Businesses in the sharing economy have drawn public scrutiny, if not ire, of late. But nobody wants to see a beautiful baby business model thrown out with the bathwater. What’s it going to take to get past the PR crisis?
Here were the two big beefs in collaborative consumption this season:
Airbnb–the marketplace that lets people rent out their apartments or houses to travelers in search of a non-hotel experience–vaulted in the press this July, with news that vandals and thieves ransacked one user’s apartment. The criminal element had used Airbnb to find their victim. Everyone from hoteliers to venture capital investors had something to say about it. Hotel industry veterans, especially, questioned the startup’s entire offering.
Zipcar— the pioneering rental car company that offers vehicles by the hour, and parking spaces and lots near where people live and work–practically invented collaborative consumption as a for-profit business model. Though well established, shortly after they went public, concerns arose around liability insurance for their customers. Writing for the New York Times, Ron Lieber observed:
“[Zipcar leaves] customers exposed to enormous legal judgments if they get in a serious accident. It caps the liability insurance coverage it provides for members at $300,000 per incident, no matter how many people they may hurt.”
Startups using this model continue to gain support, though. This week, Airbnb competitor Couchsurfing.com revealed that it had taken on $7.6 million in venture funding, and was changing from nonprofit to B-corporation status. Meanwhile, Forbes blogger Amy Westervelt reported, Portland and New York City are embracing bike-sharing programs. The list goes on!
Can these startups win customers with all the negative buzz? Can they not just survive, but thrive?
FastCompany spoke with Roo Rogers, the president of Red Scout Ventures, and co-author of What’s Mine Is Yours: The Rise of Collaborative Consumption, about what it will take to keep the sharing economy strong in its second act.
How will the negative PR around Zipcar and Airbnb change the market for shared services and goods?
The market may retract for a minute. But this is somewhat sensationalist. It’s silly. Someone should go look at insurance and how many cars are crashed in Hertz’s business, or how many rooms get trashed at the Hilton hotels by frat boys and rock stars.
Even if Airbnb failed, and it won’t, that wouldn’t mean that collaborative consumption would stop or really slow down. It’s just that the press is hungry for a meteoric rise and crash story.
The truth of collaborative consumption is that the rise, the idea of sharing has been around for thousands of years. Henry Ford came up with the first car-sharing concept over a hundred years ago. It’s been a slow gradual progression, using technology that caters to our abilities to share, and adjusting our basic behaviors.
Are businesses in the sharing economy more vulnerable to criminal abuse than others?
You will always get people taking advantage of the system. Do they do so more in collaborative consumption than in other business systems? I don’t think so.
Are companies in this space at a disadvantage versus traditional competitors?
Let’s separate out the small stuff from the big stuff.
Zipcar not offering a million dollars of liability insurance…? That’s not a consideration specific to their business. Avis, Hertz, or any other rental car company would face the same problems there. They made a business decision that, if they need to, they can correct.
The bigger issue that collaborative consumption businesses face–and it’s a challenge underscored in Airbnb’s case–is about trust and knowing your consumers, who they are. Who is the person coming to stay in your home? Who is the person you are renting from, for that matter?
When you have a good peer-to-peer policing system, a system of trust, you see things like eBay, which has a very impressive 2% default rate. I use Zipcar every weekend, and I have never gotten into a dirty or damaged Zipcar.
If it did not work that way, collaborative consumption would never work. We could not afford enough policemen to check all the purchases on eBay, or all the apartments rented on Airbnb and so on. Peer-to-peer policing works actually very, very well.
How do you think Airbnb handled their PR crisis, and their affected customer?
Everyone likes to see a great fall. Bloggers were out with their knives for Airbnb. Look at the founders–they are brilliant but they’re also new. They’re not entrepreneurs who went to Harvard business school and worked in banking for 10 years. They’re younger entrepreneurs who said “Hey, I have a couch.”
That said, I think they handled the communications badly. Taking a couple weeks to respond is unacceptable. When they did respond, they did the right thing, which was to provide a hotline and insurance and more substantive solutions to the problem.
Frankly, it’s surprising we haven’t seen bumps like this sooner in the space.
What’s missing in collaborative consumption today?
In my mind, if we have a credit score with credit card, fixed location and other data, we should have that associated with our reputation, too. If we’re good Zipsters, and good eBay tradesman, our rep should follow us. People should be able to see our record, tied to a fixed identity, and do business with us more confidently.
We still need great, centralized databases of reputation.
What are the new questions investors will ask startups with a collaborative consumption model?
I always do two things, and they’re the same two things you do when you look at a business plan from anyone. You read the front page to understand the proposition, and then you want to know what the margin and profitability is. The next thing is looking to see who is leading this thing.
That’s a standard answer you get from venture capitalists. But I don’t think collaborative consumption startups require specialists. I might pay slightly more attention to one thing–if there’s a strong element of safety and security for the seller within the model, I’d look at what protects them. That again is common sense.
There is a group right now, the Collaborative Fund, that my co-author Rachel Botsman is part of–they are dedicated to collaborative consumption. It is very smart. But I actually think any fund could effectively invest in these businesses. They simply need to understand: Is this a good idea or not, and will it work in the marketplace?
Do these businesses require different resources than others?
Not exactly. The heart of the person who starts a brand in this space is important. They need to be people not from the ivory towers who sit in executive boardrooms all day. They have to be normal users. What customers want to hear is “I understand and am part of the community. I’m not a big business person. I’m just like you.”
The CEO of Airbnb [Brian Chesky] stood up and issued a press release where he basically said “We really cocked this up.” It was his personal voice, and opinion and he was obviously suffering personally.
It’s really important for collaborative consumption businesses to have a strong founder who lives and breathes the brand.
Where are the biggest opportunities for growth in the next few years in the sharing economy?
When eBay was relatively new, there were maybe a few hundred collaborative consumption companies operating in the U.S. Today I count over five thousand. It’s going to keep growing.
This model offers consumers a better option to consume, better value. Instead of having to be burdened with obligations of ownership, debt, storage, replacement, repair, and pollution–it is better. I can get the benefit of the utility. That’s why companies like Hertz or Avis are waking up and getting a bit worried about it.
The big opportunities I see are in the business-to-business space. I’m interested in the credit card space, and something like a reputation bank. I also see opportunities for skill trading, like time-sharing people with high-end skills from photographers to accountants.
Is the sharing economy making money enough to deliver good returns to investors? Comparable to traditional ecommerce?
Yes. My very good friend [Robin Chase] is the founder of Zipcar and I wish I was her! I look at Airbnb and eBay and many more creating fantastic returns. Two years ago there was barely anything going on here. Five years ago, nothing. In 10 years, think of where we’ll be. The buzzwords now around VC are “energy” and “collaborative consumption.”