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Impact of OTA Bias and Consolidation on Consumers

Online travel agencies (“OTAs,” such as Expedia and Priceline) charge hotels fees that can reach 25% or even more. In today’s post, I assess the causes of these fees as well as the tactics OTAs have used to punish hotels that object — penalizing hotels that discount through other channels, while simultaneously boosting those that agree to pay more. With Expedia and Priceline (including the many other companies they have acquired) jointly controlling 95% of the OTA market, competitive forces impose limited discipline on OTA practices.

My bottom line: OTA practices drive up costs to both hotels and consumers. At the very least, OTAs need improved disclosure of both bias and advertising. Meanwhile, it’s hard to defend OTAs’ efforts to punish hotels that sought cheaper distribution elsewhere. The time is right for the FTC and state attorneys general to examine this market.

My full article:

Impact of OTA Bias and Consolidation on Consumers

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Uber Can’t Be Fixed — It’s Time for Regulators to Shut It Down

Edelman, Benjamin G. “Uber Can’t Be Fixed — It’s Time for Regulators to Shut It Down.” Harvard Business Review (digital) (June 21, 2017). (Translations: Japanese, Russian.)

From many passengers’ perspective, Uber is a godsend — lower fares than taxis, clean vehicles, courteous drivers, easy electronic payments. Yet the company’s mounting scandals reveal something seriously amiss, culminating in last week’s stern report from former U.S. Attorney General Eric Holder.

Some people attribute the company’s missteps to the personal failings of founder-CEO Travis Kalanick. These have certainly contributed to the company’s problems, and his resignation is probably appropriate. Kalanick and other top executives signal by example what is and is not acceptable behavior, and they are clearly responsible for the company’s ethically and legally questionable decisions and practices.

But I suggest that the problem at Uber goes beyond a culture created by toxic leadership. The company’s cultural dysfunction, it seems to me, stems from the very nature of the company’s competitive advantage: Uber’s business model is predicated on lawbreaking. And having grown through intentional illegality, Uber can’t easily pivot toward following the rules.

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Passenger Right to Record at Airports and on Airplanes? with Mike Borsetti

Passengers have every reason to record airline staff and onboard events–documenting onboard disputes (such as whether a passenger is in fact disruptive or a service animal disobedient), service deficiencies (perhaps a broken seat or inoperational screen), and controversial remarks from airline personnel (like statements of supposed rules, which not match actual contract provisions). For the largest five US airlines, no contract provision–general tariff, conditions of carriage, or fare rules–prohibits such recordings. Yet airline staff widely tell passengers that they may not record–citing “policies” passengers couldn’t reasonably know and certainly didn’t agree to in the usual contract sense. (For example, United’s policy is a web page not mentioned in the online purchase process. American puts its anti-recording policy in its inflight magazine, where passengers only learn it once onboard.) If passengers refuse to comply, airline staff have threatened all manner of sanctions including denial of transport and arrest. In one incident in July 2016, a Delta gate agent even assaulted a 12-year-old passenger who was recording her remarks.

In a Petition for Rulemaking filed this week with the US Department of Transportation, Mike Borsetti and I ask DOT to affirm that passengers have the right to record what they lawfully see and hear on and around aircraft. We explain why such recordings are in the public interest, and we present the troubling experiences of passengers who have tried to record but have been punished for doing so. We conclude with specific proposed provisions to protect passenger rights.

One need not look far to see the impact of passenger recordings. United recently summoned security officers who assaulted passenger David Dao, who had done nothing worse than peacefully remain in the seat he had paid for.  The officers falsely claimed that Dao was “swinging his arms up and down with a closed fist,” then “started flailing and fighting” as he was removed.  United CEO Oscar Munoz’s falsely claimed that Dao was “disruptive and belligerent”.  Fortunately, five passenger recordings provided the crucial proof to rebut those claims.  Dao and the interested public are fortunate that video disproved these allegations. But imagine if United had demanded that other passengers onboard turn off their cameras before security officers boarded, or delete their recordings afterward and prove that they had done so — consistent with passenger experiences we report in our Petition for Rulemaking. Had United made such demands, the officers’ false allegations would have gone unchallenged and justice would not have been done. Hence our insistence that recordings are proper even–indeed, especially–without the permission of the airline staff, security officers, and others who are recorded.

Our filing:

Petition for Rulemaking: Passenger Right to Record

DOT docket with public comment submission form

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Enumerating Uber’s Scandals

Collecting my thoughts for an article about Uber’s mounting scandals and the proper legal and regulatory response, I took some time to review the range of recent concerns. It’s overwhelming — new issues arising daily, and prior problems almost inevitably forgotten. But by dividing the misdeeds into a taxonomy of subject areas, I’m seeing trends — identifying the areas where Uber falls furthest short. I offer my notes to others in hopes that they can help.

My tabulation:

Uber Scandals

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David Dao on United Airlines (teaching materials)

Edelman, Benjamin, and Jenny Sanford. “David Dao on United Airlines.” Harvard Business School Case 917-026, May 2017. (educator access at HBP. request a courtesy copy.)

In widely circulated videos, United staff and Chicago security forcibly remove a passenger from his paid seat on an aircraft, injuring him severely. United leadership must decide how to respond to public outcry.

Teaching Materials:

David Dao on United Airlines – Teaching Note (HBP 917027)

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Racial Discrimination in the Sharing Economy: Evidence from a Field Experiment

Edelman, Benjamin, Michael Luca, and Daniel Svirsky. “Racial Discrimination in the Sharing Economy: Evidence from a Field Experiment.” American Economic Journal: Applied Economics 9, no. 2 (April 2017): 1-22.

In an experiment on Airbnb, we find that applications from guests with distinctively African-American names are 16% less likely to be accepted relative to identical guests with distinctively White names. Discrimination occurs among landlords of all sizes, including small landlords sharing the property and larger landlords with multiple properties. It is most pronounced among hosts who have never had an African-American guest, suggesting only a subset of hosts discriminate. While rental markets have achieved significant reductions in discrimination in recent decades, our results suggest that Airbnb’s current design choices facilitate discrimination and raise the possibility of erasing some of these civil rights gains.

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Build Interactive Web Sites as Easily as Spreadsheet Formulas?

"Man is a tool-using animal… Without tools he is nothing, with tools he is all."     – Thomas Carlyle, 1834

I’m rarely effusive in my praise for a new tool, but I can hardly overstate my excitement about Bubble, a web programming system. The basic concept: Draw the web app you want, using standard components like text boxes, images, and buttons. Create "thing" objects to hold the app’s data, specifying the characteristics (fields) of each thing and the way one type of object relates to another. Then add flowchart-style "workflow" procedures to explain what happens when. Amazingly, this process yields a multiuser interactive web app that works as you instructed and as you’d expect.

Use Cases

Bubble is a particularly clear fit for entrepreneurs whose business concepts call for custom web apps. Suppose you have an idea for an online service—maybe you’ll match dog-walkers with dog-owners needing assistance, or you’ll help annoyed motorists report commercial drivers parked illegally. For such a project, you might hire a developer through a service like Upwork. But an outsourced developer carries some important problems. For one, the developer might not see the vision you have in mind, despite your best efforts to explain the features desired. (That’s all the tougher because many entrepreneurs don’t have experience writing specifications or providing precise requests.) In all likelihood, you’ll want some adjustments based on tests with early customers and a better understanding of their needs. Even if things go perfectly, you’ll often end up beholden to the developer for future changes; switching developers often entails prohibitive delay and expense given the difficulty of editing other people’s code. Meanwhile, developers also worry about creeping project scope, unclear requirements, and payment disputes—so they end up having to quote high fees in anticipation of these predictable problems. Entrepreneurs often accept these tradeoffs for lack of alternatives. But Bubble offers another way—letting a diligent entrepreneur build a working prototype without an outside technical specialist. Doing the work yourself, there’s no risk of communication breakdown, and changes entail effort but not out-of-pocket expenditure. A surprisingly committed community of other Bubble users provides assistance with anything unexpected.

In fact, Bubble should be equally useful in established organizations. Most companies have centralized software for their core processes, but often ad hoc solutions around the edges. Software for submitting expense reports, requesting a loaner laptop, or signing up for the company softball team? These are usually ad hoc, making do with Dropbox or Google Docs or a piece of paper on a clipboard. Furthermore, as a company’s core business changes, some features end up missing from the company’s main software systems. Often tools are carryovers from decades past—making it difficult to add modern improvements. One might hope that well-run companies would prioritize their requirements for robust implementation by centralized IT staff. But finding development resources can be surprisingly difficult, with constant pressure from excess requests. Here too, Bubble offers a promising alternative, allowing the end users who best know a situation to write the software that will make them more efficient. Savvy end-users have been building this kind of thing for years, all the way back to the PC revolution. But with Bubble, it’s modern, web-enabled, and API-connected.

Bubble in Context

It’s natural to compare Bubble to Visual Basic, the Microsoft programming environment that made programming accessible to a generation of self-taught enthusiasts (myself included). But where VB ultimately requires developers to write code (albeit in a relatively intuitive language), Bubble does not. Instead, Bubble’s workflow instructions are graphical, composed of actions like "make changes to a thing" or "go to page," each chosen from a menu. Then there’s no frightening blank screen confronting a new developer, and no magic syntax to learn.

In some respects, Bubble is closest to worksheet functions, widely used in Microsoft Excel, Apple Numbers, and Google Sheets. One might also compare Bubble programming to macros in Microsoft Access or scripts in FileMaker Pro. In each of these environments, as in Bubble, designers use a series of predefined functions, chosen from an on-screen menu, to create software logic. But Bubble’s apps can do notably more. For example, compared with Excel, Bubble boasts a full relational database with custom types a user creates. And where Excel files usually reside on a user’s hard drive, Bubble apps run in the cloud—naturally combining data from multiple users with full interactivity. Running in the cloud, Bubble can easily interact with other services—show a Google Map, charge a user’s credit card, add an email to a mailing list.

Bubble is arguably closest to Microsoft Visual Studio LightSwitch, which similarly helps casual developers build web forms to access server-side data, automating low-value "plumbing" tasks. Indeed, I’m a big fan of LightSwitch. But LightSwitch comes with some baggage from its Microsoft roots. The paid license isn’t a showstopper for serious users, and these days LightSwitch can build standard HTML apps usable on any platform and in any browser. Ultimately, most LightSwitch apps require that users write some code, creating a steeper learning curve and excluding a fair number of users who can make good use of Bubble.

One might also compare Bubble to the various web site templates. Two decades ago, GeoCities made it easy to make and host a web site with no code required—but Bubble is quite different, building interactive database-backed applications , not just static web pages. Some modern template-based tools allow limited interactivity such as shopping carts and signup pages. With these tools, users are stuck with the logic that a designer anticipated; it’s usually possible to hide unwanted options or add extra pages, but not to change the underlying concept or workflow. In contrast, Bubble lets a designer build an arbitrary site and with a novel structure.

Handholding for those who need it

Many advanced users can reasonably follow Bubble’s online training, then design their own apps. Indeed, that’s how I learned Bubble. The company’s interactive lessons show key tasks.

A set of consultant-advisors now offer another way. Broadly, these vendors use Bubble to write apps more quickly and at lower cost than typical consultancies, passing much of the savings back to customers. And if customers later want to make modifications of their own, they can learn a bit of Bubble in order to do so at zero out-of-pocket cost.

I’m most familiar with AirDev, a design shop where business-oriented generalists build Bubble apps to suit customer requirements. A few months ago, AirDev added a "sprint" option with flat pricing and an amazing five day turnaround for scope and build. They offered me a free test, building a custom scheduling app to my specifications. I told them what I wanted; they came back with reasonable clarifying questions; and a week later I had an app. I sent a few adjustment requests, which they quickly implemented. And when I had subsequent ideas for further improvement, I used the standard Bubble development environment to make changes. I’m now using the tool with students, to rave reviews.

Limitations

When I first tried Bubble a few years ago, I found some significant limitations—difficulty getting data in and out, limitations on what APIs were supported, sluggish pages. Those challenges all seem to be in the past. Meanwhile, a lively forum of Bubble enthusiasts helps to vet and prioritize feature requests, accelerating improvements.

My relationship with Bubble

I wrote this post on my own, not at the request of Bubble or AirDev. I’m a big fan of their approach but have no economic relationship with either company. AirDev’s generous offer of a free "sprint" came out-of-the-blue and with no strings attached, not contingent on my writing about it; I elected to do that on my own because I was so impressed with their offering.

Bubble was founded in 2012 by Josh Haas and Emmanuel Straschnov. Though Emmanuel was not my student during his time at HBS, he has been kind to the school, including assisting numerous "FIELD 3" student teams working on rapid-turnaround microbusinesses, as well as guest-teaching in my class as part of my efforts to help business students strengthen their software engineering skills.

AirDev came in part from one of my former students, Andrew Haller, who joined with Vlad Leytus based on their shared experience wanting to make it easier to build online services. As I mentioned above, AirDev offered me a free "sprint," but this article was at my own initiative.

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Design of Search Engine Services: Channel Interdependence in Search Engine Results

Edelman, Benjamin, and Zhenyu Lai. “Design of Search Engine Services: Channel Interdependence in Search Engine Results.” Journal of Marketing Research (JMR) 53, no. 6 (December 2016): 881-900. (First posted April 2013.)

The authors examine prominent placement of search engines’ own services and effects on users’ choices. Evaluating a natural experiment in which different results were shown to users who performed similar searches, they find that Google’s prominent placement of its Flight Search service increased the clicks on paid advertising listings by more than half while decreasing the clicks on organic search listings by about the same quantity. This effect appears to result from interactions between the design of search results and users’ decisions about where and how to focus their attention: users who decide what to click based on listings’ relevance became more likely to select paid listings, while users who are influenced by listings’ visual presentation and page position became more likely to click on Google’s own Flight Search listing. The authors consider implications of these findings for competition policy and for online marketing strategies.

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Three Problems in Protecting Competition (teaching materials) with Lena Goldberg

Edelman, Benjamin, and Lena Goldberg. “Three Problems in Protecting Competition.” Harvard Business School Case 917-012, November 2016. (Revised March 2017.) (educator access at HBP. request a courtesy copy.)

In three mini-cases, readers see a range of disputes in competition law—and apply legal principles to assure fair competition.

Teaching Materials:

Three Problems in Protecting Competition – Teaching Note (HBP 917014)