The Collaborative Economy
For the longest time, the world’s business schools have taught that the fundamental behavioral paradigm is that people primarily act out of self-interest. But recent advances in biology and neuroscience are revealing this to be a false premise. Models of Dual Motive Theory in the field of neuroeconomics show that humans have as much for nurturing as for survival. Could it be that the wrong premise of business schools has created generation upon generation of economic behavior motivated by self-interest rather than altruism?
In other words, it may not only be cool to share, but it’s human nature. We have lived under the regime of a competitive economy for so long that we have come to think of competition as a necessary evil. Yet, even in this competitive, self-obsessed economy, sharing has always been there, informally and in the background. With the dawning recognition that a competitive economy is detrimental to the health of humanity itself, momentum is picking up to transform the informal sharing economy into a formal sharing one.
This Collaborative Economy holds the promise of reducing the consumption of newly manufactured goods and services by promoting the reuse and sharing of already existing resources that would otherwise be sitting idle. While it bypasses the middleman and is threatening established businesses around the world, it is also creating a whole new class of wealthy middlemen – the internet companies providing Software As A Service (SAAS).
In this new economy, one’s reputation may mean even more than credit rating. Reputation Capital is a term that Rachel Botsman of Collaborative Consumption created to describe the evolution of reputation into capital. For individuals trading directly with each other, reputation is the most important quality – whether you can be trusted. Reputation capital is word-of-mouth for the digital age and gives us as consumers, the ability to get paid for compassion and good will. Chris Mok is legendary on the errand-running website called TaskRabbit. His reputation allows him to make upwards of $5,000 a month from running errands. His reputation brands him as trustworthy and this helps to attract more consumers who want to use his services
Reputation Capital may finally be the means to empower those who naturally do good in the world regardless of whether they are paid or not. It could prove to be the way to reward and monetize positive qualities such as innate goodwill and propensity to share. The Pew Institute recently conducted a survey that found that an active Facebook user is 3 times as likely as a non Facebook user to be more trustworthy. Hence, our Popularity will not only make us more marketable, but it will encourage more ethical behavior.
These new peer to peer technologies, combined with trusting relationships allow us to leverage our online relationships to perform real-world work for clients, and creating a new service industry called service networking.
Click on the picture below to listen to the soundcloud speech of some of the leading advocates of the Sharing Economy speaking at Ouishare convention:
Rachel Botsman explains the Radical Transformation of the Collaborative Economy
What excites me is that we are in a world that’s shifting from institutional power to distributed power
- Rachel Botsman
- Complex experiences – experiences that are unnecessarily frustrating, time consuming and lack transparency. Telcos and Insurance are at the top of the list
- Broken trust – banking – where institutional trust is broken and peer trust is on the rise
- Redundant intermediaries – layers of middle men that can be easily removed – publishing and media
- Limited access – experiences that were previously out of reach by many people – having a bank accounts or education Institutions belonging to these sectors will be vulnerable to being outdated.
- 1 billion cars on the road, 740 million of them carrying only one person, and 470m would be willing to carpool.
- 460 million homes in the developed world (average $3,000 worth of unused items available) 69% of households would share these items if they could earn some money from it
- 300 million people in the developed world spend more than 20% of their waking hours alone and are looking for connection
- 2 billion internet-connected people in the world & 78% say that their online experience has made them more amenable to sharing in the ‘real world’ (confirmed by the Latitude Research survey). 80% of the 7 billion people on the planet today would declare that sharing makes them more happy. This means 5.7b people would be ready for a sharing economy. (Source: P2P Foundation)
People are capable of sharing resources if given the tools to self-organize, coordinate, and monitor each other. Botson believes that online reputation will become one of the most valuable currencies in your possession.
Shortcomings of the Collaborative Economy Paradigm
When the Collaborative Economy paradigm first hit, there was a flurry of excitement and talks lauding the benefits of the Sharing Economy. CE evangelists extolled the many virtues of citizen sharing ushering in a new age. The Collaborative Economy is nascent and is still very hot and expected to grow at a whopping 25% per annum if Forbes is to be believed. However, as it begins to truly scale, we can catch glimpse of some of its shortcomings too. Writing in the Guardian, journalist Ana Andjelic offers the following insight:
“Venture capitalists and entrepreneurs who are behind collaborative economy companies are maybe even the bigger winners than the consumers themselves, making significant profit by encouraging our own frugality. Uber’s and AirBnB’s untaxed revenue creates a dent in cities’ budgets, depraving them of income that they may have used for homeless shelters or public transportation. Collaborative economy doesn’t seem to be for those who may benefit from it the most, like economically disadvantaged citizens and neighbourhoods. Instead, it’ for convenience-seeking young affluents with high disposable income. Collaborative economy distributes resources among those who have them in the first place, just like any other consumer-facing company.”
If you were paying attention to the news in 2014, you might have heard a number of controversial stories surrounding an internet company called Uber. Uber represents a rapidly growing breed of companies participating in a new kind of economy called the Collaborative Economy, where internet Software-As-A-Service (SAAS) companies act as a facilitator for citizen-to-citizen-based sharing transactions. The granddaddy of them all are the well-known companies Amazon and Ebay, which serves as a global marketplace for citizens to buy and sell their goods. Uber is a pioneer in the car ride field and it comes as no surprise that it is plagued with a variety of issues stemming from such a radically new business model. A California class action suit has been launched against Uber claiming that the CEO skimmed money off the top of its 20% automatic gratuity. In Delhi, India, a female passenger was raped by a male assailant who passed all Uber’s screening criteria. Uber is now banned in India, adding to the companies growing woes from traditional ride offering services (taxis) who feel threatened by Uber’s low rates. In France, succumbing to taxi driver unions cries of “unfair competition”, the government has banned Uber’s ultra low cost service, UberPop in the entire country. The government takes issue with the fact that UberPop drivers are not required to hold professional licenses or insurance, as other French chauffeurs are. A new French law that goes into effect on January 1, 2015 punishes would-be chaffeurs who violate the law with two years in prison and a €300,000 fine. In a televised interview , French transportation ministry spokesperson Pierre-Henry Brandet said UberPop and its unlicensed drivers poses risks to customers saying “Currently, those who use UberPop are not protected in case of an accident,” and added “So not only is it illegal to offer the service, but for the consumer, it’s a real danger.” Invoking the same rationale, Thailand, Spain and the Netherlands have also banned Uber.
Airbnb, another high profile Collaborative Economy company has also raised the ire of governments. The New York attorney general investigated four years of anonymized Airbnb user data and was disturbed by the findings:
- Up to 72 percent of the private, short-term New York City rentals analyzed were illegal
- Airbnb’s presence in the city significantly eroded the long-term rental housing market
- A number of Airbnb hosts operated as de facto hotels without paying the proper hotel tax. This small group made enormous sums of money running listings on Airbnb:
- Six percent of hosts ran large-scale operations and collected 37 percent of all Airbnb revenues
- More than 100 users rented out 10 or more different apartments regularly
- Together, they made $59.4 million in revenue over the four years
- Airbnb’s most prolific host in New York made $6.8 million running 272 listings
- Generally, listings were smaller in scale but a significant percentage still violated occupancy or zoning laws:
- Some listings were for buildings not zoned for residences,
- Some listings were short-term (under 30 days) rentals in multi-unit buildings where the host is not present – an illegal practice
- Some listings seemed to operate as illegal hostels, with multiple unrelated bookings for the same room
- Some listings were multi-unit buildings that had short-term rentals going on for more than half the year, making the buildings unavailable to long-term tenants and operating as hotels
The Attorney General’s anaylsis is available here
One of the lessons we can learn from Uber and Airbnb is that even within a collaborative paradigm, there is always a small percentage of the population who are oppurtunists prepared to game the system for their own personal gain.
Sharing as a Means of Improving Efficiency
It is clear that identifying and improving upon waste in all its forms is a major source of improvement in society.
International Energy Agency CO2 Reduction Strategy Projections to 2050 Relies Heavily on Eliminating Waste
Waste improvement throughout society is the major strategy for reducing greenhouse gas emissions:
NOTE: Click on any graph to get an expanded view
Commentary: It is clear that Renewable Energy is projected to play a significant role in reducing global warming
Add intervention: Carbon Sequestration, Renewables, Efficiency Improvements, Fuel Switching & Nuclear
It is clear that the greatest factor in impacting global warming will be efficiency savings of existing energy use.
Doing everything more efficiently will reduce both consumption and waste. See the scale of waste in our society here and you begin to realize how much impact efficiency can have.
Collaborative Consumption is about identifying and reducing waste.
Collaborative Consumption Evolution in Some Industries
Mesh is an organization which promotes the Collaborative Economy by offering an extensive listing of all organizations that participate in the collaborative economy. As of 2014, they had well over nine thousand organizations in 131 countries and 1500 cities around the world classified in 25 major categories.
Collorative Consumption Companies
New marketplaces such as TaskRabbit, ParkatmyHouse, Zimride, Swap.com, Zilok,Bartercard and thredUP are enabling “peer-to-peer” to become the default way people exchange — whether it’s unused space, goods, skills, money, or services — and sites like these are appearing everyday, all over the world – Collaborative Consumption Website
“Brand” new strategies: Adapt and Survive
Colin Nagy, executive director of Media at The Barbarian Group, a digital agency behind the famous Pepsi TaskRabbit “Extra Hour” campaign has advice for big brands. Instead of being threatened, it pays to leverage the Collaborative Economy market to grow the brand and retain loyalty of their consumers. Nagy cites examples that would be wise for brands to heed:
- TaskRabbit is a marketplace for time, skills and knowledge
- The most popular task there is assembling IKEA furniture because many people fear and loathe IKEA manuals; they would rather pay someone to go through the ordeal.
- This is a partnership opportunity for IKE; IKEA should own the “IKEA-assembling skills” marketplace on TaskRabbit
- The option of having a TaskRabbit individual should be part of every online and in-store order, all bidding already done by IKEA.
- IKEA then delivers to your door both the furniture and the person who will assemble it
- What sort of things does Hertz need to do to compete in a world where people are circumventing rental cars altogether and using UberX only for a 3-day trip in LA?
- Hotels need to re-think their 3pm check-in and noon check out in a world where people can now rent a residence for half the price
New role for agencies
A brand is going to be more valuable to consumers if it creates some sort of new value that did not exist before. There is a potential new role for agencies in this space. “If I was at a big brand,” Nagy says, “I’d be surveying the space and trying to figure out where a new business could be created, or an extension of an existing, trusted brand.”
Brands can hire an agency to do it for them. New value usually comes out of connecting supply, provided by the brand, with customer demand in some new way.
Peugot “Mu” service
- A few years ago, Peugeot unveiled “Mu,” a rental service available in 70 European cities.
- Peugeot rents its customisable vehicles, along with scooters and bikes.
- Peugeot realised that its customers are engaging in car sharing behaviour, with this brand or without it and it adjusted its supply to its customers’ shifting demands.
- Patagonia partnered with eBay to create a redistribution market for its pre-owned jackets, fleeces, gear, shoes, sweaters and other outdoors items
- Patagonia customers can sell their ski pants, or buy a ski helmet on eBay, under Patagonia’s brand
- By expanding its product offerings into pre-owned goods, Patagonia effectively expanded its market, reached more consumers, and encouraged more economic transactions around its products.
Other Brand Strategies
- H&M and British retailer Asos created their own online marketplaces as well