Of drills and holes and Ronald Coase: the limits of sharing


“Why do people buy products?” asked Theodore Levitt, the celebrated Harvard Business School professor, at the start of his 1969 book The Marketing Mode. He suggested an answer:

Leo McGivena once said, “Last year one million quarter-inch drill bits were sold — not because people wanted quarter-inch drill bits but because they wanted quarter-inch holes.” People don’t buy products, they buy the expectation of benefits. People spend their money not for goods and services, but to get the value satisfactions they believe are bestowed by what they are buying. They buy quarter-inch holes, not quarter-inch drills. That is the marketing
view of the business process.

And so it began, this meme of drills and holes.

An advertising man, apparently, Leo McGineva had become Leo McGinneva by 1983, when Levitt again referred to him and his bit-hole observation, in the book The Marketing Imagination:

By asserting that people don’t buy things but buy solutions to problems, the marketing imagination makes an inspired leap from the obvious to the meaningful. “Meaning” resides in its implied suggestion as to what to do – in this case find out what problems people are trying to solve. … It is characterized by Leo McGinneva’s famous clarification about why people buy quarter-inch drill bits: ‘They don’t want quarter-inch bits. They want quarter-inch holes.'”

McGinneva’s words eventually migrated into the mouth of Alex Steffen’s brother. In a September 2006 blog post about “the riches of a dematerialized life,” Steffen, a sustainability advocate, wrote that

most power tools are used for only minutes a year. And, when it comes right down to it, what most of us really want is not the tool itself but the thing we get by using the tool. As my brother puts it, ‘You want the hole, not the drill.’

The desire for the hole, you’ll note, has now subsumed not just the bit but the entire drill. Steffen returned to the subject a few months later, writing in a February 2007 post:

Take power drills. Supposedly, the average power drill is used for somewhere between six and twenty minutes in its entire lifetime. And yet supposedly almost half of all American households own one. … But what we want is the hole, not the drill.

Supposedly, supposedly. There were lots of links in Steffen’s post, but no source was provided for the assertion that the average power drill is used for a total of just six to twenty minutes during its lifetime. (I find the numbers highly suspicious. I wrote to Steffen asking for his source, but haven’t heard back.)

But that’s just a detail. Whether accurate or not, the drill-hole story was compelling as a rhetorical device. When the “sharing economy” went viral, it dragged the woefully underutilized power drill along with it. The drill became, as Tom Slee writes, “one of the archetypes of the Sharing Economy.” And, along the way, the archetypal drill warped our view of that economy.

Rachel Botsman, a business consultant, earned cheers when she told the story of the drill and the hole in a TED Talk on “collaborative consumption” in 2012:

How many of you have a power drill, own a power drill? Right. That power drill will be used around 12 to 13 minutes in its entire lifetime. It’s kind of ridiculous, right? Because what you need is the hole, not the drill.

So why don’t you rent the drill, or, even better, rent out your own drill to other people and make some money from it?

And she used the example in What’s Mine Is Yours, a book on the sharing economy that she wrote with Roo Rogers:

If you are like most people, you may use a power drill somewhere between six and thirteen minutes in its entire lifetime. … Ownership of a product you use for just a few minutes makes no rational sense. There is the obvious cost of the money spent on the drill itself, but there are also the hassles of replacing those little screw heads that are always going missing.

Little screw heads?

The meme received its broadest airing in 2013, when New York Times columnist Thomas Friedman quoted Airbnb founder Brian Chesky:

“There are 80 million power drills in America that are used an average of 13 minutes,” says Chesky. “Does everyone really need their own drill?”

I guess I don’t have to point out that if you take the average of 6 and 20, you end up with 13. It sounds so precise, doesn’t it?

It’s interesting that the power drill meme went from being a lesson about hard-nosed corporate marketing to being a starry-eyed idea for reducing resource consumption to being a full-blown, VC-ready business concept. The meme only ever really made sense in the sustainability context — and only theoretically even there. If a lot of people were to start sharing common household goods, rather than owning them outright, that would indeed reduce the amount of raw materials used in manufacturing the goods.

In the other two cases, the power drill example was pretty much idiotic. Sorry, Leo McGinneva, but people don’t buy a drill because they want a hole. They buy a drill because they want a drill. (If you don’t believe me, go hang out for a day in the power tool department of a Home Depot.) Any drill manufacturer that built its marketing around “the hole” rather than “the drill” would have been laughed out of business in short order. I’ll bet good money that McGinneva never drilled a quarter-inch hole into anything in his life.

The idea that household power drills might shift from an ownership model to a renting or sharing model was even more outlandish. Botsman said, “Ownership of a product you use for just a few minutes makes no rational sense.” Actually, it makes perfectly good rational sense (even if you discount the very real pleasure of owning a decently made drill*). It’s been widely noted that sharing a good or service can reduce costs for the consumer. What hasn’t been much discussed is the fact that sharing can also increase the consumer’s costs. To understand sharing costs and their influence on consumer behavior is also to learn something important about the form and limits of the so-called sharing economy.

The place to start is with economist Ronald Coase’s famous theory of the firm. Coase pointed out, in his 1937 article “The Nature of the Firm,” that markets involve transaction costs.** If you want to go out into a marketplace and buy something, you have to figure out who’s selling the thing you want, at what price, with what terms and guarantees, and so forth. And you have to figure out the seller’s reputation, and you may have to go through some negotiations and contract-writing and other time-consuming rigamarole. Coase applied this insight to the formation and growth of businesses. Firms exist because it’s often cheaper to do stuff — like manufacture a part for your product, say, or keep your books — within the confines of a formal organization, where transactions can be routinized, than to pay the transaction costs required to do the same stuff by contracting with outsiders in a market. Summed up Coase, “a firm will tend to expand until the costs of organising an extra transaction within the firm become equal to the costs of carrying out the same transaction by means of an exchange on the open market.”

Coase’s insight also helps explain why people own things, like power drills, rather than sharing them. A drill is a fairly inexpensive commodity. It’s easy to buy, it requires little maintenance, and it doesn’t take up much room in your house. And once you own it, you can use it any damn time you please. (The upside of low utilization is high availability.) So if you’re bored some Saturday afternoon, you can suddenly decide that it’s time to fix that shelf in the closet that’s been broken for two years — and, voila, the drill is at hand to get the job done. Buying and owning a drill, in other words, doesn’t involve much in the way of costs, either up-front or ongoing.

Now if, instead of buying the drill for yourself, you decide to share it with some other people, whether through a neighborhood co-op or some rental arrangement, suddenly you face all manner of transaction costs. You have to hash out the financial and logistical arrangements, you have to figure out where the drill happens to be at the moment you need it, and you have to go out and pick it up and bring it home (burning gas, perhaps, as well as time). And if somebody else wants to use the drill at the same time you need it, then you’re in for some negotiations and probably some aggravation. And if the drill breaks or gets lost (or a “little screw head” gets misplaced), a whole new set of transaction costs kick in. And, don’t forget, your knucklehead of a neighbor never recharges the battery after he uses the drill, so you’re going to wedge yourself into the closet only to find that the drill is dead. More aggravation.

Transaction costs, in this context, might also be called pain-in-the-butt costs, and pain-in-the-butt costs don’t have to get very high before you say, “Screw it, I’m buying a drill.” You accept, even welcome, low levels of utilization in order to avoid onerous transaction costs. And, yes, you are being totally rational. Utilization isn’t everything.

So it should probably come as no surprise that, as Sarah Kessler writes in Fast Company, the sharing model hasn’t worked for common household goods like power drills. Such micro-sharing arrangements may have seemed “like a warm and fuzzy inevitability,” but they never got off the ground. Neighborhood co-ops didn’t take hold, at least not broadly, and the entrepreneurs who bought the hype and tried to launch goods-sharing businesses are now going bust. (Of course, there have always been rental shops for larger, more expensive, and more specialized tools — they’re still around.)

“The real sharing economy is dead,” writes Kessler. Even that, though, is a sentimental notion. The “real” sharing economy was always about setting up big, central clearinghouses for connecting suppliers and buyers in certain service markets that have always operated in a commercial fashion — hotel rooms, taxis, etc. Businesses like Airbnb and Uber succeed by reducing transaction costs in established markets, not by increasing transaction costs in markets for simple consumer goods. The real sharing economy, in other words, has always had a lot to do with business and very little to do with sharing.


*I have a Makita, for the record. And, no, I’m not going to loan it to you.

**Coase actually called them “marketing costs,” by which he meant the costs of transacting business in an open market. “Transaction costs” is now the more common term.

Image: echoDave_1990.

3 thoughts on “Of drills and holes and Ronald Coase: the limits of sharing

  1. diane

    No surprise that those thought leaders totally left out the wonderful ‘drill’ screwdriver attachment (let alone quite common household tasks, the attachment might be very useful if one needs to construct a tiny home, as occupations dry up, and living spaces become totally unaffordable for billions) especially when most drills have a reverse function which will unscrew screws that are to tight to unscrew manually.

    I.e., there’s generally a very functional reason for that hole in the first place: building, or the maintaining of, a (non Cloud! Required for real life: shelter) structure of connectable separate parts; parts which can also be disassembled back into separate parts, when one part goes rotten.

    Everyone attempting to maintain a living space should own a “drill,” versus being required to rent one Most adults – and even teenagers and children – realize[d] that fact, after discovering how very useful and affordable they are.

    love your post, Nicholas.

  2. David Foster

    Tim Allen was the greatest tool salesman who ever lived (sorry Bob Vila). I think that shows it’s not about the hole OR the drill, it’s about how you look drilling it.

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