We all are moving into an era where owning depreciating products has become the thing of the past. Today’s millennial wants to have access to lifestyle products than own them. Since their access cost to the products is only a fraction of the total cost, businesses providing access end up spending a higher upfront cost to start off the operations and take relatively longer periods to scale them as well.
We have seen numerous examples in the past where an asset light model has worked wonders. The classic example can be any big hotel chain versus Airbnb where the latter doesn’t own any of the hotels and has widespread reach across the globe.
Asset light models are generally the ones which work as a marketplace where the business ends up making the buyer and the seller meet on a common platform and draw a commission as revenue. Traditionally the oldest form of business is indeed commission driven.
Being asset light brings with it a myriad of benefits. It means lower operating costs and risks. The management is then able to entirely focus on core risks and opportunities. Plus, an asset-light company has the flexibility to expand to a new location at the click-of-a-button, increase the number of partners and expand its capacity. Scalability of an asset light company is not limited by its capital allowing it to expand rapidly and globally in certain cases. Through outsourcing or asset sharing, such companies can focus on building their R&D.
Asset-heavy models, on the other hand, tie up significant capital and frequently prove less flexible in a dynamic environment. Being asset light is the need of day. Companies and their business models get outdated frequently these days. Competition arises from unknown quarters and holds the potential to disrupt the existing markets. In such a dynamic market scenario, the inertia and inflexibility that accompanies is what must be noted.
One example of such business cases are today’s rentals companies . There are broadly three models that online rental companies use.