November 17, 2019
Arun Sundararajan | Trust and Digital Platforms: The New Rules

Arun Sundararajan | Trust and Digital Platforms: The New Rules

(students applauding) – Every couple of years as part of this massive
general social survey, Americans are asked
the following question. I’m gonna ask you the same question. How many of you feel that people
can be trusted in general? How many of you feel that you
can’t be too careful in life? Okay, you are a far more
optimistic crowd than the average respondent to this survey in
2014, but one of the things we’ve noticed is a steady
decline, in American society in how much people trust
people they don’t know. This decline is most stark
among those millennials that we were just talking about. Just one in five millennials
believes that people in general are trustworthy. What’s striking is that this
isn’t an isolated statistic. The Edelman Trust Barometer,
which is the gold standard for how much trust there
is in institutions, fell by an unprecedented 23 points in the United States this year. These and other signals
are leading a lot of people to believe that there is a
crisis of trust in society today. I’m here to tell you that
it’s not really a crisis, it’s a transition. We are moving away from
institutions that historically provided trust for business
and trust in society and towards a new family, a new generation of digital institutions that
are going to provide business and social trust in the future. And these institutions are typically
branded digital platforms. Before I get into a few
examples to make my point, let’s have a working
definition of what trust is. I like this one. This is a good definition
of commercial trust. It’s a pretty good working
definition of trust in romantic relationships as well. I see some people frowning
as they recall past breaches of commitment in romantic relationships. The idea that digital
platforms can facilitate trust, commercial trust is perhaps
illustrated really well by the dramatic rise of Airbnb. Think about it, you don’t know
what that guest is gonna do when you hand over the keys
of your apartment to them. You don’t know how reliable
that host is gonna be when you agree to sleep
in their spare bedroom. So, how does Airbnb get so
many people to actually trust these strangers in these
high stakes situations? Because, yeah, the millennials
who don’t trust people are flocking to Airbnb,
but it’s not just them. This is a count of how many
people were staying at the world’s largest hotel chains
on New Year’s Eve last year. It’s dwarfed by the number
of people who were staying in an Airbnb and Airbnb’s
growth trajectory is that, the hotel’s is that and so,
this is clearly mainstream. This is clearly how the world’s
short term accommodation is going to be provided.
And how Airbnb does it is by combining a set of
different digital cues, some that are natively digital,
some that are digitizing real world sources of trust. So, you can hold your
license up to the webcam and have it digitized and have
it validated in 30 seconds. The social capital that
we’ve built in the real world is now being digitized through
platforms like Facebook and LinkedIn. So that can be brought online. We can learn from the
experiences of others by reading their user
reviews and of course, there’s the brand of Airbnb. That agglomeration put
together creates a new digital trust institution
that has reshaped the short term accommodation industry. It’s not an isolated example, though. I’ve seen examples of platforms
like this for consultants, for lawyers, for public relations agents, early examples in healthcare, in energy, even in grocery retailing. There’s a wide array of
examples in transportation. Many of you are familiar
with Uber, if you lived in China, with Didi,
Lyft, Go-Jek, Ola, Grab. But my favorite example from
the transportation sector of a trust platform is a
company called BlaBlaCar. BlaBlaCar is a relatively
small company, not that small. It’s based out of France and
what they facilitate is… My colleagues think that I like BlaBlaCar ’cause I like saying BlaBlaCar. (students laughing)
It’s a fun word to say. But what they do is they
allow you to sell a seat in your car if you’re driving
from one city to another. So, let’s say you’re
going from Paris to Lyon, you’re driving from Munich
to Hamburg, you’re driving from Madrid to Barcelona,
you’re driving your snazzy new BMW 7 Series, you can
advertise seats for sale. Leather seats, good
leg room, tinted glass, you can advertise playing soft jazz, say that you don’t smoke,
you’re not too talkative. They even have a rating
that you can give yourself for how talkative you are. You rate yourself as Bla,
Bla-Bla or Bla-Bla-Bla. (students laughing) And it’s funny because the
number of people who are making this leap of trust, getting
into a stranger’s car and saying “drive me to
another city,” those are all the blue dots there,
is growing every year. Every three months,
BlaBlaCar carries five times as many people as the French
train network Eurostar. Today, there are three times
as many people on BlaBlaCar as there are on Amtrak. So, without investing a single
dollar in steel or concrete, they have created using just
a digital trust infrastructure a global transportation
network. This is the power of digital trust in many ways
and it’s part of the reason why I got so interested in
them because any company that is convincing people
at scale to take that leap of trust and get into a
stranger’s car and say drive me to another city is worthy of attention. My mom always told me “Don’t
get into strangers’ cars and ask them to drive you to other cities.” She also told me not to
sleep in strangers’ bedrooms, but by the time she told
me, that ship had sailed much before that. That was a lost cause there. Anyway, I surveyed
people who used BlaBlaCar in 11 different countries
about three years ago because I was trying to
understand what caused them to make this leap of trust and one of the findings
was stunning to me. People who use BlaBlaCar will
trust a stranger with a full BlaBlaCar profile at a level
that is higher than the level of trust they place in neighbors
and colleagues, at a level that is way higher than what they place on a social media contact. This is not digital
blindness and at a level that is approaching the
level of trust they place in friends and family. This was consistent across
all the 11 countries that I surveyed BlaBlaCar users in. My first theory was that
people who use BlaBlaCar just have really lousy
neighbors and colleagues. This is why they’re jumping
into strangers’ cars and saying “Drive me to another city!” But a more reasonable explanation
seems to be that it’s not just that the trust
infrastructures have become really robust, it’s that our
confidence in our ability to read these digital trust
cues and make assessments about things that we don’t
know has also improved in the last decade. We’ve been reading those
Amazon reviews, choosing restaurants
based on Yelp, vacations through TripAdvisor, so our
own confidence in our ability to read the digital trust
cues and make assessments has improved. This is what has led to the
emergence of this fifth wave of trust in commercial history. I’m a big believer in
learning from business history and I think about the evolution of trust. Initially, we just used to
trade with people we knew and then government
regulations for food, primarily, came along, so you could
buy milk from the person in the neighboring village
and know that it was milk and not rice powder mixed with water. And in the third phase along
came courts and contracts and other economic
institutions, property rights. The last 50 years on the
consumer side, trust has largely been driven by brand. You go to Think Coffee, you
don’t ask them for a contract. You just expect that the
coffee will be as good today as it was yesterday ’cause they
want your business tomorrow. But now, we’re in this
fifth phase of trust through digital community. And the reason why I’m asking
you to pay attention to this on your first day as MBA
students is because I believe that if you understand the
evolution of commercial trust, you understand the evolution of business. As the trust infrastructures
evolve, the business models will follow them, so that
the way that we organize the world’s economic activity in 20 years is gonna look very different
from what it does today and that is largely
because of the emergence of these new trust infrastructures. I’m running out of time, so
I’ll conclude with a quick observation on moving
from commercial trust to societal trust. It struck me that Facebook
and Google and the other large digital platforms are not just bigger than the largest nation-states
the world has ever seen. They’ve also started taking
on very government-like roles. Their power in society
in some sense is starting to look like that of the Medici family or the Catholic Church in Medieval Europe where there was this
jockeying of power between these institutions and
nation-state governments. A lot of people think
that I’m overstating this, but if I look at what these
platforms are doing today, censorship is done by YouTube
and Facebook algorithms, not by nation-state governments. Google has far more
surveillance capability than most nation-state governments. Money used to be backed
exclusively by governments. Now you have Bitcoin and
Ethereum backed by code and a crowd. What I can do with my music
and my books isn’t shaped by copyright law, it’s
shaped by the license I have with Apple or Amazon. My Facebook ID is more
important than my government ID and the list goes on. My message to you here is
that as we enter a world in which these digital trust
institutions are central not just to business, but to
society, it’s really important that we have a playbook. We’re gonna have decentralized
blockchain-based exchanges for transactions. In 20 years, we’ll have
millions of autonomous vehicles. We have to trust the
intelligence in their systems to carry us safely as part of our urban transportation networks. We’re gonna have augmented
reality technologies and 5G networks and we have
to trust these platforms to reshape reality in a
way that’s good for us. We’re going to imbue
autonomous weapon systems with artificial intelligence
and we have to trust their judgment on when to and
when not to take a human life. The kind of playbook that we need has to look for five things. It has to look for how
much transparency, how much algorithmic fairness, what
kind of data property rights, what kind of user engagement
in key decision making and finally, what kind of
due process to give people who feel like the system has wronged them. ‘Cause these digital institutions aren’t designing themselves, they’re being consciously
designed and we have to participate in their
design because otherwise the world that is going
to be designed for us is not going to be a world
that we want to live in. Thank you. (students applauding)

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