In the past year, I have stayed at a stranger’s apartment, run numerous errands with cars rented by the hour, taken rides from people I had never met before, borrowed a sewing machine from a stranger, and crowdsourced the assembly of my new bike. Like a rapidly growing number of people around the world, I have been participating in the sharing economy.
When access trumps ownership
The premise of this emerging trend is that access via sharing can be a viable and desirable alternative to owning. In the sharing economy, I am not only willing to give up the concept of owning a vehicle, a tool, or a space; I offer my own belongings and skills to others when they need them. I allow the lines between what’s mine and what’s yours to blur, contributing to a flexible and efficient demand-and-supply pattern.
Apart from a straightforward economic rationale, that is—the cost savings that result from sharing— this shift in consumer behavior reflects the distinctive values and beliefs that define the Millennial Generation, who were born beginning the early 1980s through the early 2000s and for whom simplicity and efficiency are musts.
For Millennials, lower resource consumption is a necessity and is often a no-brainer, and their sense of belonging to a community of like-minded individuals, whether virtual or real, is an integral part of their identity. Their concept of trust, too, has gained a whole new meaning and can be built in the virtual space, based on someone’s digital footprint and online peer reviews.
Marketplaces for what is commonly called collaborative consumption have been popping up in the past few years, offering options ranging from co-working and co-living spaces to transportation to banking and other cooperative services. In a recent article in the Economist, super angel investor Ron Conway identifies collaborative consumption as an area where startups will create the next billion-dollar companies. And FastCompany deemed 2012 the year of peer-to-peer accommodations, thanks to the emergence of Airbnb clones that hinge on the company’s rapid growth.
But what drives the mushrooming of startups that offer platforms for collaborative consumption, and where is it heading?
Collaborative Consumption = (People x Stuff) + New Technologies = $$$
Collaborative consumption describes the resurgence of old-market behaviors including swapping, trading, renting, and sharing. Reinvented through real-time technologies and peer-to-peer networks—particularly the social web—the sharing of goods, services, and expertise has become more efficient and affordable than buying new things.
Rachel Botsman, who co-wrote What’s Mine is Yours, is one of the main chroniclers of the movement, alongside Lisa Gansky (The Mesh: Why the Future of Business is Sharing), and she divides collaborative consumption into three categories:
- Product-service systems that facilitate the sharing or renting of a product, such as ZipCar or TechShop
- Redistribution markets, which enable the re-ownership of a product, such as Craigslist or eBay
- Collaborative lifestyles, in which assets and skills can be shared, such as CouchSurfing or TaskRabbit
In all three categories, startups are springing up en masse, not only in the innovation hotbed of Silicon Valley, but also in Switzerland take HouseTrip, Swiss entrepreneur Arnaud Betrand’s highly successful answer to Airbnb. Barriers to entry are low, and the redistribution market and collaborative lifestyle startups in particular are, by definition, lean. They don’t need to keep inventory on hand or hire en masse.
And there is money to be made. Gartner, Inc., a leading information technology research firm, estimates that the peer-to-peer financial lending market will reach $5 billion by 2013. Car-sharing revenues are projected to hit $3.3 billion in North America alone, according to Frost & Sullivan, a Silicon Valley-based market research firm. And Botsman says the consumer peer-to-peer rental market will become a $26 billion sector.
Hence, collaborative consumption is not a purely idealistic movement. Indeed, since the turn of the decade, leading Venture Capital firms such as Sequoia Capital, Google Ventures, and Greylock Partners have all backed sharing ventures which the VCs prefer to call underused asset utilization businesses to emphasize that there is money to be made.
But still, why share? And why now?
The rationale for sharing is part counter-culture movement led by Millennials, part radical economics that forge new economies of scale.
The economic crisis and growing awareness of the environmental costs associated with resource depletion have shaken our values and forced us to reconsider our consumption patterns. As members of a generation scarred by the socioeconomic impact of the Great Recession in the first decade of the 21st century, many Millennials distrust big business and choose individuals or small, local businesses over established corporations. They believe in the sense of moral obligation that comes with dealing with people and is often absent in corporate dealings.
These sentiments are occurring at the same time as urbanization is increasing and new attitudes in Western countries emphasize quality-of-life choices over the acquisition of material goods. The basic characteristic of sharing marketplaces is that they extract value from the stuff we already have. And the benefits are hard to argue: lower costs, less waste, and the creation of global communities around shared values. Increased urbanization has led to high population densities that favor the sharing of resources and even make it a necessity: where space is scarce, the efficient and flexible allocation of resources is a requirement.
Technological advances that have deeply influenced new generations have accompanied this cultural shift. The rise of the Internet has lowered transaction costs, reduced friction and information asymmetry in the marketplace, and created a new brand of community building. GPS, mobile technology, and social networks enable reliable and personalized services right when they’re needed.
As Botsman puts it in What’s Mine Is Yours, for the first time in history, the age of networks and mobile devices has created the efficiency and social glue to create innovative solutions, enabling the sharing and exchange of assets from cars, to bikes, to skills to spare space.
Millennials and the Net Generation have spent most of their lives with the World Wide Web and are highly connected, earning them the nickname digital natives. In a world in which all forms of media make their journey into a digital, de-corporeal space, research shows that people are beginning to actually prefer this disconnected reality to owning a physical product, writes Josh Allen Dykstra in FastCompany. Ownership just isn’t hard anymore. We can now find and own practically anything we want, at any time, through the unending flea market of the Internet.
Take the Swedish online music streaming services Spotify. While just a few decades ago, owning a Beatles vinyl inspired fans to proudly pin the album cover on their bedroom wall, today music lovers can wallow in their favorite tunes anytime, anywhere and share them with friends across the planet—directly from the cloud, flexibly and without ownership.
Trust and our virtual persona
OK, sharing music is easy. But how about sharing my car or letting a complete stranger sleep on my couch?
A recent US-wide study by Carbonview Research shows that while 60 percent of overall respondents find the concept of sharing appealing, issues of trust shaped two-thirds (67%) of consumers’ perceived fears about participating in the sharing economy.
Hosting an out-of-town visitor via a service such as Airbnb is not a trivial social exercise. Lending out your car or tools also involves a social risk, which is where trust comes in: It remains the centerpiece of the sharing economy.
Trust is, by definition, an asymmetric relationship: The one doing the trusting is the one also taking the risk. My decision to let someone use my bicycle is primarily based on the perception of the trustworthiness of that person. But how can we measure trust in virtual space, and how can marketplaces for sharing communicate trust between users?
Wired writer Olivia Solon explains Rachel Botsman’s views on the importance of trust as “the ability to measure or value a person’s reputation—their reputation capital—across different marketplaces will become a crucial metric for the 21st century, which [Botsman] believes ‘will be more important than our credit history.'” Along these lines, sites like Airbnb have focused on integrating a user’s social graph, a map that depicts personal relations within and across virtual networks, to better confirm identities and instill trust in users.
The centrality of trust in collaborative consumption has given rise to a new business opportunity: a secondary market for trust. The startup TrustCloud aims to empower the social economy by developing a portable reputation system for the Internet. The company calculates a user’s consistency, reliability, and responsiveness by measuring his social presence across social media sites such as Facebook, Twitter, and LinkedIn. That TrustScore will become to the sharing economy what the credit score (which represents a person’s creditworthiness) is to the US financial system.
As TrustCloud’s Cindy Grogan explains, “The increasing amount of available online data essentially serves up a hologram of yourself.” As the gap between our digital and real identities narrows, trust can increasingly be built in the virtual space.
Rent a Mountain Village and where we’re heading
While many pundits have declared that the sharing economy is poised to shift into high gear in 2012, this won’t happen without a few speed bumps, which include the issues of insurance and taxation.
Airbnb recently experienced several PR setbacks that have severely impacted the delicate issue of trust in the peer-to-peer marketplace and prompted the company to establish a trust and safety center, which includes a $1-million host insurance guarantee and should encourage home owners to keep opening their homes to strangers. The sharing economy’s wildcard, its participants, just can’t entirely be controlled, observes Ariel Schwartz in FastCompany’s Co.EXIST blog.
The regulatory ecosystem is only slowly catching up with the nascent sharing economy. Airbnb recently announced that it has booked a total of 10 million nights since it launched in 2008, but this type of runaway growth is a double-edged sword in the sharing economy sector. When Airbnb was small, it was easy for regulators and politicians to ignore.
Now, the traditional tourism industry is increasingly pressing fiscal authorities to levy taxes on peer-to-peer lodging services. Claiming that transient occupancy of private residences is not different from hotel services as defined by the city’s tax code, San Francisco’s treasurer and tax collector recently rolled out regulation that will put Airbnb and similar services on the hook for the city’s 14% hotel tax.
As new regulations take shape, authorities around the globe will likely look toward San Francisco, one of the most fertile grounds for the sharing economy, to set the example. As so often happens, legislation and tax codes limp behind innovation and must catch up with a behavioral shift that will, inevitably, create losers just as it does winners.
For traditional industries that understand and embrace the shift, it provides opportunities for reinvention and innovation. In a brilliant public relations stunt, the Swiss skiing village Engelberg recently offered the whole village for rent on Airbnb for $60,000 per night, using in its favor the home-tel that is, home plus hotel trend, which is said to hurt the traditional tourism industry.
And in response to the Millennials preference for sharing as opposed to owning a car, BMW last year launched its own car-sharing service DriveNow in collaboration with the rental company SIXT.
The sharing economy opens heaps of opportunities and space for creativity. Old industries are falling victim to creative destruction, and many have recognized that a marketplace that caters to Millennials should accommodate consumers who want nimble access to, instead of outright ownership of, things.
Clearly, collaborative consumption is uprooting and shaking the status quo of traditional industries, such as tourism, the taxi business, the labor market, real estate and who knows what will be next? For now, I will remain an enthusiastic observer and cautious participant in the sharing economy—and I look forward to my next traveling adventure, living like a local.