For centuries, technology has been making it easier to make more goods more cheaply, driving up ownership and consumption of everything from TVs to toys. But we’re entering a different era. Technologies that enable us to summon everything from a car to hiking equipment on demand are making access to goods, not the production of them, more efficient. And more efficient access will pose a big threat to the traditional economy.
Take the potential impact of self-driving cars on car sales. How many of America’s 253 million cars could you take off the road and still meet current demand if we had perfect availability of self-driving cars?
One way to ballpark this is to determine how many miles people drive today and then how many self-driving cars would be needed to drive those same number of miles.
A passenger vehicle drives about 12,000 miles a year in the U.S., according to the Environmental Protection Agency. There are 8,760 hours in a year; so if you ran your car all year, you would only need to go about 1.5 miles per hour to cover 12,000 miles.
If you assume instead that you could continuously occupy a self-driving car at 60 mph all year long, you could drive 525,600 passenger miles per car per year. That would cover the 12,000 average that a vehicle drives with about 2 percent of the cars currently on the road, or six million cars. That’s a 97% reduction.
Of course this is just a hypothetical estimate based on one simplified model of car utilization. To rigorously do this calculation you would need to factor in variables like demand for cars during peak usage, stop lights, the wear on the car, etc. Still, directionally if the promise of on-demand, self-driving cars doesn’t terrify Detroit, I don’t know what possibly could.
No industry is immune. Communication technology is making it easier to access goods and services on the fly without owning them, and as a result consumers increasingly won’t want to. Owning things has benefits, like on-demand access and appreciation in some cases. But it has three key costs: maintenance, depreciation and a loss of option value to do something else with your capital. Technology is vaporizing the relative advantages of ownership and making the costs more apparent (Here’s a TED talk I gave on the topic a few years ago for more color.)
We are only at the beginning of the curve. Even as Airbnb, Uber, and Lyft have become poster children for the sharing economy, we continue to underestimate how on-demand access is going to disrupt what we buy. The real disruption will happen once our self-driving cars and drones enable a massive “de-duplication” of physical goods we use occasionally at work and home, from guitars to cameras, which companies like Lumoid are already renting out.
Consider the decreasing demand for kitchen appliances if, as is happening in cities like New York, kitchens continue to shrink. It’s happened in recent years as more people eat out more often. Surely the trend will continue as new on-demand food delivery services flourish.
Of course, some people do like to own things for sentimental value. I call this the “Rolex rebuttal” to the rental economy thesis, since the example people often use is the fact people like to spend a few thousand dollars on owning a statement watch for their wrists for all sorts of reasons, including personal aesthetic value and the value of showing off. True, but I believe those people represent a shrinking minority and that most people will act in their economic interest over time and find more efficient ways to express themselves and their tastes.
Services will have more staying power than goods. Just because we will need fewer cars doesn’t mean that we will need less gas and electricity. If anything, we will likely need more as lower costs increase demand. Massage therapists, nannies, housekeepers, chefs and the like are safe and could see demand for their services rise as it gets easier for consumers to book services; however, anything or anyone that is producing goods that currently have a very low utilization rate once delivered to the end consumer should be worried.
Remember When People Owned Music?
Perhaps the best evidence of the future can be found in the recent past. In the late 1990s and early 2000s, we were having a similar conversation about digital media. The music industry tried to convince us that people would still want to own albums even when more tracks were available on demand through subscription services because people enjoyed ownership, and showing off a music collection helped one express his or her identity. The movie industry talked about DVDs the same way.
It didn’t work out so well for them, and U.S. music industry revenues stood at $7 billion in 2013, half of what they were in 1999. It turns out the sentimentality around ownership and the idea of goods as self-expression was trumped by efficiency and lower costs. Moreover, people can also express themselves through digital media through Facebook and other services that aggregate information through profiles. Instagram helps people express their taste, travels and status as much, if not more, than a Rolex can.
Consumers swapped into cheaper and more efficient substitutes, as they will again. Given that consumer consumption, excluding real-estate, is about 40 percent of U.S. Gross Domestic Product, it will be a painful shift. And while it is certainly true that growing demand outside of the developed world might offset some of the pain that producers will feel, it is going to hurt.
This will be only be compounded by the fact that the financial markets will anticipate the trend and punish stocks before their bottom lines start to feel it. That could drive the shift to happen even faster than it would otherwise; companies could collapse even before demand for their goods shrinks.
Ultimately I am an optimist. Reducing ownership and increasing the utilization of the things we produce as a society should have many benefits. It should make us far more nimble as a society, and it ideally will make us more green. It could help change our consumerist society where people are owned by their possessions and the debt they incur for them, but the shift is going to be quite jarring.