure of the production infrastructure. It will be the platform that sort of ties together all these generators of power individual generators of power and creates a market where this becomes comparable to

getting your power from the power plant. And so I think we're going to see the emergence of this more rapidly in countries where the traditional power infrastructure isn't quite as reliable as it is in the United States. And that's those are the fringes where you will see these energy platforms come of age more in emerging markets than developed nations. Initially, Yeah, but then once these grow up and mature there, then they will start to take on, like,

you know, sort of the traditional energy industry. You know, it's funny when you look at the emerging markets. They jumped over plane old telephone lines. They went right to mobile. Why do we want to wire an entire country for

phone when they're playing all telephone service. When mobile is here and it's relatively cheap, and we're gonna more or less see the same thing in energy is that is that the expectation absolutely I think that the you know, sort of the future for a lot of emerging markets that don't reliable power supply is going to be a more advanced future than the present for us today. And again during the broadcast portion, we were talking about uber and we were talking about lift. We didn't talk about

the car rent. So those are driving services where someone will drive you. But you tell told the story of you know, you live in New York, you don't have a car, and then here are all these cars that spend twenty three hours a day sitting there doing nothing. You just wanted to borrow a car, do something for half hour, put it back and leave a leave a twenty on the dashboard. There are a bunch of these services from zip car to get around to drive e um.

How what is their future like and and are there what does this mean for the future of ownership To someone like me who grew up a car meant freedom. Kids the current generation they don't perceive it that way. They could always get a car from somewhere. Yeah. I mean, you know, you look at the number of sixteen to nineteen year roles who have driver's licenses in the United States. I think back in the eighties, it was over eighty five percent. Today it's under fifty. That's amazing. So so

some of them are just going to stick with Uber. Yeah, and some of them, the half that has a license, they don't need to buy a car, They could just rent one on demand from one of these services. Absolutely because, um, you know, that notion that your car defines who you are, all of this work that the auto industry put into sort of making it a lifestyle, um, that's starting to

wither away for two reasons. One is that you know, you call an uber on demand or a lift on demand when you need, you don't really care what the brand of the car is. You don't send it away saying I wanted a Cadillac and you send me a Chevy Um. But it's also that that statement of identity among the youth is more through the mobile phone, that they own their Instagram, Snapchat, Facebook profile, and so the role of the automobile and defining who you are your

peers has become a lot less. So these you know, I think that there are great prospects for platforms like get Around on Turo in the United States, Drive, which is taking over different countries in Europe, there's one called pp Douche, which is, um, you know, sort of the

largest peer to peer car rental platform in China. Um. You know, in twenty years, we would have shifted automobile, the automobile industry to a place where for a lot of people, it's an on demand service where the car without the steering wheel is coming to pick you up and take you where you want to go. So at a certain point it's not just drivers on demand, it's autonomous drivers on the Yeah. I mean, you know, I know that Uber projects that that future is going to

come in five years. I think that that's aggressive, ten years, twenty years on that range. Yeah, it's um you know, I think the path through which we'll see it emerge initially is through the on demand platforms, because they can vouch for the autonomous vehicles. They can say, listen, we'll keep the speeds under two any we'll make sure they don't drive in front of schools, and so they will sort of introduce them before say Tesla has a car

without a steering wheel. I'm thinking long haul truckers are probably the first place we see that really adapted because it's mostly highway and it's really easy to keep that defined. Local driving is a little more challenging. Absolutely. I think Uber bought a sort of a long haul saw the Less trucking company. It's kind of it's kind of fascinating. Um. And then there was before we get to my favorite questions, Uh,

there was a company mentioned in the book, Feastly. What is Feastly, Well, Feastly is one of a number of platforms that allow you to convert your dining room into

a restaurant occasionally. So if you like to prepare food and you're good at it, um, you prepare a meal you listed on Feastly, and you know that, you say, well, here's the menu, and it's forty five dollars a seat, and people will either book the entire table or if you're in a new city and you want to hang out and sort of eat at someone's home with a bunch of locals, that's the way to do it. How

widespread has that been in terms of being adopted. So in other words, we've already done taxis, we've already done hotels. Now we're looking at restaurants. Yep. I think that restaurants are being challenged by you know, these supper clubs on demand like Feastly. And there's another one called Eat with um with Yep, and it's essentially just a supper club on demand. Ye. People who enjoy cooking, people who enjoy entertaining and serving. It's a way for them to meet

people and other people to get together. Yeah, there's also a platform called Josephine, which is not um I feed you in my home, but I prepare it in my kitchen and send it to you. So this is sort of the next generation of restaurants and seamless UM. All of these platforms are starting to face regulatory pushback from you know, the departments of Health. I mean you've been in a number of New York City kitchens. I mean none of our kitchens is going to sort of pass

the Department of Health inspection, right, So probably not. And so although it used to be that have the restaurants in New York before the abc D grades, a lot of those restaurants didn't have the greatest kitchens. And as much as the restaurant industry pushed back on those grades, it's the healthiest has ever been to go out to eat in terms of food poisoning and things along those lines. And I think Yelp has played a role as well in being able to sort of direct the government attention

to the restaurants that need it. You know, most city governments actually have automated systems that mine Yelp and sort of look for things like food railing. And I had no idea, and I feel sick when those that word will kick out something and or um, you know, just that a bunch of keywords that signal that something needs to be done, and then they send an inspector there.

That's fascinating, the interplay of of the ratings and social with government, and I think that's the future of regulation for this sort of more fluid sort of personal professional blurring, you know, restaurant and food delivery industry where you can't

have government inspectors sort of doing all the work. If you've got half a million people who are occasionally delivering food, you need some sort of peer feedback system, maybe pere monitoring, looking at the data on the platform and using the

government resources more judiciously. Mess up enough time, get a bit enough rating in the government will will shut you down, prevent you from doing this in the Yeah, and meanwhile the platform will send an expert to you to sort of help you sort of get up to speed and UM, like you know, sort of get on board before the need for like government intervention comes along. I know I only have you for another ten or so minutes, so

let me jump into some of my favorite questions. You've been at in h you for a while before that. You are a couple of other schools. Who are some of your early mentors who really influenced your the development of your career, And you're thinking, well, Um, I'd have to say that um, as a researcher, the person who perhaps was the most influential to me is an economist called Roy Radner. Um. He's like a world class economist.

I worked a lot with him right after joining n y U, and he really shaped my thinking on two fronts. One is what does it mean to ask an answer questions that really matter, to not think of research as sort of an end to itself, but a means to understanding the world better. And I think he's also got an approach to treating other human beings as equals that is really remarkable and was very influential and sort of how I interact with the world very interesting. Um, what

about other technologists venture capitalists, other folks like that. Who's influenced your thought process when looking at some of these luma rolls, new companies, new ideas in the in the sharing economy, Well, um, if I look at the sort of the most recent crop of UM, like, you know, technology leaders. Um. I've been very impressed by the way A. B and B is run. And I really think that there's a lot of inspiring thought that has come out of Brian Chesky, Jgba, and Nate the three co founders UM.

In particular sort of Brian's idea that, um, you know, everything is a design problem that you know, you've got to design the world that you want because otherwise someone else is going to design it for you and you may not like what you get, and so sort of take control and design your own reality. I've read things

he's written about that and they're quite fascinating. Yeah, and I think that that's core actually to why A. B and B is successful, because the idea that you can build a platform that will connect individuals with spare space

was to a new one. It was really the design of the experience for both the person who's staying and the person who is hosting and designing it carefully as an experience that doesn't just work for someone renting out a vacation property, but works for someone renting out their bedroom, renting out their entire apartment. I mean this is this is really a design accomplishment and not a technology accomplishment. Very interesting. Let's let's talk a little bit about books.

What are some of your favorite books, be they fiction or nonfiction and related to technology or or finance or not so. Apart from Code and other laws of cyberspace, another book that I've really been influenced by is a book called Collapse by Jared Diamond. I think that it sort of lays out this pattern of why civilizations rise and fall in a way that was incredibly compelling through sort of research that was done over thousands of years,

over a thousand year period um. I've personally been influenced by this wonderful book called siddarth Uh by Herman Hess. I think anybody who's a parent should read this book because it's sort of defines what to expect um like, you know, later in the process of parenting, and it's just you know, it's a slim volume really sort of changes the way that you think about the world. UM, Jared Diamond had written a book what is it, um, Guns, Germs and Steel. Is that I remember reading that for

a while ago and thinking it was fascinating. I haven't read collaption. Collapse and the Third Chimpanzee are both like really interesting. All we'll put we'll put that down on our last third Chimpanzee. UM. So, since you started looking at technology and the sharing economy, what's been the single biggest change? What is what has altered this? Well? UM, you know, I started programming when I was a teenager, and so I used computers for many years before the Internet.

And so while this is a cliche to answer, it's pretty clear that the commercialization of the Internet at has been the single biggest technological shift that I've seen, like you know, in my studying digital technology. I think the consumerization of digital that we saw in the late nineties is perhaps sort of like you know, the most significant

manifestation of this. UM. I'm expecting great things from the blockchain and I think we're at I think a lot of people are, and so far it's been unfulfilled promises. Is that a fair statement? UM? I think that it's really early days. UM. I put sort of where we are with the block chain today as where we were with the internet. Um in like this was like a couple of years before the emergence of Netscape or any of the browsers, before the world wide Once we got

to a graphical interface, suddenly everythink took off. And so they're going to be layers built on top of the blockchain that will suddenly bring it to life, and then over the next decade it will start to change a lot of businesses. I don't think it's gonna disintermediate as much of a lot as a lot of other people think it is, but I think it's going to be a tremendous source of efficiency. So outside of your work, what do you do to relax and kick back? Oh? Um,

you know a lot of different things. Um. I I like to ski. UM. I like beaches. I like quiet beaches. I try to travel too. I try to travel to beaches that I don't know about as much as I can. UM. I like to read. Um, I like parks. Um you know I um you know, I do strength training in the gym when I can. I sort of yeah. I focus on movements that replicate what you do in everyday life as opposed to machines, and so I would do a dead lift or a squat over sort of machines

that isolate particular muscles. That's interesting that, by the way, that is a question that has come to a come to us from a reader who said, you ask all these same questions of your guests at the end of the interview, here's something that I'd really like to know. And you're the second person we've we've worked that in with. So so now we're down to my two favorite questions. And you work with students, and many of whom are millennials.

What sort of advice would you give to a recent college graduate or a millennial who wanted to go into either technology or venture capital as a field. Well, the one consistent piece of advice I give recent college college graduates or millennials is to expect that the world of work that they're going to be facing in twenty years

is very different from the world of work today. UM STEM capabilities are going to matter less science, technology, engineering and math and design, thinking, creativity, ent apprenticeship, um interpersonal interaction. These are the skills that are going to matter more UM and so think of your career as not working for someone else, but as sort of defining your own

path and accumulate the skills for that. Um. For the ones who want to go into venture capital, I tell them that the only way to learn how to be a venture capitalist is to do it. There are lots of platforms that allow you to do it today. And so you know, if you want to become an investment banker, you try and join one of the big banks as an associate, that isn't really the path in venture capital.

And so you know, if you really wanna either by working for early stage companies or by investing yourself build up a portfolio, if you want to be a venture capitalist. Very interesting and our final question, what is it that you know about technology in the rise of the new digital sharing environment today that you wish you knew ten or fifteen years ago. Well, Um, one of the things I wish I had seen is, um, just how dramatic

the consumerization of digital was going to be. Um, you know, back in two thousand, sort of looking on the horizon, seeing the iPod, UM, it wasn't as clear to me that we were going to see as rapid apace of consumer technology adoption and all of the changes that came with it, because had I seen that coming out of bought a ton of Apple stock at the time, because you know, they were really the only game in town

at that point. I mean, you know, they had a tenure headstart over everybody else in terms of thinking about the consumer as you know, sort of the audience for technology products. Um, that's quite interesting. We've been speaking with Professor Arons UNDERAJN of n y u's Stern School of Business. If you enjoy this conversation, be sure and look up an Inch or down an Inch on iTunes and you could see the other hundred and nine in or so

such conversations we've had over the past two years. I would be remiss if I did not thank Taylor Riggs, my booker, Charlie Volmer, our recording engineer, and Michael Batnick, our head of research, for helping to put together these interviews and podcasts. We love your comments, feedback and suggestions. Be sure and write to us at m I B podcast at Bloomberg dot net. I'm Barry Ridults. You've been listening to Masters in Business on Bloomberg Radio, brought to

you by Bank of America. Merrill Lynch committed to bringing higher finance to lower carbon named the most innovative investment bank for climate change and sustainability by the Banker. That's the power of global connections. Bank of America North America member f d i C