Founded by three taxi drivers and three Internet entrepreneurs, London-based Hailo is a poster child for the collaborative economy. The app, which has half a million registered passengers, helps consumers connect to the closest licensed taxi, putting more power and convenience in the hands of consumers and making the business of driving cabs more efficient. If Jeremiah Owyang, a partner at San Francisco-based analyst firm Altimeter Group, is right, businesses in all sectors will soon be following Hailo’s example. He predicts that traditional players like taxi companies as well as hotels and companies in just about every vertical will end up embracing new collaborative consumption and creation models. Many will end up partnering with or acquiring some of the more than 200 start-ups that have recently launched in this space with the help of some $2 billion in venture capital.
“All companies must radically alter their business models to adapt,” says Owyang, a scheduled speaker at Le Web London. “I am suggesting that they don’t have a choice.”
Hailo first launched in London — where it has registered some 12,000 out of 24,000-black cabs — and expanded from there. The service is now also live in Dublin, Toronto, New York City, Chicago, Boston and Madrid and is coming soon to Barcelona, Washington, D.C. and Tokyo.Uber, a U.S. start-up that pioneered GPS-based location and in-app payments with its black car service, poses direct competition to taxis, while ride-sharing apps that compete with bus, rail and plane services like BlaBlaCar, SideCar, and Lyft (which in May announced that it had raised $60 million in funding) are expanding from their home bases to enter new markets. Flat-sharing sites are taking a big bite out of the hotel industry (see the story on pages 8 and 9), crowdsourced funding is encroaching on the traditional business of banks (see the story on page 4), and P2P food sharing could disrupt traditional restaurants (see the story on page 19). That’s just for starters.
Welcome to the collaborative economy, where usage trumps possession, owners make money from unused assets and wasteful forms of consumption are replaced by collective ways of doing things. Rachel Botsman, a scheduled speaker at Le Web London 2013 and co-author of the book “What’s Mine Is Yours: The Rise of Collaborative Consumption,” calls it no less than “a revolution,” a seismic shift away from the industrial age where power, wealth and the means of distribution was concentrated in the hands of a few.
“This is not a fad, it’s a huge movement,” argues Loic Le Meur, who along with wife Geraldine, runs the Le Web conferences, which are held in Paris and London and gather the global digerati. It is no accident that the sharing economy is the topic of Le Web London 2013, which takes place June 5th and 6th. It is already having huge commercial and cultural implications.
Retail and product-based companies are being forced to acquire start-ups in this space or offer products in their own stores for lease or barter to stay relevant, points out Owyang, the author of a just-released report entitled “The Collaborative Economy.” The collaborative economy is displacing government since tax revenues are diminished as people share products with no money exchanged and people are employed without social charges being withheld. The trading of untraditional currencies not backed by any federal reserve notes or precious metals also poses a challenge to government control and the future of money as we know it.
The Gig Economy
The impact on jobs is unknown. People are increasingly using P2P platforms to find work on the Internet. The U.S.’s TaskRabbit started out as a way for people in communities to find someone local to do odd jobs like weeding. But over time businesses looking for temporary help have started flocking to the site. Some 30% of the ads on the site are now of this nature. Hiring managers are frustrated by the enormous amounts of time it takes to sift through online classifieds and job boards and complete the endless paperwork associated with employment, the company said.
So, on May 23rd TaskRabbit announced a new offer that it says will give business customers “access to our 10,000+ background-checked and fully vetted TaskRabbits for temporary jobs that take multiple days, weeks, or even months to complete,” according to a posting on TaskRabbit’s site. (Founder Leah Busque is a scheduled speaker at Le Web London 2013.) By moving from errands to real work, TaskRabbit is gunning for the business of temp agencies like Manpower and betting on a future where employment will be series of temporary agreements between businesses and people rather than jobs in the traditional sense.
While jobs advertised on TaskRabbit are usually hyperlocal and physical jobs on Fiverr, another “gig economy” P2P platform, are “super global and mostly digital,” says CEO and co-founder Micha Kaufman. The premise of Fiverr, which was launched in Israel and has since set up headquarters in the U.S., is: “everyone has some skill of value for somebody else.” All that is needed is a platform to link demand with supply.
Initial jobs — like copyediting a short paper — are done for $5 but after the site’s users have completed ten jobs with good ratings they are permitted to go to other “levels” and charge more. Some workers have taken on single assignments that have earned them $1,000 or more and a few have made enough money through jobs they obtained on the site to buy houses or cars, says Kauffman.
Some of the skills on offer seem downright silly. On a recent day the top entry, posted by a Mr. Marcus, advertised: “I will juggle a live chainsaw and knives, chainsaw cost EXTRA, while yelling ur (sic) script for $5.”
But don’t be fooled into thinking this is a frivolous business. Fiverr has raised $20 million from angels, Bessemer Venture Partners, and Accel Partners and the site now reaches over 200 countries with 1.5 million services in 120 different categories. The goal is to “build the next eBay for services,” says Kauffman.
“Fiverr was built on the premise that the future of work is driven by creative and passionate people following their own unique skills and talents,” says Michiel Kotting, a Principal at Accel Partners. “They have created a frictionless product for creative people to provide their services to buyers around the world. By making the world flat, Fiverr lowers barriers and allows global sharing and collaborating, wherever you are.”
An estimated 40% of America’s workforce will be made up of freelancers by 2020 so, in theory, this is an ideal way for them to find work. No one knows, however, if the number of jobs created by sharing economy start-ups will make up for the number of jobs destroyed by disintermediating traditional businesses. Will, for example, the army of people that London-based onefinestay employs to clean individuals’ apartments and supply them with fluffy white towels surpass the number of maids that are laid off by hotel chains suffering a decline in business? Will people earn enough via the sharing economy to pay for their own medical insurance and squirrel away money for retirement? And could the socialization of stock trading, which has the potential to help more people make more money from the markets, help spread wealth that today is in the hands of a very few? (See the story on page 15.)
Why Shop When You Can Share?
The answers to those questions remain unclear but proponents of the collaborative economy say there is a societal shift and there is no going back. The combination of a recession, environmental concerns and the ability of technology and social networks to enable both frictionless trading and trust between strangers is leading consumers to embrace communities and reject hyper-consumption. In a survey cited by Le Meur in a pre-conference slideshare, 52% of Americans said that during the last two years they have rented or borrowed the kind of items they used to buy and 83% said they were interested in doing so in the future if it could be done easily. “Why shop when you can share?” asks yerdle, a U.S-based platform for giving away things to people you know or getting things you need from them.
Traditional players risk being sidelined unless they are willing to share their market with “new economy” players attuned to the new values, says Owyang.
But it is not just about sharing the market with new players — it is learning to adapt to consumers who have embraced the sharing economy. As more and more consumers endorse the concept of renting rather than owning, traditional businesses will have to get used to offering services rather than selling products, Owyang says. For example, studies show that owning a car costs — on average — about $8,000 a year. Yet, cars sit idle most of the time, according to Botsman. Once people have an alternative — like Zipcar — that allows them to use a car as needed, ownership becomes less desirable. In a TED talk Botsman cites a trial involving 250 car enthusiasts undertaken by Zipcar. Participants had to hand in their car keys and only take public transportation or use Zipcar as an alternative when absolutely necessary. At the end of the trial period 100 of the 250 said they no longer wanted to own a car.
As fewer people opt to buy cars or use traditional rental services established players have had to adapt. Daimler Chrysler, for example, now offers customers the choice of paying for access on an as-needed basis rather than buying. And car rental firm Avis purchased Zipcar earlier this year to ensure it didn’t miss out on this form of car rental.
It is only a matter of time before hotel chains will also have to adapt their offerings to include private dwellings. Rather than try to block new flat-sharing services like Airbnb Owyang says chains like Hilton, Sofitel or Holiday Inn would be better off starting marketplaces of their own. Many people have still not tried renting from strangers online. Big brands can leverage their name and consumer trust to get into the game. “Why allow this to happen — why not create your own Airbnb?” he says. “The most trusted thing right now is a brand logo and they have the missing key that solves that.” Owyang sees chains certifying private homes or apartments as “hotel chain approved,” sending in their own cleaning crews and taking a cut of the action.
The third thing that companies will have to do in the future is to provide a platform that will allow customers to work with them to fine-tune their products and services. In short, big business will have to embrace collaborative creation. “They have to allow customers to become part of the company — to co-create and to revenue share,” says Owyang. This will mean that the line between customers and employees will continue to blur. What is the benefit? “A company’s capital expenditures go down because the crowd is helping improve the product,” he says. The company can then extend its brand to the products it approves and take a commission.
Owyang says he sees a company like clothing maker Patagonia moving in that direction. To enforce its brand identification with sustainability and recycling Patagonia has partnered with eBay to reach a used market community — even if it doesn’t directly provide immediate new sales back to Patagonia.
In the next phase it is likely to encourage customers to create Patagonia-designed products and have Patagonia certify their sustainability at the local level. The third stage will be for local artisans to design and create their own products and become Patagonia certified.
“What is left if you outsource everything is a diffused brand, a logo, a website,” says Owyang. “The big company’s costs decrease dramatically and it takes a 25% cut for the use of its brand — it is very efficient.”
If that sounds radical, it is. The danger, argues Le Meur in his slideshare, is that the growth of the sharing economy will be slowed down by large companies and governments with unaligned interests. “Legalize sharing,” he pleads.
That will require some doing. At the moment, it is not clear what people own and what they are allowed to share, points out serial entrepreneur Martin Varsavsky, the founder of Fon, the global Wifi sharing service. Whether start-ups and individuals can get away with sharing things they may not own outright will depend in part on whether they create more value than they destroy and whether the services’ allies are powerful and willing to back them, Varsavsky said in an interview with Informilo.
Challenges to new services in cities like New York, Berlin and Amsterdam are likely to continue as start-ups push the envelope and traditional businesses resist. Owyang concedes it may take ten years for businesses in all verticals to accept the notion of a collaborative economy and adapt accordingly. Those that don’t do so at their own peril. The parallels that first spring to mind include the resistance by bricks and mortar stores when e-commerce was first introduced and attempts by the music industry to block P2P file sharing.
But another, far older, historical example is also apt. Denmark’s Frederick VII, who reigned from 1848 to 1863, was the last king of Denmark to rule as an absolute monarch. All over Europe royalty were literally losing their heads. So during his reign Frederick established a Danish parliament and made the country a constitutional monarchy. “What he did when he saw the revolution coming was to let go,” says Owyang. “And guess what? It was a good strategy because today the family still lives in the palace. Like Frederick VII companies today have to let go if they want to stay in the palace and continue their lineage.”