Ch.11 The Sharing Economy, Collaborative Consumption, and Efficient Markets through Tech

Individual Consumption

Individual Consumption

For the last 50 or 60 years our model of consumption has been individual, We choose what we want. We are influenced in part by advertising. If we want something, we have to go out and buy it and own it in order to use it. And our access to the stuff that we want is governed by how much money we have or how much credit we can get.

What is collaborative consumption?

what you want, is governed not by advertising but by like what you hear about from your community, that is the internet-enabled community

What is sharing economy?

an economic system in which assets or services are shared between private individuals, either for free or for a fee, typically by means of the internet

Sharing things for thousands of years with neighbors

•lending each other food
•borrowing tools
•allowing friends to stay whenever they needed a place to crash.

The sharing economy is enabling this human characteristic to grow and enable both local and international transactions. Today, there are thousands of sharing economy websites which will give you the option to share almost anything.

For example, say you have a spare room for a week which you'd like to rent out? Or maybe you need to travel across country? The sharing economy means you can see who else from your city is making the same journey and grab a ride!

Technology allows diverse product and service providers to connect with consumers.

Offers far greater reach and efficiency than traditional markets.

These efforts are also enabling a generation of "citizen suppliers" to go into business for themselves.

Rooms (Airbnb)
Cars (Turo)
Boats (Boatsetters)

New class of micro-entrepreneurs providing personal services.

Car rides (Uber, Lyft)
Pet sitting (Rover)
Meal prep (Feastly)
Home services (Care.com, Angie's list, Handy)

Some firms are buying inventory and renting it out:

-Rent the Runway with dresses
-Zipcar with autos - Reserve wheels when you want them, by the hour or day, and only pay for the time you drive.
-Chegg with textbooks

These categories of products are "collaboratively consumed:

-An individual takes possession of an item for a period of time and then returns it for use by others.
-Consumers collaborate as financiers, pooling capital to back projects (Kickstarter, GoFundMe) and provide loans (LendingClub, Kiva).
-Internet-enabled market makers.
-Roots in eBay and craigslist.

Examples of Firms Often Characterized as Part of the "Sharing Economy" or "Collaborative Consumption"

-goods
-services
-transportation
-places to stay
-money and finance

Goods:

-Pre-owned: eBay, craigslist (peer-to-peer supplied); thredUP (firm-owned inventory).
-Loaner products: Zilok (peer-to-peer supplied); Rent the Runway(is the premier subscription fashion service that powers people to rent designer styles for work, weekends and events).
-Custom products: Etsy, CustomMade.

Services:

-Professional services: Upwork, crowdSPRING.
-Personal services: Angie's List, Handy, TaskRabbit.
-Delivery: DoorDash, Grub-hub, Instacart, Postmates (self-employed drivers for restaurant or grocery delivery), Drizly (drivers and alcohol inventory owned by suppliers).

Transportation:

•Transportation services: Uber, Lyft, Didi (cars supplied by drivers).
•Loaner vehicles: Turo (peer-to-peer supplied), Zipcar (firm-owned inventory).

Places to stay:

•Office space: LiquidSpace, ShareDesk (peer-to-peer supplied inventory).
•Places to stay: Airbnb, HomeAway, Couchsurfing (peer-to-peer supplied inventory).

Money and finance:

•Money lending: LendingClub, Kiva, Prosper (peer-to-peer loans).
•Crowdfunding: Kickstarter, GoFundMe, Indiegogo (peer-to-peer capital).

Many sharing economy firms were born during a prolonged, worldwide economic recession, where wages were not flowing have boosted consumer interest in low-cost alternatives to conventional products and services.

This encouraged a whole new class of laypeople to try their hand at offering services for hire.

Winning in Electronic Markets

-Early players gain scale, brand, and financial resources.
-Technology allows for peer-to-peer supply without need for inventory.
-Some services do oversee inventory to gain more control and offer higher quality.

Technology allows for peer-to-peer supply without need for inventory:

-Airbnb doesn't own its hotel rooms.
-Uber and Lyft don't own cars.

Some services do oversee inventory to gain more control and offer higher quality.

-Rent the Runway packs product for delivery, runs a massive in-house garment cleaning effort, and retires dresses that are noticeably worn.

Word of mouth through social media accelerates the growth of the sharing economy.

One survey reported that 47 percent of participants in the sharing economy learned about the services they used via word of mouth.

What is social proof?

Positive influence created when someone finds out that others are doing something

Some concerns include trust and safety issues:

-Both parties link to Lyft through Facebook accounts; profile photos pop up, and an audit trail is created. .
-Ratings can help with trust, safety, and service but ratings can also reflect a crowd's bias and reinforce discrimination.

Challenges of Safety and Regulation

-Instilling trust doesn't mean that firms are without safety issues.
-Participating in the sharing economy raises questions for insurers.
-Many local firms also benefit from taxes and regulatory fees from industries threatened by the sharing economy.

Participating in the sharing economy raises questions for insurers:

-Will firms pay out if there is a "sharing economy" incident with a supplier, or will they try to refuse?
-Some sharing economy firms offer service providers additional coverage and protection guarantees.
-Some governments have explored additional insurance regulation for sharing economy participants.

Many local firms also benefit from taxes and regulatory fees from industries threatened by the sharing economy.

Groups opposed to new, rival efforts can represent very powerful lobbies.

Another major concern for firms in the sharing economy is uncertainty around the ability of these firms to continue to consider their workers as independent contractors and not employees.

If improperly classified, employees may not receive important workplace protections

Important workplace protections:

Minimum wage
Overtime compensation
Unemployment insurance
Workers' compensation

Challenges of Safety and Regulation (cont'd):

The issue has gained the attention of state and federal agencies and presidential candidates, and raises the specter of class action lawsuits.

While the sharing economy has risen more rapidly than many expected, larger firms have also stepped up with investment, partnerships, and experiments of their own, underscoring a broad belief in the power and importance of the space:

-Alphabet & Toyota: Invested in Uber
-Alphabet and General Motors: Invested in Lyft
-Volkswagon: Invested in Gett
-Apple: Invested in Didi Chuxing
-Condé Nast: Invested in Rent the Runway
-Walgreens: TaskRabbit partnership
-IBM: Worked with Deliv
-Avis: Acquired Zipcar

(Airbnb) Multibillion-dollar hospitality industry empire:

-Over 200 million guests have stayed with Airbnb so far.
-With listings in 81,000 cities and 192 countries, there is no other single hotel group that approached the firm's worldwide reach.

Listings include:

-Castles
-Yurts
-Caves
-Water towers
-Private islands
-Igloos
-Glass houses
-Tree houses

Trust is essential for the sharing economy to work:

-No one is anonymous on Airbnb—guest identity is verified via a two-step process.
-The firm offers a $1 million guarantee for hosts, secure payment guarantees, and 24/7 support phone service.

Airbnb monitors transactions and communication at a deep level:

-Reservations
-Payment
-Host/Guest communication
-Subsequent reviewers
-Technology hunts for scams

In many areas where Airbnb operates, providers of the service are breaking the law:

-Running a business in an area not zoned for it.
-Health and safety laws governing hotels require things like sprinkler systems, exit signs, and clean towels.

Competition looms, including HomeAway:

-Several hotel firms have experimented with homesharing, including Marriott, Accor Hotels, and Hyatt.
-Travel sites like Booking.com and TripAdvisor now incorporate homestays into their search.

Uber (success, public conerns, lessons from failed precedator):

-Uber had raised $21 billion so far, and boasts a private valuation of over $70 billion.
-Uber claims to create over 50,000 new jobs a month, nearly all are drivers.
-Draw of Uber services:

Uber claims to create over 50,000 new jobs a month, nearly all are drivers:

Uber drivers do better than taxi drivers in both flexibility and pay.

Draw of Uber services:

-Trust and convenience.
-Customers summon their ride with the tap of a smartphone app.
-Riders can also set their pickup and drop-off destination and get a fare quote for their trip.
-All payment is handled through an app.
-product-market fit
-Runs a lean cost of doing business:
-customers regularly complain of one downside—surge pricing

What is product-market fit?

A key concept in entrepreneurship and new product development that conveys the degree to which a product satisfies market demand. Successful efforts should be desired by customers, and scale into large, profitable business.

Runs a lean cost of doing business:

-Eliminating human dispatchers
-Eliminating the capital cost of a fleet (cars are owned by drivers, not Uber)
-Working around the expensive "medallion" system that grants cab rights in major cities worldwide.
-Customer feedback reduces the cost associated with auding driver quality and provides a continual evaluation of performance.

Customers regularly complain of one downside—surge pricing:

Uber raises prices where supply doesn't meet demand to encourage drivers to work.

(Uber rebelled and was in need of renovation):

•Problems began piling up
•It's unclear just how damaging the fallout has been for Uber.

Problems began piling up:

•Strikes by drivers, protests by the taxi industry, aggressive political push-back.
•Accusations of the theft of self-driving car tech.
•Dishonesty began to be seen as an Uber cultural trait.
•Rival Lyft accused Uber of unethical behavior, including calling and canceling Lyft rides to crater the efficiency.
•Culture shown to be hostile to women and minorities.
•Had been hacked, exposing personal data of 57 million riders and drivers.

It's unclear just how damaging the fallout has been for Uber:

•Network effects may make customers stick with a firm, even if they'd rather not remain.
•Talent and the fundraising wallet may be far stronger in pushing a firm to recognize and deal with repellent behavior.

Technology helps Uber keep a high safety bar:

•Uber app knows who the drivers are at all times, who was picked up, and where they were taken.
•Bad performance are exposed, and customers (and drivers) empowered to shine a spotlight on what might have been previously hidden.
•Collectively, this offers a safety bar conventional cabs simply don't offer.
•Uber continues to invest in new technologies

•Uber continues to invest in new technologies:

•Exploring voice recognition and biometrics to further strengthen driver verification.
•Implementing a panic button linked to emergency services.

Driven by Data:

-Employs mathematicians with PhDs in nuclear physics, astrophysics and computational biology.
-The staff optimizes algorithms to determine number of drivers, where demand is, and dynamic pricing.
-"God View" is a software system that shows maps, cars, locations of customers.
-Uber's massive data haul allows it to cut prices and attract drivers to power continued growth and expansion.

Uber is embedding everywhere in the digital world.

•The firm offers an API (application programming interface) that is essentially a published guideline on how other developers can embed Uber into their own apps.
•The service launched with eleven partners, including OpenTable, United Airlines, TripAdvisor, and Hyatt Hotels.
•A new initiative, Uber Health, offers APIs for integration into health care products.
•Another example of network effects help solidify a firm as a winning platform.

Challenges include:

-Regulatory concerns
-Maintenance of quality service
-Uncertainty of expanding in global markets where competitors exist

Analysts differ on Uber's valuation, but some speculate the firm may be laying the groundwork for expansion into a variety of logistics businesses:

-Former CEO stated that he sees the firm as a "software platform for shipping and logistics."
-Experimented with bike messenger, restaurant, and same-day delivery service.
-Begun to test its own self-driving car technology.
-The firm has shown a prototype vertical take-off and landing vehicle that's a cross between a helicopter and prop plane.

In Uber' favor are network effects:

-Riders will choose apps with more drivers.
-Drivers will make money if they have more riders.

Uber's growth concerns:

-Rival Lyft put up growth numbers much stronger than Uber's recent declines.
-Firm has made terrible investments.
-Sloppy with excessive hiring and has had to cut jobs.

Rival Lyft put up growth numbers much stronger than Uber's recent declines:

During Uber's 5.2 billion loss quarter, Lyft revenues were up 72 percent and active riders up 41 percent.

Firm has made terrible investments:

-Auto-leasing program
-Uber Freight Initiative