Your collaborative economy cheat sheet

Its leading companies — Airbnb, Uber, Lyft, Instacart — have become household names. But what defines a collaborative economy business, and why is this peer-to-peer model such a powerful and influential force in our changing economy? Here are seven things you need to know about this game-changing trend.

1. What makes a business part of the collaborative economy?
Broadly, the core idea behind the collaborative economy is that individuals get their needs met by other individuals versus product or service companies. Collaborative economy businesses enable the peer-to-peer value exchange with platforms that:

  • Simplify: Collaborative businesses offer mechanisms that bring buyers and sellers together in low friction ways.
  • Standardize: They shape and define the goods and services that change hands.
  • Streamline: They make transacting easy using mobile and payment technologies.
  • Reduce Risk: They use the crowd to provide basic security assurance and peer-to-peer evaluations, like the star rating system for Lyft.

A variant of this is the sharing economy, where services are rented in lieu of purchasing goods like cars.

2. What industries are being impacted by the collaborative economy?
Much of the press coverage of the collaborative economy has been focused on travel industry disruptors like Uber rides and AirBnB stays. But it’s increasingly difficult to find an industry that isn’t being changed by the collaborative economy:

  • Manufacturing by Etsy and used goods exchanges like OfferUp.
  • Retailing by Instacart.
  • Investing in businesses has been democratized by Kickstarter.
  • ISPs are facing new players like Open Garden’s peer-to-peer connection.
  • Brand/agency relationships are evolving thanks in part to services like Freelancer.
  • Restaurants by a host of peer-to-peer meal sharing services.

Retailing and real estate are affected when major retailers like Nordstrom and Sears rent out store sections to small and boutique brands. The list goes on.

3. Why is the collaborative economy growing so quickly?
Smarter people than me have written major studies on this, but I think it’s a convergence of at least six forces:

  • Consumer control: As an example, before Uber and Lyft, San Francisco had few cabs on the street. Here you didn’t just walk outside and whistle. Limited — very limited — supply meant getting a cab could take 20 minutes or more. So when ride services came along, people were thrilled.
  • Mobilization: It’s these amazing computers we have in our pockets making all this possible. Instantaneous. Secure. Integrated with payment systems.
  • Focus on “useful life:” If you think about it, a lot of things we own are only used for a tiny portion of the day. My car, for example, drives for six minutes to the bus stop, six minutes from the bus stop, maybe 20 miles a week of “other.” But for 23 hours and 48 minutes of most days, it sits. I’m not ready to go carless, but I understand why many of my coworkers have. It’s about trying to get value.
  • Reurbanization: More people, especially young people, are choosing to live downtown, which makes sharing services far more viable.
  • Financial pressure: Lots of people are struggling financially these days, and it’s easier to pay $12 for an Uber than $30,000 for a mid-sized sedan. Doesn’t mean they wouldn’t like to own a car. Just that they maybe can’t, or want to spend limited resources on other things.
  • Social media and connectedness: Word gets around a lot faster these days. A great idea can get incredible exposure quickly and cost effectively. Plus, rapid trial and adoption create masses of users/fans before entrenched forces can take action to block them. Cab companies can successfully oppose the issuance of a few hundred new medallions, but they have a more difficult time opposing millions of people who love sharing a ride.

4. But what about something like hourly car rental services? Or the rent-a-desk office places? Are they part of this same trend?
Great question. I’m not sure exactly where to draw the line. But Jeremiah Owyang and his Crowd Companies — arguably the most authoritative resource on the collaborative economy — do include such services. So I will go with that.

5. All this renting. Don’t people want to own things anymore?
Yes and no. This is where it gets fascinating. A PWC survey of consumers who were aware of the sharing economy revealed some amazing findings about people’s attitudes toward sharing versus ownership: 86 percent think sharing makes things more affordable; 83 percent say it makes life more efficient and convenient; 78 percent say it makes for a stronger community; 76 percent say it’s better for the environment; and 43 percent say they think owning things can feel like a burden.

The arena is most popular with Millennials, who are known for their frugality as well as their connectedness.

6. How are traditional businesses responding to the trend?
As with every megatrend, some established institutions are trying to fight the trend. Further, some local, state, and national governments are creating impediments that are having negative effects.
But other businesses are embracing and incorporating it into their core business strategies. Ford and GM, for example, are preparing for selling fewer cars by making investments in ridesharing businesses. Auto was a huge presence at CES this year, and Ford’s CEO now calls his company a “mobility company.” Smart (Daimler) rents cars by the hour in Portland. The auto rental industry tried putting up roadblocks for a time, but Enterprise now offers hourly rentals in many locations.Some hotel companies fought against Airbnb. Others are actually incorporating collaborative economy services into their offerings, like getting forgotten clothing and essentials picked up and delivered to your room.

7. Is the whole world going sharing economy?
This is a big and fast-growing class of enterprise, but we’re not moving to an all shared economy, at least for the foreseeable future. It comes down to whether there is untapped value that can be extracted through sharing. Sometimes there is. Sometimes there isn’t.

Fast Company recently told the story of how many thought the hand tool industry was positively ripe for plucking by the shared economy. After all, the functional life of most power drills, for example, was 8-12 minutes over several years of ownership.

Lots of tool-sharing services got funded. But in-market results were spotty. Most people continued to buy their own drills and other tools, because going to the trouble of picking up and returning a drill wasn’t worth a couple of dollars to most people.

Sometimes the logistics of sharing things make things easier, but sometimes, the effort required doesn’t seem worth it.