The Three Market Drivers: Causes for the Collaborative Economy

Temple of Poi 2009 Fire Dancing Expo
Above Image: Fire Dancers metaphorically ignite movement in Union Square, the center of SF commerce.

Your customers are trading products and goods –rather than buying them from you!  Do you want to know why?  We’re conducting research in a pragmatic method to find out why.  Then we will publish what companies should do to respond.  Below is a preview of the upcoming report.

 [Consumers don't need to continually buy from companies as they are sharing, renting and lending goods & services among themselves]

I’m knee deep in interviews for the upcoming report on this topic, the Collaborative Economy, which will answer how corporations can be part of this sharing movement and not be left behind.  In my previous post, I made the case that this is the next phase of Social Business.  I have probed 200 startups from the sharing movement and have compiled a list of brands that are already participating, like Barclays, Toyota, BMW, and Wal-Mart.

 

[This rising behavior is being caused by three major trends: social, economic, and technology drivers]



Three Market Forces Drive the Collaborative Economy
Analysis of Three Market Drivers: The Causes for the Collaborative Economy
In the research interviews, books, and content I’ve digested, I’ve found some patterns relative to the causes of the movement.  I don’t expect this to be a comprehensive list, and I request your additions in the comment section of this post. 

1) Social Drivers

Social Drivers

Root Cause

Example

Population Density While also listed in Economic Drivers, denser population enables sharing to happen with less friction. Zipcar took off in urban San Francisco, where owning a car is impractical.  Zipcar’s scattered storage lots give customers quick access to wheels, often walking distance.
Mindset of Sustainability Greening, Cleaning, and Sustainability have been hot topics for years.  This bolsters the need for economic conservation and long term thinking. Many of the startups we interviewed explained that this is about re-use or preservation of resources, rather than buying new products.
Lifestyle Trend among Youth In Shareable Magazine’s book, Share or Die, Neal Gorenflo writes that this sharing mindset is common among college students who have limited resources. For resource-strapped students, Chegg enables students to trade textbooks, rather than buy at high margin bookstores.  Social networking is part of their inherent behavior.
Altruistic Mindset In some cases, gifting or paying it forward are common in this movement.  See list of gifting startups. A recent UCLA poll found that over 75 percent of incoming freshman believe it is “essential or very important” to help others in difficulty, the highest figure in 36 years.
Independent Lifestyle We heard from Molly Turner at AirBnb that many renters of homes found this service empowering. Their own homes were revenue generators for their independent lifestyle. Similarly, TaskRabbit advertises that their rabbits are: “College students, recent retirees, stay-at-home moms, young professionals,” enabling those who may not seek a full-time position.  


2) Economic Drivers

Economic Drivers

Root Cause

Example

Increase in World Population China and India have population growth rates at 17% and 30%, respectively. America is at 22%. See Wikipedia. When I was born in the ‘70s, the world population was in about 4 billion; today it’s 7.1 billion.  It is estimated to be close to 9 billion by the time I am 75 years old (data here).
Strained Resources The interviews revealed a general sentiment that natural resources are finite and the cost to retrieve them is far greater than the potential return in revenue.  Those with less money are more inclined trade, and to activate their inventory for revenue by sharing. Recycling programs are evident everywhere, even in the sales offices and break rooms there are recycled plates, utensils and paper
Economic Disparities Where there is a divide fixed between haves and have-nots, these sharing systems naturally seek to shift resources. For example, we saw a boost in Bitcoin value as Cyprus was under severe economic strain.
Excess or Idle Inventory One of the root causes of this movement an abundance of idle resources sitting by the wayside that can be shared and often monetized. Rachel Botsman discusses in her iconic TED speech that the average usage of an electric drill is a mere 12 minutes per year.
Inaccessible Luxury Those who can’t afford something, can now rent it.  One successful Gen X banker told me that, “Access is more important than ownership” Why buy a $100,000 Lincoln Town Car, when you can rent an Uber for 30 minutes, saving money and headaches?
Influx of VC Funding Venture capitalists have already put billions into this market of fresh new startups.  Our research shows that there has been over $2 billion of funding across 200 startups. Category leader, Uber, has received nearly $50m of funding and AirBnb has received a whopping $120m. 


3) Technology Drivers

Technology Drivers

Root Cause

Example

Social Networking Technologies These technologies provide three key features:

  • Social profiles and reputations tracking,
  • Social graphics that enable people to connect
  • Transfer of information, in this case, need for resources or supply of them
AirBnb in itself is a social network.  They have seller profiles, and renters have their own reputation with verified IDs.  The goods traded are locations.
Mobile Technologies Access to people or other resources requires “portability” for a majority of these services, so mobile platforms and devices for transfer of information become necessary. Many of these startups are mobile-driven.  For example, Lyft has a thin website and suggests that users download mobile apps for this transportation site
Payment Systems In the end, this is a marketplace of goods and services.  Systems and platforms are required to broach the transactions that may use traditional ecommerce or new bartering methods TaskRabbit asks me to use my credit card, while other systems like Bittorrent are fueled by Bitcoins.


What it means: This is a long term movement, not a passing fad

So there you have it.  I see three categories and at least thirteen distinct drivers for the Collaborative Economy.  Like social was to us in 2007, this is a broader movement that impacts many aspects of society and, therefore, business.  If these market drivers are long-term (often social and economic ones are), then it means that this movement is likely to persist and to potentially increase in velocity.  If you thought social business was disruptive, this next trend will impact us at a much deeper level.


Related Resource:
I’m not an expert on this topic, so instead, I’m interviewing those who are.  Here are some of those who I interviewed for the upcoming report (full sources to be cited in report).  I highly recommend following them to learn more about the impacts of this movement.

Business Articles on this Trend:
For many, this movement requires blessings from trade papers before gaining the ears of executives. Here are a couple of articles I’ve found helpful:

 

Image Source: David Yu, creative commons license.

  • Michel Nizon

    It will be interesting to see how governments will consider these new sources of income on a fiscal point of view when the sharing economy will become mainstream.

  • http://web-strategist.com/blog Jeremiah Owyang

    Michael

    I see cities becoming the first step for governments to see this –perhaps more than the federal groups.

    SF: Article here
    http://www.shareable.net/blog/breaking-san-francisco-announces-sharing-economy-working-group

    NY: Many open and green spaces occuring, like High-line, or popup parks.

    London: Barclay sponsored bike sharing
    http://www.tfl.gov.uk/roadusers/cycling/14808.aspx

    I was in Copenhagen last week, where free bike sharing occurs, but many are using their own personal bikes
    http://www.visitcopenhagen.com/transport/copenhagen-city-bike/382

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  • http://twitter.com/rawn Rawn Shah

    More than population numbers, an economic driver is the ratio or load of non-working age (children, unemployed, retired) to the labor pool. Long-term economic planning looks at the changing demographics that affect this ratio. E.g. Japan, Europe and later the US have or will have a much heavier load of retirees to labor pool.
    –> This creates a new need for ‘work-multipliers’, assistive mechanisms, crowdsourcing, telework, remote work, outsourcing

    In some cases, it is also about the changing employment / available skilled workforce in the various industries which is also affected by retiring workers. It causes shifts in investments in industries, even globalization/outsourcing.
    —> It creates needs to collect/save knowledge from retiring workforce, new information organizing capabilities (in new industries), new educational / training / skills transfer needs,

    I think you can figure out the examples of companies doing these easily.

  • http://twitter.com/rawn Rawn Shah

    I think you identified it, but it is more than Mobile Technologies; it is also location-focused systems.

    To broaden it from just a sense of location info, there is a new rise in intelligent and interconnected sensors providing all sorts of new types of information, and the resulting data explosion.

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  • http://twitter.com/andreacook andreacook

    You SO get it. Why oh why can’t more people be like you Jeremiah? Articulate, perfectly filtered and rich to the point.

  • Ron Ploof

    Jeremiah,

    I have a alternative way of looking at the Economic & Technology Drivers. Rather than seeing the economic driver as “strained resources,” I actually see the opposite. The driver comes from “abundant” resources.

    Communications technologies have driven collaborative costs down massively. As a result, what used to be scarce (a.k.a. expensive) is now widely available for anyone who wants to tap into it.

    Consider the cost of computing and storage, access to human resources through services like Mechanical Turk, or access to crowdfunded capital? Combining these negligible costs with the open-source movement (both software AND hardware), and the cost barriers to collaboration are virtually eliminated.

  • http://www.facebook.com/profile.php?id=6701810 Steven Moody

    One missed trend here: material goods are commoditized and shareable while experiences are the driving force in the middle class narrative. Few Millenials will buy an RV to keep up with their neighbors, but they’ll quickly add skydiving to their bucket list when their friends post pictures doing this on Facebook. This leads to more sharing of material goods like cars because they are embedded with less status and symbolic value

  • bradhugg

    Great point. The value of experiences cut across most economic strata. Check out “The Experience Economy” by Pine & Gilmore. American Express has also released several studies detailing how $100K households value experiences more than physical goods.

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  • http://www.euro-freelancers.eu/ Marco Torregrossa

    In social drivers, I would add: shift
    in power balance from centralised organisations to distributed networks of
    people. In economic drivers, I would add: rising
    costs of living, e.g. energy, food prices, housing etc.

  • Steve Furman

    As always. So well thought out and documented. This is moving fast. I worry that it could outrun its headlights and crash. I love the openness, but can’t help but think that lack of any standards or oversight will eventually stunt growth. Thank you for keeping an eye on what I have not time to follow.

  • http://web-strategist.com/blog Jeremiah Owyang

    Thank you Steve for engaging, I look forward to hearing your observations.

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