Like any living thing, economies have lifecycles. With a bit of careful observation of the “collaborative economy,” it’s clear this new model of commerce has reached that awkward, in-between stage where the old norms no longer hold true, but the new ones aren’t quite fully formed yet either.
Just as teens grow up, so is this 21st-century economy. We’re shifting from valuing what we own (as individuals or brands) to a world where collaborative invention and ownership is not only accepted, but increasingly, preferred. Definitions of successful business are changing from scale and sameness toward authenticity and connection. We’re evolving from a model that primarily values profits to one that puts purpose on equal footing with profits.
Here’s how we know that the burgeoning collaborative economy has reached adolescence.
Last century was the century of the generals. It was top down, one-to-many, highly process-driven, with consolidation of power at the top of each organization, and typically powered by enormous capital investments. Today that approach has turned upside-down, with some of the most powerful economic forces emerging from the bottom up. Ventures of all sizes are tapping into distributed infrastructure and talent, which drastically reduces the need for mass financial capital. Much of the power of this era comes from understanding, engaging, and giving voice to the many.
More and more share-based services and platforms continue to come to market. Increasingly, people are choosing to share, rather than own, valued assets. This represents a big shift in how we ascribe economic value, benefit, and well-being to communities, companies, and our economy.
Many of these platforms are continuously shifting their community experience and business model, learning from one another. Increasingly, the emphasis is shifting from the voice of the company to the voice of the crowd. Established brands are opening up their once vertically integrated value chains and are actively turning products into platforms, often through partnerships. Auto manufacturers worldwide are expanding into car sharing, ride sharing, and have declared themselves to be in the mobility business.
GM partnered with peer-to-peer car sharing company RelayRides. BMW invested in parking spot marketplace Park at My House and offers its own car sharing service, DriveNow. Italian oil company Eni partnered with Fiat to launch Enjoy car sharing. Even the “generals” are evolving.
The collaborative economy hinges on the reputation and trust built between a set of peers. Since these marketplaces often work best in densely populated cities, many people have become urban micropreneurs, collaborating to unleash their creative talents toward the challenges of city life.
New transportation, real estate, and food ventures are crafted for urban dwellers. These marketplaces are creating practices, tools, and systems for a new type of social operating system. It’s an emerging standard, using technology to create and manage transparency and accountability, allowing a growing global community to assess value and trust within (and eventually between) marketplaces and platforms.
Airbnb provides a strong example: hosts and guests verify their identity by linking their profile on the site to their social network and/or uploading official documents like a drivers license or passport. Further, hosts and guests using the site review one another after each interaction, building a community-generated aggregate score. The score amounts to a user-generated reputation, which quantifies trust based on interactions within the community.
Airbnb also facilitates near-instant messaging between hosts and guests via email and smartphone apps–and includes a “red flag” feature in every message thread so that hosts and guests can notify the customer service team if they ever feel uncomfortable with an interaction.
Platforms that facilitate peer-to-peer transactions act as a trust proxy, often by literally revealing who stands behind each marketplace promise. Opportunities for insurance providers and other brands to create certification services remain. In the context of commerce among peers, we must all recognize that disclosure before being ‘discovered’ builds trust. Expect more visibility as platforms and communities benefit from knowing more about who is on the other end of the transaction.
Until last year, many of these marketplaces were flying under the radar of incumbents and regulators. While RelayRides and Airbnb ensured that their customers were insured, there was a clear and growing misalignment between last century’s predominant model of ownership and this emerging state of access. Predictably, as with any adolescent possessing power tools, periodic oversight from authorities arrived and government institutions tapped, or in some cases, slammed on, the brakes.
Some of the earliest discussions with policy makers and regulators have resulted in mutual agreements, but resolution will come only with consideration of the pressure on cities to support their growing populations while enabling economic benefit for its residents. This balance will be achieved by city governments willing to craft suitable policies in support of innovation and urban sustainability.
We have moved into the stage of the collaborative economy where most cities, brands and communities see both tremendous opportunity and inevitability. Several model cities have been early movers, including Mexico City; Amsterdam; Vancouver, Canada; Seoul; Paris; and Portland, Oregon. If the most recent surveys of cities prevail, the cities that first embrace change and create transit and income generation options will win favor with a growing breed of urban dwellers.
As specific models and platforms gain market momentum, an entire ecosystem of commerce emerges.
In the 20th-century economy, Ford and other auto makers’ business success created opportunity for tire, engine, upholstery, stereo, windshield repair, auto insurance, road infrastructure, stereos, and parking garages. Today, we see the early signs of similar relationships and ecosystems emerging in the collaborative economy around the most mature brands and business models. Airbnb, VRBO, and Flipkey have inspired concierge services like airenvy, turnKey, Urban Bellhop, which have popped up to make the work of renting out a spare room on Airbnb seamless and easy–for a cut of the deal.
We’re also seeing a range of other offers emerge to up-sell to travelers once they have booked their peer to peer accommodations, like tours arranged through “local insiders” on Vayable, and home cooked meals through Feastly.
Similarly, we see ecosystems emerging around ride-sharing services like Lyft, Uber X, and Sidecar. Now, you don’t even need your own car to drive for these services, thanks to companies like Breeze, which has emerged to supply the car while you supply the labor. No doubt we’ll soon see other secondary offerings, like insurance and preferred pricing on fuel, parking, and car washes. Emerging secondary offerings are strong validation of the success of these early models and brands.
As the collaborative economy gains steam, it’s also gaining power, which can be measured in several ways: cultural capital, financial capital, and marketplace momentum.
The numbers speak for themselves. Etsy, the marketplace for hand-crafted products, raised $40 million in 2012, in a deal that valued the company at $600 million. Opower, which offers peer-to-peer performance data for residential energy use, disrupting traditional energy suppliers, recently completed an initial public offering, which raised $116 million. And Lyft, which offers on-demand peer-to-peer ride sharing, disrupting car ownership, traditional taxis, and parking services, in April 2014 raised $250 million in venture capital.
These companies are mature enough to be seen as vehicles for significant return on venture investment. This is a proof point that the business model and brand equity have upside value. That said, I see a discontinuity between the essence of the collaborative economy and exits required by venture-backed businesses. VC-backed businesses provide the lion’s share of benefit or return to its investors and the company founders.
In the case of a product technology company like Tesla, the design and manufacturing of the cars is created by the company itself; the majority of the value creation is driven by the company. However, in peer-to-peer marketplaces like Lyft or Airbnb, a significant value is created by the drivers or hosts who provide assets or “marketplace inventory” across the platform. While these people create much of the value on these marketplaces, they do not participate in the shared distribution of the value once captured through a public offering, acquisition, or other form of surplus distribution.
This, in my view, presents a philosophical disconnect in these peer-based marketplaces. It can be addressed by appropriating shared value with the contributors of these marketplaces, the peers who are fueling their rise. I fully expect to see and would wholeheartedly encourage company founders to experiment with currencies and strategies to share the value created with their communities.
While the collaborative economy ventures have not yet hit their prime, they are clearly on their way. Whole new brands, teams, marketplace dynamics, investment in platforms, behaviors, and policies are evidence of the power in these models. With a bit more time, we’ll see the collaborative economy mature past that awkward, in-between stage into a full-fledged, trusted, and increasingly meaningful, global economic force.