What role do corporations play if customers don’t need them? What if the people who used to be their customers get their goods and services from each other? I’d love to answer that at your next event.
That’s exactly the question that our research answers after analyzing 200 of the startups, and interviewing three dozen experts (you can read the full report, right here). Customers are using social media tools, called “sharing websites,” to share products, services, and even money – bypassing the corporate world. What’s the solution? We found a counterintuitive opportunity for today’s innovative companies, that, we believe, they must use to enable their own business functions, business models, and products to be social and, therefore, able to compete in one of the most significant cultural market changes in history.
The above embedded slide deck is from the Vocus marketing and communications conference in DC last week, it’s designed for a 45 minute session.
About the Content
The speech uses the story of Danish King Frederick VII, whom I learned about on last month’s trip to Copenhagen. I was intrigued by his unique dilemma as he saw a revolution coming to his gates, giving him one of two choices: 1) Fight them and, potentially, lose his head, or 2) collaborate with them. We weave in and out of his experience throughout the presentation, as we cover key steps in the presentation: a definition of the trend, real world examples from many verticals B2B and B2C, numbers showing the disruption in terms of dollars, and the causes of this sharing movement. In the meat of the presentation, we focus on the solution, which we call the Collaborative Economy Value Chain, and provide real world examples of what corporations are doing now. To top things off, we’re honest about the many challenges, but we also explain the benefits for companies that are willing to join the collaborative economy.
The appendix has additional data from our research, a glossary, and interviewee citations.
About the Presentation
Many of the slides have animations, which can’t be fully experienced in this SlideShare mode. You may download the full PowerPoint presentation to see the animations. The presentation is open research and, as part of creative commons, may be used with attribution. I’d like to thank the Altimeter research team and designers, as well as RexiMedia for their excellent coaching and visual production. As a former musician, I’ve learned to take preparation seriously, so I choose to work with the best teams during preparation and rehearsals to ensure that I give my audience the best experience possible.
Upcoming Speaking Events and Samples
I’m getting the word out about the Collaborative Economy. I have presented elements of this subject in Copenhagen, London, the District of Columbia, and San Francisco, in addition to individual clients on private calls. I would be delighted to speak at your event.
I’d be pleased to share with your business teams how the evolving Collaborative Economy is moving from sharing of ideas to sharing of goods and services. I am happy to do so either by using the free webinars listed above or appearing live at your conference or private event.
I have now begun writing for the Huffington Post, covering the Collaborative Economy in the Business Section. The content will focus on news insights in this rapidly changing market and what it means to corporations. I hope to cross-post the articles when it makes sense (as below), or simply link to them in my posts. To me, the Huffington Post represents the crowd in terms of the collaboration of media, as they have thousands of writers who comprise a mainstream media network.
What does the potential new Google Mine project mean to the internet? Here’s a breakdown on how it could change the world.
On June 24, 2013, news leaked out that Google+ is potentially planning to enable their own users to share goods and products with each other so that they don’t have to buy them from name brands at retailers. This action, if taken, will reduce the revenue to brands and corporations that are locked in old business models of selling. The good news is that there is a solution for those corporations. It’s called the Collaborative Economy. It means that their own business model must change to enable sharing of products and goods, and eventually to allow customers to participate in core business functions.
I’ve been tracking this trend for several months, including following a list of over 200 startups that enable a Collaborative Economy, but if Google itself becomes a participant, it will have some radical ecosystem impacts.
First of all, we don’t know if Google will take this step in the near future or not. Google has a number of side projects that always stay behind the scenes, and those that do seem to remain in a perpetual beta mode. Google also compiled a track record of many products that don’t work (which they sunset after a few years), so there’s no guarantee this idea will work for them. Google’s social-product track record is littered with failed attempts like Sidewiki, Dodgeball, Wave, and many others. But let’s imagine that it does launch. What impact would it have on the marketplace?
Scenario: Let’s imagine that I want to go on a family bike ride, but I don’t own any bikes.
The Google feature set requires users to map out and take inventory of the products that they might want to share and, also, to request products they may want to borrow from their friends. This requires two steps. First, there must be a thriving ‘marketplace’ of owners and borrowers. Second, users must upload their data and explicitly say that they request something. This means one of my neighbors would have to upload to Google that they have bikes to borrow, and I would have to explicitly indicate I want to borrow the bikes.
If this came to fruition, Google can tap into a greater resource of their search engine and make these free products available in their search engine results page. So when I’m using Google Search for new products, Google could, instead, indicate that a set of family bikes are available down the street, reducing or completely eliminating my need to buy them. Instead Google’s software would match up the person who’s offering it with the person who wants to borrow it. Expect several reputation systems to be working, from a social graph perspective (“Do I know them?” or “Do we have friends in common?”). And, I would expect that they would be able to see my Google Mine reputation score.
I borrow the bikes (a normal behavior, by the way in Europe, New York, and other progressive cities) from my neighbors and I’m off on a joyful ride!
Don’t expect savvy corporations to stand by idly. For corporations, it means they must tap into the trend and enable their products to be shared, potentially yielding new offers to rent bikes, or even to provide advertising on bikes in their neighborhood. There’s even a possibility to encourage customers to try a certain brand of bike, with the opportunity to up-sell new bikes later, or even to provide a subscription service to access bikes on demand.
The broader ecosystems of the sharing startups are already being disrupted. For example, Yerdle, with whom I met last week, is a startup that encourages neighbors to use Facebook Connect to find friends that have products and goods that they want to gift to each other, thereby reducing the need to buy. This project, founded by Wal-Mart’s former Chief Sustainability Officer, shows promise if it gets traction. Furthermore, if Google launches a sharing service, expect that Facebook will follow, as we found that most of the sharing websites are already using Facebook Connect.
In summary, this disruption (where customers can share, rather than buy) is imminent and is virtually unstoppable. We have already published information as to how corporations can avoid disruption by joining the Collaborative Economy in this research report, along with collateral slides and a video. I’m dedicating a great deal of my mind share to helping the corporate world prepare for this looming change, and I need your help to spread the news.
Above image is a screenshot from the keynote speech showcasing our research report on the Collaborative Economy, this post explores the first of three models.
What can business leaders do to leverage the sharing revolution? Something counterintuitive, try other business models beyond selling to build a deeper relationship with customers, reduce costs of housing inventory, and generate more revenue.
Top brands are doing this now, like Toyota Rent a Car, BMW hourly rental, are starting to rent their cars from their own dealership lots, rather than just offering traditional selling for consumer ownership. Why? consumer behaviors are changing, a movement has emerged that means people want to have access to goods –rather than owning them –is emerging. What should corporations do to respond? Offer a product on-demand access, subscription, and memberships so you can sell a product a thousand times over –not just once. To see all the transaction types in the Collaborative Economy, I’ve listed them out in a nice, neat table.
[Companies can offer goods as a service, selling it many times over to customers, generating new value for customers and new revenues for the company]
Disruption: Sharing startups enable consumers to share –not own
We’ve already learned that through the sharing startups (here’s a list of 200+ of them), customers are now changing their behaviors. They want access to products rather than owning them, as people get towncars on demand like Uber, or media subscriptions on demand like Comcast or Netflix, or even getting products at no cost from their neighbors with websites like Yerdle, or even the anticipated Google Mine.
The good news is, this model isn’t new as rental, on demand, and access models have existed for a few industries, but now it will extend to all companies who produce goods, here’s how it’s happening:
Four Phases of Maturity in Company as a Service model (with real world examples):
In each of these examples, the company doesn’t own the products. Instead they are providing customers with access many times over, generating repeated sales. I’ve listed them out in a maturation order, so folks can activate in a systematic method. Thank you Scott Doniger for making this suggestion.
||Great for Companies that:
Who’s doing it now
|1) Sponsor the Movement
||Corporations can offer something these startups don’t have. Money, recognized brand, distribution, and marketing
||Who don’t offer physical goods, but want to be part of this growing collaborative movement.
||NBC sponsored Yerdle, Citibank sponsored NY Bike Sharing (read my write up), and Barclay’s card sponsored London’s cycle sharing.
|2) Make available on-demand goods
||Rather than sell a product, corporations can make them available on demand in a rental type of manner.
||If you have a high-cost, or high-consideration product, or low usage product, considering offering it on demand, through a shared access model.
||The example of a company selling goods is now augmented by Toyota rent a car from their car lots.
|3) Provide a long term subscription
||Companies offer an ongoing subscription to recurring goods and services, all paid in advance on or demand
||Have products that are quickly consumed or companies that desire a long term relationship over seasonal sales
||Dollar Shave Club or Beauty Box or Bag Borrow or Steal offer subscriptions in the beauty and hygiene market.
|4) Offer a lifestyle membership
||The highest form of maturity is providing a membership that gives access to many different products and experience –beyond your own product.
||Who want to extend beyond their core product offering, and offer an ecosystem of suites and products. Companies in tenuous markets.
||Peugeot’s Mu program gives consumers access to cars, bikes, busses, vans and more.
Screenshots of the Phases of Maturity of Company as a Service:
1) Above Example of Sponsor the Movement: Barclay’s, a financial institution, doesn’t sell bikes, so they sponsored a bike sharing program called Barclay’s Cycle Share.
2) Above Example of Make Available On-Demand Goods: Toyota, a company who traditionally sells cars from their dealership lots, now rents them on-demand in Toyota Rent a Car.
3) Above Example Provide a Long Term Subscription: For consumable products, Dollar Shave Club extends the customer relationship into an ongoing subscription.
4) Above Example of offering a Lifestyle Membership: Beyond just cars, Peugeot offers scooters, bikes, busses, vans, electric cars and more in a mobility services called “Mu”.
Business Benefits for offering Company as a Service:
What are some of the business reasons that you’d want to shift your business model? Here’s a starter list, there are others, that are likely specific to your company.
- Satisfy new customers behaviors of access over ownership: If you’ve read the book Share or Die, which talks about how an upcoming generation of connected customers are living in a world of shared goods and services, this is a lifestyle trend that all marketers must pay attention to. To satisfy this behavior type of access over ownership, companies must first analyze their customer behavior and see if there’s a fit.
- Finally, have a long term relationship with customers. Don’t just sell a product once, and try to constantly resell it back to a customer season over season. Instead, offer a long term relationship where they join an exclusive long term relationship with your company and they make a promise (with money) to buy and buy again.
- Activate unused inventory into revenue. If you’ve idle inventories sitting around in your warehouses, instead, activate them by getting them to customers in a new way via an on-demand model. Turn those aging, depreciating liabilities into active moving products that can generate revenue many times over.
- Connect to a new emerging market. For some luxury brands and high-consideration goods, providing subscription models gives access to a younger or emerging market base that can’t afford your goods at full value. This builds a new relationship with this emerging market, loyalty, and is an entry point as they grow in their consumption needs.
- Add new value added services. There are many business models to generate additional value, and thereby revenue by offering new forms of insurance, cleaning, matching, and other services. Don’t just offer a product as a service, offer them a valuable package of services that can increase your overall purchase order.
- Make more money: Sell one product a thousand times over. Rather than sell a product once time, and risk customers sharing it with each other reducing your revenues, change your mindset that you can sell one physical good over and over. I heard this quote from BMWs innovation lead at a Stanford event on the sharing economy who’s vision is to “sell” one single car dozens of times in a day, generating new value for the customer and new revenues for BMW.
- Reduce global waste as products are used efficiently. At a macro perspective, reducing excess products being sold that are used effectively isn’t just smart for planet Earth, but also the sign of a responsible consumer and corporation. Thank you Justin for the suggestion for this bullet point.
Software vendors galore for subscription software: For our research, we interviewed subscription provider, Zuora, who’s tightly wound with Salesforce, but also know there are a number of players including, eVapt, Vindicia, Aria Systems, Fusebill, Recurly, Chargify, Transverse, and CheddarGetter (best name, in my opinion). This is clearly a mature software space, so the technology is ready –business models at companies are just getting changed.
The Company as a Service is only one of three new models you must consider, read the full report, the Collaborative Economy Value Chain to learn more or learn about the third model the Provide a Platform on this post. To close, new business models are emerging that gives corporations the opportunity to sell a single product a thousand times, and in the Collaborative Economy, we call this Company as a Service.
Above Image: Screenshot taken from keynote presentation on the Collaborative Economy.I’m about to tell you that in the most advanced form of the Collaborative Economy, the crowd becomes the company.
To set the context, this post is the most advanced form of the Collaborative Economy, and is only part of my ongoing coverage of this next phase of social business. Read the definitive research report or peruse all the posts on the Collaborative Economy topic. Let me restate the definition of this movement:
[The Collaborative Economy is an economic model where ownership and access are shared between people, startups, and corporations.]
Disruption: The Crowd Is Already Replicating Company Functions
The Collaborative Economy is where people get what they want from each other, bypassing corporations. They fund, ideate, design, develop, produce, distribute, market, sell and support products on their own. As proof points, here’s a list of over 200 startups across various sectors, industries, and geographies.
Corporations Have Two Options: Fight or Adapt Movement
As with social media, disrupted companies have realized they must use the same technologies to regain power. Similarly, corporations have one of two options: 1) Fight this revolution by trying to ignore it or by trying to introduce or influence regulation. 2) Collaborate with this new economy, invite the crowd in and unlock new business value for all.
For the corporations that want to explore the second option, read on.
Adapt: Advanced Collaborative Economy – The Company Provides a Platform
In our research on the Collaborative Economy, the most advanced use case is when corporations allow their customers to participate in core business functions. We call this Provide a Platform (software, services, solutions), whereby companies make available a dedicated area for customers to join in.
The Rollout: How Corporations will Deploy This Concept
In my analysis of this industry, I am seeing business functions from every sector being taken on by the crowd. They will do one of two things: 1) Partner with the startups that offering this, or, 2) Host the available enterprise software on their website.
The below breakdown shows how it’s already emerging
Collaborating with the Crowd in Many Business Functions
Element of a company that can collaborate with crowd
Disruptors and potential partners to corporations
SW providers that enable corporations to self-host the experience
Who’s doing it now
||oDesk, Taskrabbit for business, Crowdflower
||Manpower, Kelly Services, Robert Half
||Many companies are already tapping into on-demand work
|Co-Ideation and Co-Design
||Uservoice, Spigit, Crowdtap, BrightIdeaNn the design side, CrowdSpring and 99 Designs; potentially Adobe Creative Cloud
||Starbucks Ideas, NikeID product designer
||SelfStarter by Lockitron, Ignition Deck (Tx Tanya)
||Dodge Dart Registry
|Co-Development and Production
||Etsy, 3D Printers Industry
||Google Shopping Express
||Wa-Mart considered crowd delivery, but no movement sensed.
||RelayRide partnered with OnStar for instant inventory
||Customers organically share in social channels
||Extole, BuddyMedia by Salesforce, Wildfire
||Social marketing examples exist in great supply
||In a limited way: LivingSocial, Groupon
||Reseller programs with verified partners already exist
||Customers do this informally now, often in social networks.
||Get Satisfaction has been active on this topic; Lithium, Jive
||Social support examples exist in great supply
||Ebay, Craigslist, and many vertical specific, like Gazelle (electronics)
||While unproven, the following have potential: Oracle CX, Salesforce, IBM Social Business, Adobe Experience and social commerce platform, Bazaarvoice
||Patagonia partnered with eBay on Common Threads; Scottevest points to eBay market
|Co-Facilities and Office Space
||Companies can rent office space to each other: Liquidspace, Sharedesk, Pivotdesk
||While many examples are startups, these platforms are open to enterprise corporations too.
||Some corporations offer innovation labs, opening their doors to the market.
||Customers do this informally now, often in social networks
||Get Satisfaction has been active on this topic; Lithium, Jive
||Social support examples exist in great supply
|The process repeats
Note: There are other business functions, such as sharing revenue and IP that could also be extended to the crowd; this is only a small sample of what’s possible.
Challenges Await for all Parties
Rife with opposition, the road ahead will require a business transformation and, with it, a series of more challenges await. Challenges over liability, IP ownership, revenue sharing, information security, and concerns over quality lay ahead. Don’t assume that all startups will want to work with corporations. I interviewed Airbnb for this research, and asked them point blank if they would partner with hotels. They made it clear that’s not a part of their current roadmap.
Expect New Enterprise Software to Emerge
Expect that many social business suite players will get wind of this space and seek to build or acquire players in this space to assemble a suite. I’ve briefed a number of the small and large software companies associated with this booming movement and informed them of the opportunities at hand. Expect for now that point players will continue to emerge and, eventually, provide an opportunity for acquisition cycle. But for now, we’re just at market identification stage.
Conclusion: Soon Customers and Employees Will be the Same
Corporations that adopt these methods and invite the crowd to be part of the company will benefit from a more efficient workforce, reduced costs, and tapping into loyal customers from product ideation to delivery. In this new model, it will be difficult to tell the difference between customers and employees, as the ownership of core business functions are shared with customers.
In the very near future, the crowd will become the company.
Above Image: An advanced view of the Collaborative Economy Value Chain in an ‘exploded’ view. This exclusive image, which was not included in the seminal report on the Collaborative Economy, shows a potential new business model that taps into new transactions beyond traditional selling. In the final phase of “Provide a Platform,” the crowd is building new products.
[The Collaborative Economy is an economic model where ownership and access are shared between corporations, startups, and people]
First, it’s key to read the full report and watch the 18 minute video of the highlights of the research report, the Collaborative Economy. The report defines the movement, gives quantified examples of disruption, indicates the three market forces that are driving this trend, and offers solutions for corporations who must adopt the value chain. Once you’ve done this, we can explore the advanced model (above), which proposes a hypothetical model that we created in the market where new forms of transaction emerge and the end state is where the crowd starts to design and build the company’s products.
[For corporations that adopt the Collaborative Economy Value Chain, this results in market efficiencies that bear new products, services, and business growth]
Exploring the Above Graphic: The Collaborative Economy Value Chain (Exploded View).
Starting at the top at the products and moving clockwise, let’s explore the three major use cases of the Collaborative Economy for corporations. In each phase, a shift is required as products become services, services become marketplaces, and marketplaces build products. I have named each of these phases, and then I have given real world examples of these phases already happening. In the table below, I give further definition to the transaction types at each phase.
- In Company as a Service products become services. In this advanced model, companies move beyond traditional selling and transform their products to services. I call this, “Company as a Service.” To date, both BMW and Toyota are renting their cars from their dealership lots in San Francisco in order to serve the growing car-sharing trend. For those familiar with Netflix or Salesforce, this business model isn’t new, and it’s a good entry point for corporations.
- In Motivate a Marketplace services become a marketplace. Companies evolve their services to an entire marketplace, called “Motivate a Marketplace,” which taps into peer-to-peer markets that are already trading goods and services a traditional company involved. The difference here is that corporations must join this marketplace, rather than stand aside and be disrupted. One notable example today is Patagonia, which partnered with eBay to encourage customers to buy used goods, rather than buy new.
- In Provide a Platform, marketplaces build your products. The last phase, where marketplaces shift to products, means that corporations allow the crowd to collaborate on core business functions, such as design, funding, marketing, development, production, delivery, and sales. We’re already seeing examples emerge in pieces (Kickstarter for funding, Etsy for production, Quirkly for development, and Deliv for delivery). I see copious, open, market opportunities for brands to transform their businesses by being involved in the Collaborative Economy.
Transactions in the Collaborative Economy
Now that we’ve identified the phases in the Collaborative Economy Value Chain, we are free to explore the many transaction types that have already emerged in the industry. I’m thankful in particular to Neal Gorenflo, the founder of Shareable Magazine (the premiere media site in this space), who spent a few afternoons with me to map out the transaction types during my research process. The table below was featured in the appendix of the report.
||Not new — but more and more individuals are empowered to provide goods and services directly to consumers online.
||Crafters sell their wares on Etsy; virtual workers get hired on oDesk and Elance.
||Traditional selling as we know it has morphed as disintermediation has occurred.
||For payment, a seller offers used goods for purchase.
||Craigslist and eBay are household names, but Apple’s refurbished products also count.
||Most non-consumable goods
||For payment, a provider offers a product for use.
||RelayRides enables consumers to rent cars from anyone. Rent-a-Toy allows parents to rent toys for their children.
||High-cost or low-usage goods
||For a recurring payment, a provider offers repeat products or services.
||Zipcar offers a month-to-month subscription plan with tiered pricing.
||Renewable goods, goods that require seasonal storage, repeat services
||Two or more own or share a product or service together. Applies to individual and business.
||Sharing babysitting services on Sitting Around.
||High-cost or low-usage items
||Consumers become investors or banks, or invest in or lend directly to each other.
||Kickstarter enables the crowd to fund and help products to market. Lending Club, Zopa, FundingCircle, and Prosper facilitate peer-to-peer lending.
||Financing at reduced rates
||For no payment or a nominal fee, two parties trade goods or services directly.
||99dresses allows women to trade fashion. HomeExchange facilitates home swaps.
||All goods and many services fit into this category.
||For no payment or a nominal fee, a provider offers a product that will be returned.
||NeighborGoods facilitates loaning of household items, and more.
||Most non-consumable goods
||For no payment or a nominal fee, a “gifter” provides a product or service to a receiver. Reciprocation may be a requirement.
||Freecycle facilitates gifting of goods. GiftFlow’s mantra says it all: “Give what you can. Ask for what you need. Pay it forward.”
||Most non-consumable goods
Counterintuitive: Let go of your company to gain the market.
As part of my ongoing coverage of the Collaborative Economy (read all the posts) it’s important we explore all facets of this disruptive trend to corporations, not just upsides, but the downsides as well. I also see that “marketplace friction” is a sign of the disruption that occurs as power changes hands, which should make the seasoned web strategist want to look closer.
This macro view of how a corporation’s business model must change beyond the traditional selling model may be foreign to sellers of durable goods, CPG, retailers and wholesalers. When you look closely, however, large tech companies like IBM, Cisco, Microsoft, Salesforce and others are already activating many of these use cases. We expect that some companies will eventually incorporate at least one of these major use cases, but the really savvy ones will activate all use case scenarios to tap into their marketplace and glean a share of the new market transactions that are already happening without them. We looked closely and found that, on average, the sharing startups like Kickstarter or Uber are taking about a 20% transaction fee. We believe corporations can do the same. Without a doubt, the biggest challenge is the of the major paradigm shift that is necessary for corporations to let go of old methodology. The only way for business leaders to advance to this phase is to “let go” of your company to gain the market.More: Read all my posts tagged the Collaborative Economy for additional information.
If you’re from the sharing movement and are offended by this post, my opposite of this post is The Three Drivers of the Collaborative Economy, where I documented over a dozen specific attributes that are driving this movement. Please read it. While the recently published Report on the Collaborative Economy lists the key challenges continues to obtaining traction, let’s focus in at a deeper level on what’s counter-acting this market, and look at both sides objectively.
Index of Challenges: The Dark Side of the Collaborative Economy
- It might be illegal. In some cities, it’s against the law to act like a business if you’re not one. Amsterdam ruled that unlicensed hotels (houses) were not legal. We’ve seen similar rulings in cities like New York and Berkeley. It’s difficult to move forward if sharing has been deemed a criminal behavior.
- New is better than used. No more unwrapping new videos. You’re getting nothing but hand-me-downs for the rest of your life, Johnny. New products have their appeal. They’re shiny, unbroken, and devoid of anyone else’s grimy fingerprints. New cars, houses, clothes and even baby toys have intrinsic value over sweaty, beaten and ‘proven’ older products. Imagine an AirBnb, which provides value-added services of security, food, concierge, and of course, that coveted mini-bar, versus hotels.
- The sharing mindset challenges traditional values. Call it hippy-dippy; call it radical liberalism; call it anti-consumerism; call it the anti-thesis of what a healthy society is built on; call it whatever you want. Not only will society cause those who don’t share to feel selfish, the very core values of some Western societies are rooted in owning a three-bedroom house and white picket fence a sign of success of, reinforced by marketing to “live the dream.” The mindset of sharing with others challenges the very values and principles that many consumers and business owners have been taught to fight against.
- Traditional business models are threatened as the crowd becomes empowered over institutions. Undoubtedly, existing corporations are being disrupted by this burgeoning trend that enables the crowd to be their own company, bypassing corporations. Corporations are left with a burning question that keeps them up at night: “What role do we play if people buy once and share many times with each other?”
- Governments balk in order to defend taxable revenues. Across the world, we’re seeing governments at the local level, and sometimes federal, resist the sharing of homes or cars, as it radically disrupts business models, taxable revenues, security, transient guests, and existing institutions. I assume that most lobbyists are gearing up, funded by corporate backers, in order to take these battles to court. Even in San Francisco, new rulings will be unveiled next month.
- Service providers could be deemed a second-rate marketplace. Second rate hacks now posing as professionals? Professionals at hotels, restaurants, service firms and staffing agencies will tell you that their workforces are better than those found at on-demand marketplaces like oDesk or Taskrabbit. They’ll claim that their workforces are full-time professionals, working full-time, not stay-at-home part-time workers.
- Concerns over public safety and quality control leave regulators reeling. Berkeley showed concerns that transient migrations of guests to neighborhoods could be a public safety hazard. Furthermore, as startups like Feastley arise that enable anyone with a kitchen to act like a restaurant, concerns over food safety arise. In a morbid case study, accidents and deaths in car sharing led to great concerns over safety, as unlicensed drivers act like taxi drivers, putting those around them at risk.
- Legal liability is challenged as ownership and access models are diluted. Who’s liable if a car is shared, rented, or borrowed and then crashed by a stranger? That is an example of the questions posed by insurance companies that the legal sector and owners of assets will face. While websites like RelayRide offer insurance policies up to $1 million for autos, will that cover a tragedy caused by users of this service?
- Lack of spending reduces the overall market, impacting jobs and the economy. Forget your silly startup; the bigger issue is that sharing reduces taxable revenues, jobs, consumption and economic injections from consumers spending widely. If no one ever bought anything again and, instead, just shared, fixed, and made their own products, capitalism as we know it could start to unravel.
- Lack of trust in two-sided marketplaces leaves owners at risk. To quote contrarian, Milo Yiannopoulos, who presented a compelling speech at LeWeb, he “Works hard for his nice stuff and doesn’t want strangers touching it,” (paraphrased) strikes a chord with many. Furthermore, we’ve seen case studies of AirBnb properties being looted or damaged, or cars that were part of the sharing economy crashed. It’s hard to trust strangers, despite Facebook connect systems.
- Collaboration in an economy ripe during recession, but not during a bull market. Penny-pinching is great during financial struggles, but during times of boom, it creates an undesirable friction, as I can buy new with wild abandon. Economic disparities aside, the developed nations will discard the silly notion of sharing when, instead, they can own more at will.
- Oligarchy is reinforced, as owners rent to the economically deprived. The rich get richer as those who have the resources to build and fund startups, or the resources that will be used in these marketplaces or used on demand, will continue to generate the money. In fact, traditional corporations, like car rental companies, have purchased car sharing startups in this space, securing their place in the market. Venture capitalists and investors, who already stem from the 1%, seal their place in power positions by being owners of the movement.
- Excess venture capitalist funding inflates an artificial marketplace. Those crafty venture capitalists continue to inject funding into startup clones, so their portfolio is also proven to have them covered in the car-sharing market, hotel-sharing market, services-shared market and office-sharing market. This artificial injection casts traditional business models aside, as startups have one focus: market adoption, rather than business models that will sustain, as they prepare for an IPO or an M&A exit.
- Startup saturation in every category confuses the market. With over 20 car sharing/renting/on-demand car services available, how does one keep track of who does what? Trying to invest in the right service leaves those who would consume confused, and creates marketplace churn. With barriers to entry so low, what’s to stop this market from continual wasteful churn, as everyone tries to do the same thing?
- Socialistic values are at odds with free market capitalism. Boom. I swore to myself I wouldn’t bring it up in public, but it warrants a discussion. The collaborative economy, like the internet and social media is a form of socialism where the crowd gains power over institutions. History is rife with examples of variations of socialism being challenged, not working at all, or in a few cases, working just fine (see Northern Europe). Nothing I learned in business school prepared me for these radical models where corporations, and capitalism as we knew it, are upended by this radical change.
- Lack of standardized reputation systems. Currently, the startups don’t share reputation systems, and are generally siloed. While over 50% have deployed Facebook Connect, the ratings and review data of the individual goods being offered, or the owners, are not being shared in a consistent way. Solutions, like Trustcloud, have emerged, but lack broad market adoption. (Added this a few hours after I posted
- A conduit for the underworld. There is an emerging black-market in every category, unchecked by regulatory bodies. Need I say more?
A sign of market disruption is heat from friction as power changes hands.
Friction comes from disruption, which gives us pause to look more closely at market drivers and market resistors. This growing list illustrates the challenges this market will have to contend with, take head on and overcome in order to become a mainstay in society. I’ve provided some additional resources that aided me in compiling this list, to which I hope you will add your comments. The market will fight these challenges for years to come. We’re just at the very beginning.
Related Resources: Marketplace Friction
Update June 27th: Respected Shareable magazine has joined me in the debate, and posts a worthy response to my critique, please read.