How Infrastructure is Getting Better and More Affordable Now: How Much Will the Surcharge Go?
Posted On July 27, 2021
There’s a big difference between infrastructure companies and startups, says Andrew Miller, chief executive of infrastructure consulting firm Accenture.
It’s important to understand which companies can really offer the most value for the most people, he says.
“If you think about it, infrastructure companies are really not startups,” he says, and they are not offering much in the way of infrastructure investment.
“They’re a bit like car companies, you know.
They’re trying to sell cars, but they don’t actually have a lot of money to spend.”
Infrastructure companies offer services that connect consumers and businesses to their networks, he adds.
For example, a company like Airbnb, which has built a huge online community of users who have been sharing their home addresses, might offer a service to help connect a home to a network.
Airbnb has a strong business, and that means it can raise money quickly, says Miller.
But what if the home doesn’t want to pay for that service?
“If Airbnb is in a bad financial position, it’s very hard for them to raise the capital to help pay the bill.
And if they get a lot more people who want to share their home, and a lot fewer people who don’t want that service, they have to pay the bills.
And then they might have to go out of business.
That’s not a good business model.”
The infrastructure companies themselves aren’t doing very well either.
According to a report by the McKinsey Global Institute, the global infrastructure industry has seen its revenue decline over the past two years.
According an analysis by PricewaterhouseCoopers, the average revenue per customer fell by 5.4 percent between 2015 and 2016, and by 6.6 percent in 2017.
That means infrastructure companies have lost out on an estimated $1.2 trillion in revenue, while startups have made a profit of $2.3 trillion.
In other words, infrastructure is losing out.
So which companies will survive?
The answer, Miller says, is very complicated.
Infrastructure companies tend to be “fringe” businesses that don’t offer a lot in the ways of services and are more focused on building customer relationships.
But the question is whether they will be able to do so without losing customers, says Mike Shiffman, a senior analyst with the firm.
“In the future, it really depends on the technology,” he notes.
“We are not seeing this kind of rapid growth that we’ve seen in the consumer Internet sector.”
What does this mean for startups?
“A lot of them will be in trouble,” Miller says.
He cites the example of Uber, which is in the process of building a competitor to Lyft, the ride-sharing service.
“That’s a startup, and Uber is in trouble because it is so large,” he adds, “and it’s not really a service.”
That’s because, he notes, Uber is built on a platform that’s more than just a car company.
The company is also an insurance company that has a huge customer base.
Uber’s future, in other words.
If the company is unable to attract customers, it could suffer, as happened to Lyft.
“There’s a real danger that it may not have a long life because it’s so small,” says Shiffyman.
“It’s like the old joke about the horse that was riding with a broken leg.
You can’t keep riding it.”
For startups, he suggests, a business model that relies on a lot less customer interaction than a car-based platform may be more viable.
For instance, Airbnb might have a product that lets users rent out their homes, rather than buying them.
But Airbnb may also be able get a customer to share the apartment through a service like Airbnb Home, and the company might not have to be as careful as it needs to be to make sure it is serving all the people who request a room.
But even that model might not be sustainable, says Shiefman.
In fact, it might be detrimental to the business model, because it will require a lot longer time to build a business.
Airbnb might end up charging for more than a room, and then charging more than it is worth.
“The question is what’s the most sustainable business model?” says Shifman.
That could include a business that offers services that customers want, but not necessarily the ones that Airbnb or other companies like Uber rely on.
“You want to be able, if you want to, to offer services like Airbnb and Home,” he points out.
“But that’s not always the case.”
So what’s to be done about it?
Some of the infrastructure companies may find themselves unable to pay back the money they’ve borrowed.
They might have trouble meeting their customers’ needs.
But that’s unlikely to be a problem for startups, Miller suggests.
“For the most part, infrastructure firms are making money, and it’s a lot easier to borrow money than to