Asset-Sharing Movement

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Description

Typology

"Many of the initial players in the Asset-Sharing Movement followed a business-to-consumer model. Think of Zipcar owning a fleet of cars shared by consumers, or Netflix providing a mechanism for customers to share its inventory of movies. What has emerged now is consumer-to-consumer sharing. And there is a major cost advantage here. Tomasz Tunguz, a principal with Redpoint Ventures, wrote recently that Zipcar spent 71% of its 2010 revenues acquiring and servicing cars. In the C-to-C market, the companies facilitating these arrangements have no such fixed costs.

While the trend toward consumers monetizing unused assets is picking up steam, Clemons says corporations have been doing this for years. For example, he notes, aerospace firms Boeing and Grumman formed time sharing computer services divisions as far back as the 1970s to allow government and commercial customers to tap into their computing capacity. Later, some companies looked for efficiency by outsourcing, selling off their internal computing operations in some cases and then buying those services from outside vendors. More recently, with the advent of cloud computing, Internet giants like Google and Amazon have made some of their massive computing power available to others. "This combination of monetizing assets when you can, or getting them off the balance sheet and then paying for them when you need them, has been motivating companies for a long time," Clemons notes.

The key to this trend, he adds, was diminishing transaction costs. If the costs and risks of handing over critical functions to outside vendors were high, companies didn't do it. But as more firms emerged to handle those tasks, and developed into trusted providers with proven track records, those transaction costs fell. The result is that over time, "companies did more and more outsourcing, and they became less firm-like and more market-like," Clemons notes.

This same decline in transaction costs is driving the movement toward collaborative consumption, according to Clemons. "The transaction cost -- essentially the hassle factor -- has dropped low enough that people can now do things they couldn't do before." Still, he argues that while corporations are well aware of the risks they take in outsourcing, consumers who are renting space in their homes or use of their cars may not be fully aware of the potential downside. "Industry understands the risk-reward payoff, and they are very strict about what you can and can't lease out," Clemons points out. "The fact that as a consumer you can easily arrange a monetizing transaction for your assets has nothing to do with the risk associated with it. It is not risk free." (http://knowledge.wharton.upenn.edu/arabic/article.cfm?articleid=2714)