Published: Thursday October 23, 2014
It's a sharing revolution. First, find people with spare capacity, unused or underutilised assets, or resources they are prepared to share. Second, employ web and mobile technology to connect those resource owners with potential customers. The result? Companies facilitating transactions that benefit both sides of the equation.
That might mean charging a membership fee to sharers or taking a commission on their customer revenue. But that's not where it stops, these companies also acts as trusted agents for customers, controlling the products, services and advertising targeted to them. As the user base scales from hundreds to millions, it starts to add up to a significant revenue generating model.
Whether you call it the sharing economy, the peer economy or collaborative consumption, that's the essential business case behind it. It exemplifies the disruptive force of the web, making a more efficient use of resources while stripping out layers of traditional intermediaries and replacing them with a lower-cost, online network - usually to cries of "foul" from any vested interests or displaced incumbents.
Uber for example is one company currently making headlines as it uses mobile Internet and GPS technology to disrupt and displace cosy monopolies in the global taxi market. London, Barcelona and Paris were the most recent stages for protests at its introduction. Uber's recent valuation of $18 billion (on 2013 earnings of just $200 million) shows just how optimistic the stock market is about its ability to transfer value from old pockets to new.
This approach has been around since the start of the Internet. In fact, Napster and eBay could be seen as the original shared economy start-ups. And look how well the latter has done, with a market capitalization north of $63 billion today.
Buoyed by high profile success, numerous online based consumer facing sharing operations have launched in the last few years. If you want to rent someone's spare washing machine? Go to Snapgoods. If you need a dog sitter? Register with DogVacay. How about car hire? Use your neighbour's with RelayRides.
To guide them to the right seller, customers rely on ratings and reviews. A central tenet of the shared economy revolution is that it replaces licensing and regulation with peer review and user rankings, fostering mutual trust and building social capital. A low reputation score can drive poor-performing vendors out of business.
But does this self-policing approach offer sufficient consumer protection? If all that is being sold is a secondhand pair of sunglasses, then yes. But who takes responsibility if a rented Spinlister bicycle breaks and deposits its rider under a double-decker bus?
The controversy surrounding Uber highlights the need to regulate the security of services. For example, the licence regime that controls who can operate metered cabs in London certainly shelters vested interests, but it also helps to ensure the security of drivers and passengers. More often than not, business regulation is there to protect the public.
More peer-to-peer rental firms are realising they need to run thorough background checks, examining the driving licenses, credit histories and criminal records of both users and service providers. TaskRabbit, which hires people by the hour to assemble furniture and clean houses, is one that has gone for certainty over trust. Through its online marketplace, TaskRabbit connects busy people to skilled professionals to whom they outsource home services they don't have the time or resources to do themselves. Since this is effectively inviting strangers into their homes, it is essential that each applicant is verified to ensure they are who they say they are. To ensure the protection of its customers, TaskRabbit electronically vets each applicant and invests time to train each one before they can be approved and enter the company's system.
Sharing start-ups are also butting up against intractable local, national and international regulations. London's judges have yet to rule on Uber's legality in the UK capital, but the application is now banned in Barcelona and Germany and those that dare to use it in Brussels face a €10,000 fine.
Will challenges like these cripple their business model? It's more likely they will adapt and learn. Services like real-time electronic ID checking help them tick the legal compliance and user security boxes - while retaining the sign-up speed and ease of use their users expect.
So whether it's paying taxes, arranging sufficient insurance cover or checking for money laundering, new economy operators are finding they can't entirely break free of old economy restrictions. It looks like the future of business could be more evolution than revolution after all.