Value from nothing – the sharing economy

The Sharing Economy by Patrick DohertyAirBnbetsy and Relay Rides are the current poster children of the sharing economy. If you don’t know what that is, it’s also called collaborative consumption or peer-to-peer selling. In other words, just fancy names for one person selling or renting their stuff to another person. Clearly this is not a new idea but it has never really been possible to do it on such a large scale. In the case of a site like Etsy – which describes itself as a global marketplace for unique goods, from furniture to food – they have allowed the local artisan to take his or her products far beyond the confines of their communities, towns, cities or countries and sell to a global market.

Tim O’Reilly, tech venture capital pioneer and CEO of O’Reilly Media, moderated a panel at SXSW Interactive with Nate Blecharczyk, CTO and co-founder of AirBnb, Juliet Gorman, communications director of Etsy, and Shelby Clark, founder of Relay Rides, and they explored some drivers of growth in the sharing economy as well as what it takes to be successful. It kind of goes without saying that the convergence of social networks, commercial payment, distribution and logistics technology – and perhaps a greater willingness for people to explore alternative income streams in tough economic times – created the right conditions for peer-to-peer selling to take off.

As Blecharcyzk of AirBnb explained, people have been able to rent their vacation homes relatively easily for years but now by removing many of the logistical blockages AirBnB have made it a much simpler and cost effective exercise. So much so that most of the accommodations on AirBnB are not vacation homes but people’s primary residences. By removing hassle and friction from the process they have effectively created an entire new inventory  of accommodation – people’s homes.  The change has been equally large for the renter, as AirBnB took the hassle out of the booking process by making it just as easy to book a private home as booking a hotel room.

At the heart of what makes these ventures successful  according to the panel, is they offer something new to both the buyer and the seller. For the buyers it’s access to some very unique, very customized experiences. On AirBnB, for example, you can choose to have the experience of sharing someone’s home with them, thus getting to know the home owner on a personal level. Or you can rent the whole place – from the smallest to the most luxurious space in just about any location around the globe. With Relay Rides you can rent some fairly specialist types of vehicles in different locations, and with Etsy you can access goods from across the globe. For the buyer there is often a sense of satisfaction in making a purchase that helps at the individual or community level – not just forking more cash over to corporations.

Sellers gain the obvious benefit of another source of income. But what is truly interesting is the creation of value, in some cases where none existed before. As Clark from Relay Rides explained, you are taking what is essentially a depreciating asset that costs money to run and turning it into an investment with an income stream attached. Most thought it was unlikely people would seek to use their services as a lone form of income. But Blecharcyzk suggested the average AirBnB owner in San Francisco makes around $9,000 a year from their rentals. By no means enough to live off, but certainly enough to finance a couple of holidays or an investment in a passion project. For Gorman and Etsy, she claims its not always about the money for their sellers as they tend to be artists who are passionate about their work. But she says it’s certainly indicative of a shift in the way people work to have a few diversified sources of income.

So how to be successful if you are thinking of setting up some kind of sharing service? First and foremost, all agreed, it’s about trust. It can be a scary notion to rent out your home to a complete stranger or jump into a stranger’s car, so as the service provider you have to make sure that you can allay these fears as much as possible. It’s why AirBnB insures each owner up to $1 million and why Relay Rides does extensive background checks on its users. So far, AirBnB’s biggest payout is $10,000 to cover a trashed apartment. Not a happy experience, no doubt, but perhaps its a little easier to take the risk if you know there’s $1 million worth of insurance behind you.

It’s also important to have a band of passionate advocates who are willing and able to evangelize about the service from the beginning. It can take time for the word to get out. AirBnB has facilitated over 4 million bookings in its 4 years of existence – but 3 million of those happened last year.  So the next lesson is to make sure you can handle the wave when it comes.

As with all “latest big things” it will be interesting to see how these services morph. No doubt, given the experience of the grad daddy of them all, eBay, and the journey it has taken, much of that change and innovation will come from the users. What services will next become part of the sharing economy is anyone’s guess. But if you are trying to think of one, just remember to find something that creates value from the previously valueless and gives the customer that unique, one-of-a-kind experience.


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