Collaborative Consumption

= when a community gets together “through organized sharing, swapping, bartering, trading, gifting and renting to get the same pleasures of ownership with reduced personal cost and burden, and lower environmental impact [1]

URL = http://www.collaborativeconsumption.com

Definition

From the Wikipedia:

"The term collaborative consumption is used to describe the cultural and economic force away from 'hyper-consumption' to re-invented economic models of sharing, swapping, bartering, trading or renting that have been enabled by advances in social media and peer-to-peer online platforms." (http://en.wikipedia.org/wiki/Collaborative_consumption)

Description

Tomasz Tunguz:

"Collaborative consumption market places are everywhere: media, car rental, lodging, staffing, textbooks, apparel, custom graphic design and even finance. Netflix shares DVDs among a large subscriber base. ZipCar and GetAround make car sharing easy. Travelers rent a local's apartment for a few days through HomeAway and 9Flats. College students rent textbooks from Chegg. Moms exchange children's clothing on ThredUp. Graphic designers create beautiful paper products and fulfill orders through Minted. Short term borrowers find loans from a community of individual lenders on Zopa and LendingClub.

Loosely defined, collaborative consumption is a business model in which shared goods or services are distributed via a market place to a community of users. Collaborative consumption reshapes markets by changing supply and demand economics. These new market places shrink consumer retail demand. Each shared car eliminates five to 20 cars from circulation. A college textbook rented 10 times over its life will replace between five to seven new copies. At the cost of market size, reuse liberates the environment from excess consumption.

But these models also have the capacity to increase demand and the total market size by addressing new previously unaddressable segments. Netflix serves customers anywhere in the US by managing a single collection of movies and delivering DVDs through the mail. Blockbuster cannot compete with this model or serve sparsely populated, rural America well. The capital required to replicate video libraries across hundreds of additional stores is expensive and unprofitable." (http://www.huffingtonpost.com/mit-entrepreneurship-review/peertopeer-startups-are-e_b_837144.html)

Typology

According to Rachel Botsman et al:

Product Service Systems

"Initiatives based on a 'usage mindset' where people pay for the benefit of having access to product as opposed paying more to own it outright. Examples include: Carsharing (Zipcar), Bikesharing (Velib), toy rental (www.mybabyplays.com, www.rentatoy.com), movie rental (Netflix), tools (TechShop), luxury goods (www.borrowedbling.com).

Product service systems have existed for years (e.g. Libraries and laundromats) but they are gaining new relevance and appeal because technology is enabling them to provide choice and convenience.

There is also a growing interest in Peer-to-Peer Rental and Neighbourhood Product Service Systems: rather than consumers renting services from businesses, platforms are emerging to facilitate shared usage with each other.

Examples include: P2P Carsharing: http://www.drivemycarrentals.com.au, www.relayrides.com, www.whipcar.com, www.justshareit.com P2P Goods Rental: http://anyhire.com, www.zilok.com, www.rentoid.com, www.hirethings.co.nz, Neighbourhood sharing: http://www.beta.neighborrow.com, www.wecommune.com, www.sharesomesugar.com, www.neighborgoods.net ." (http://en.wikipedia.org/wiki/Collaborative_consumption)

Redistribution Markets

"This system is based on used or pre-owned goods being passed on from someone who does not want them to someone who does want them. This is another alternative to the more common 'reduce, reuse, recycle, repair' methods of dealing with waste.

Examples include: Clothes swapping (ThredUp, Craigslist, eBay), Swap trading (Swaptree.com, Freecycle), Book swapping (BookMooch, ReaditSwapit)." (http://en.wikipedia.org/wiki/Collaborative_consumption)

Collaborative Lifestyles

"This system is based on the sharing and exchange of resources and assets such as space, skills, time and money.

Examples include: Peer-to-peer lending (Zopa), Coworking (HubCulture), Time banks, LETS, Couchsurfing, Garden sharing (www.landshare.com, www.sharedearth.com), Co-housing, peer-to-peer room rental (www.airbnb.com, www.roomorama.com), skill-sharing (www.tradeschool.com), bartering (ITEX, Bartercard, http://ourgoods.org)" (http://en.wikipedia.org/wiki/Collaborative_consumption)

Discussion

Guidelines for collaborative consumption

Simon Smith:

"Seeing all this happening, and experiencing the benefits first-hand, I’ve become somewhat of a transumerist evangelist. (I also keep pondering entrepreneurial opportunities in this emerging space—what’s next to move from ownership to sharing?) While there are no hard and fast rules for the emerging transumerist worldview, I wanted to capture some of my own changes in mindset:

• Ownership is a last resort. The question used to be, “Why rent when you can own?” This most often applied to homes, but people would often apply it to other possessions as well. I would now ask the opposite question. Why own when you can rent or share? The primary reasons to own, in my opinion, are appreciation in value (if that appreciation offsets negative implications of ownership) and high frequency of use. Most other benefits usually aren’t worth the tradeoff. Which brings me to the next point.

• Ownership is a tradeoff. One of my favorite lines from the movie Fight Club is this: “The things you own end up owning you.” (Followed by: “It’s only after you lose everything that you’re free to do anything.”) We’re saturated in marketing messages (and I’m a marketer, so am partly responsible) that describe the benefits of ownership. Why own a car? Well, freedom, of course—freedom to go where you want, when you want, while attracting the hottest members of the opposite sex. No successful marketing campaign will promote the risks,side-effects and negative repercussions of ownership (except, perhaps, when compelled by law, such as with medications). But they’re always there. With cars, for example, there are things like maintenance costs, depreciation and, of course, worrying about things like theft. Because of these concerns, the car you own, which promises freedom, will always own you and, in some way, restrain your actions.

• Ownership always looks better in hindsight. One interesting finding from research in behavioral economics, and documented in Dan Ariely‘s excellent book Predictably Irrational, is that we overvalue things we own. This includes material possessions, as well as our ideas (admittedly including my ideas in this post). Why, when selling something, do you usually think it’s worth more than when you’re buying something? Because we become quite irrational about things we own.

• Experiences provide more lasting happiness than material possessions. Research on well-being has long attempted to correlate material wealth with happiness. And findings consistently show that money only makes us happy to a point (about $60,000 per year, according to some research). What’s more, purchasing experiences make us happier than purchasing material stuff. One of the reasons is that our nervous system becomes accustomed to our stuff, the way drug addicts become accustomed to their drugs and must increasingly up the dose to get high. A Porsche in the driveway will make you happy today, perhaps, but one year out you’ll be pining for a Ferrari. But you’re just treading water; you have to keep upping the ante just to maintain the initial high. Experiences, like travel (and, say, having access to, but not ownership of, cool cars), are different. They appear to provide lasting value, in part because they give us stories to tell repeatedly, and because they often form the foundation for happy memories."

(http://shareable.net/blog/a-transumer-manifesto)

Advantages of Collaborative Consumption Marketplaces

Tomasz Tunguz:

"Of late, peer-to-peer (P2P) collaborative consumption models are blossoming. P2P models are much more capital efficient than their B2C counterparts because they do not require any capital investment to acquire assets. Instead, they rely on a community to supply them, typically in exchange for a revenue share of the transaction.

P2P car sharing enables car owners to rent their own cars. GetAround, a San Francisco based company, operates a market place for P2P car sharing at a fraction of the cost of ZipCar. Car owners use the income from rentals to cover car payments and maintenance costs. A P2P system is much more efficient - fewer cars on the road that are used more often. Nearly everyone benefits.

However, P2P models are more complex than B2C. P2P market places are two sided exchanges and require careful management of demand and supply growth. As a market place grows and strangers begin to transact, eliminating transaction friction by building trust and quality metrics is critical. Similarly, ensuring consistent transaction experiences is essential to building brand and leads to word-of-mouth marketing. Lastly, each exchange must decide whether to guarantee customer satisfaction. While a guarantee will increase liability of fraudulent returns, this promise increases a consumer's propensity to buy.

A pioneer in P2P exchanges, ThredUp has built a community of tens of thousands of moms who exchange children's clothing. Clothing buyers rate the quality and style of the clothes and the data feeds a seller's reputation informing future buyers. ThredUp guarantees satisfaction to decrease initial buyer fear. With careful management, ThredUp has grown their P2P market place successfully.

Technology is the key enabler for this resource allocation optimization. Market places attract customers and build communities using the web. Social networks, proprietary and public, underpin trust among users. With Facebook, it's easy for a host to vet a potential apartment guest's identity, particularly if they have friends in common. When it's time to pay, mobile phones coupled to payment mechanisms, enable transactions to happen anywhere. Since technology enables this resource allocation shift, as smartphones and mobile payments reach mass market penetration in 2011 and 2012, the disruptive potential of collaborative consumption markets will only increase.

One of the biggest challenges when starting a P2P market is delivering initial market liquidity through customer education and brand building. Most successful market places have sought to replicate an offline behavior online. P2P exchanges lend themselves to close interpersonal reactions. Consequently, these market places resonate with customers for emotional reasons. Ask the mothers on ThredUp who wrap their donations in tissue paper before sending the clothes on to the next mom. Or the brides who work with a stay-at-home mom on custom wedding invitations on Minted.

As these markets develop, cost, convenience and selection scale adoption en masse. Why pay for two Tuscan hotel rooms during your family's vacation when you could rent an apartment from a local on 9Flats for less? Why buy a college physics book only to sell it a few months later when you can rent one for a semester? Why pick up a drab economy car at the airport when you can rent a fire red Tesla located just two blocks from your San Francisco hotel? This is the power of the model.

When applied to the right market, collaborative consumption market places effect dramatic changes. To date, the most successful efforts have involved digital currency (lending), goods that can be mailed (clothes, DVDs), time & cost sharing of expensive goods (cars, apartments and books) and services (graphic design, commodity labor)." (http://www.huffingtonpost.com/mit-entrepreneurship-review/peertopeer-startups-are-e_b_837144.html)

Key Book to Read

• Rachel Botsman et al: The Rise of Collaborative Consumption

"Collaborative consumption is the subject of the book, "What's Mine is Yours: The Rise of Collaborative Consumption," (ISBN 0061963542) co-authored by Rachel Botsman and Roo Rogers, published by HarperBusiness (release date September 28, 2010) [3]. Botsman and Rogers identify the changes in our economy that have led to the resurgence of bartering, lending, trading, sharing, renting and swapping, demonstrating the potential of collaborative consumption to disrupt the business world and reinvent "not only what we consume but how we consume"[4].

The authors emphasise the importance of technology, in particular social networks, in enabling this 'big shift' towards collaborative consumption, as these real time technologies allow people to develop new ways to share with others, regardless of geographical boundaries, whilst still achieving the satisfaction that comes with 'consumption' in general [5]. Botsman featured as a speaker at the independently organised TED event, TEDx Sydney in May 2010 [6].

The book outlines three major categories of collaborative consumption ventures, demonstrating an explosion in sharing, swapping, trading, renting and lending across a range of areas from transportation to fashion to swapping books, movies and music." (http://en.wikipedia.org/wiki/Collaborative_consumption)

Examples

1. Car Sharing