4 Examples of successful asset-light strategies

In our previous article we already reported on the asset light strategy. This time we look at companies that have become successful precisely because of this strategy.

Lightly packed bag
Picture of buses

Flixbus

Until 2012, long-distance bus services were virtually prohibited by law in Germany. A law that had existed since 1935 prevented long-distance bus lines that competed with existing market participants. This means that a long-distance bus route between Cologne and Berlin was not possible, as Deutsche Bahn already served this route with trains and its own long-distance buses. Since Deutsche Bahn is known to serve many places in Germany, this law inevitably meant that there were hardly any free connections. With the money, it was feared that long-distance public transport funded with public money, such as rail lines, would no longer be profitable due to declining passengers. On 1 January 2013, the market was liberalised and numerous providers entered the market, including MeinFernbus, PostBus or even Flixbus. Although FlixBuswas only the third largest provider in 2013, Flixbus managed to be the top dog in 2017 with more than 92% market share and even took over Greyhound, the largest and longest provider on the US market. But how did FlixBus manage this?

In contrast to its competitors (except MeinFernbus), FlixBus relied early on on on an asset light strategy and did not buy its own buses, but worked together with other travel companies and their buses. Flixbus thus took over the marketing of the long-distance bus routes and took care of the ticket platform, but handed over the actual core business to its subcontractors, who then transported the guests on the routes. This reduced Flixbus' capital requirements immensely, as one long-distance bus alone is worth a mid-six-figure sum. In addition, the business risk and necessities such as insurance were passed on to the subcontractor.

The merger of Flixbus and MeinFernbus in 2015 created today's monopolist on the German and European long-distance bus market.

Uber

Uber

Founded in 2009, the US company is the largest ride-sharing company in the world after the Chinese app "Didi". In European countries like Germany, Uber is a taxi app. Uberis an intermediary platform that matches rides between users and drivers. The user chooses his destination and his preferred mode of transport (from 08/15 cars to luxury cars and SUVs). In addition, the user only pays the price that he and the driver have agreed to in the app. In contrast to the traditional taxi business, Uber drivers own their cars themselves and are self-employed, offering themselves on Uber and other ridesharing platforms at the same time. With traditional taxis, the vehicle belongs to the taxi company and not the driver. Similar to FlixBus, Uber's asset-light strategy has several advantages:no capital needs to be spent on cars, which would reduce Uber's CapEx many times over. OpEx like insurance and maintenance of a car are passed on to the driver Uber can scale faster as fleet purchases for expansions are not needed. Incidentally, Uber does a similar thing with UberEats, its in-house meal delivery service, where couriers use their own bikes and cars.Perhaps at least the relationship between drivers and Uber will change soon, because since the end of 2021, for example, Uber has to treat its drivers as employees in the UK.

Sliced pizza

Milano Vice

Milano Vice is a virtual restaurant chain. In contrast to food delivery companies such as Lieferando, where the delivery service serves any restaurant and delivers to any user, or Domino's, where a physical franchise (i.e. asset heavy) delivers food to customers via its own platform with its own drivers, Milano Vice takes a completely different approach. With its pizza-as-a-service, Milano Vice delivers ingredients, boxes and a tablet to participating restaurants or similar locations, enabling Milano Vice to serve and deliver to larger areas relatively quickly while ensuring that the quality (or taste) remains the same across branches. Thus, the user can expect the same taste in Cologne as well as in Berlin.

Airbnb

Airbnb

When you go on holiday, where do you look for your accommodation? Chances are yours is either booking.com or Airbnb. Airbnb was founded in 2007 by Brian Chesky and Joe Gebbia to make their "bed and breakfast", a mattress in their kitchen, available online during an important conference. Within 15 years, Airbnb has grown to become the largest hotel and accommodation platform and still stands for staying with private individuals. While people used to book hotels on their respective websites and use comparison portals to find them, Airbnb combines both business models and brings them together seamlessly. In 2022, Airbnb changed its interface to focus on "experiences". These experiences are extremely rare and often unique accommodations like a remote snow cabin in Scandinavia or tree houses {LINK} in France. This further sets Airbnb apart from portals like Booking.com or Agoda, which are more like comparison portals and whose offerings can usually be found on other sites as well.

But why doesn't Airbnb create its own experiences? Properties are very capital intensive and need to be run. With Brian and Joe's own Airbnb, the founders themselves realised what a job it is to run a bnb. The spaces need to be furnished, the flat needs to be marketed and guests need to be helped with check-in and check-out. As a platform provider, this work is shifted to the hosts, so it is no longer Airbnb's problem whether Bnb's are booked out enough or whether hotels and similar businesses were closed during the lockdown. But Airbnb also provides elastic pricing based entirely on current demand. This means that hosts receive more money for the same space during weddings than if they always charged the same price.

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