AMERICA’S NEW BUSINESS MODEL: Sharing
The social media-mobile convergence helps people connect to rent homes, cars, tools and services.
The nation is in a sharing mood — and start-ups are capitalizing on it. Americans with heaps of stuff, skills and time are connecting online with tech-savvy and early adopters eager to share and rent homes, cars, tools and services in exchange for deep savings.
Dubbed “collaborative consumption” — or “the sharing economy” — this movement represents the newly cemented intersection of online social networking, mobile technology, the minimalist movement and heightened penny-pinching brought on by lingering economic uncertainties.
Adam Hertz, a cable company executive in San Francisco, and his wife, Joan, have enthusiastically embraced the movement. Now that their kids are grown, the empty-nesters rent their Monterey Heights-district two-bedroom mother-in-law suite through Airbnb, an online marketplace for couch-surfers and hosts.
To greet renters and hand over the keys, Hertz sometimes hires a stand-in through Taskrabbit, a Web-based company that matches time-deprived people in need of temporary assistants with freelance errand runners who have passed criminal background checks and are looking for extra income.
“It’s been a great way to meet people,” says Hertz, whose suite goes for $99 a night and is occupied about half the time. “We’ve hosted some interesting tech entrepreneurs. We’ve had people from Australia and Singapore. And the money is nice, too.”
The notion of individuals selling and donating to others online is hardly new. Ebay and Craigslist pioneered peer-to-peer commerce through tools that allow users to be anonymous and that make uploading photos and descriptions quick and easy. But the ventures launched in recent years with gobs of venturecapital funding and targeting niche markets have accelerated the movement with userfriendly designs and a tight knit to social networks Facebook, LinkedIn and Twitter.
“It’s basically about moving to a world where access triumphs over ownership, and that unused value — things sitting in my garage — equals waste,” says Lisa Gansky, who has written frequently on the topic and has listed 6,600 such sharing platforms on her site, Meshing.IT.
You can rent a room to strangers at Airbnb and CouchSurfing. Rent out your only-for-commuting car by the hour at RelayRides or Getaround. Turn your driveway into a cash cow at Park Circa or ParkatmyHouse. Find road-trip partners on Zimride. Find free office space at Loosecubes. Share your sewing machine at Zilok or trade it for an iPod at Swap.com.
“TaskRabbit has (people) making over $5,000 a month in San Francisco,” says Craig Shapiro, founder of Collaborative Fund, a venture-capital fund specializing in sharing sites. “That’s real money.”
The dot-com boom of early 2000 saw a proliferation of similar anything-atyour-service start-ups. Remember Kozmo.com, whose employees promised delivery of DVDs and ice cream in under an hour for free? Struggling to manage costs, the start-up closed shop as quickly as it opened. What distinguishes the latest generation of start-ups is a confluence of new technologies and more-efficient business models that leave much of the logistical heavy-lifting to peers who share.
People, if not yet profits
Sharing platform companies don’t need to carry inventory or hire en masse. The advent of GPS, the always-on Internet and social networks enable finding things in real time from people you somewhat trust.
“Only 3% were online when I started AOL. Now, people are across multiple devices. The ubiquity factor was not there 10 years ago,” says Steve Case, whose investment firm Revolution has invested in several collaborative consumption startups, including Loosecubes.
While no comprehensive data about the movement exist, some prominent start-ups say their growth in the past year — in users, if not necessarily profit — affirms that the sharing movement is finding an audience beyond the technology hubs of Silicon Valley and Manhattan’s trendy SoHo district.
At Zimride, a site for individuals to offer and get paid for shared car rides, the number of rides doubled to about 30,000 in the past year. The fleet of cars in Getaround has grown to 10,000 from 1,500 a year ago, and suburban customers make up about a quarter of its bookings.
The number of tasks, or temporary jobs, posted per month at TaskRabbit has tripled in the last year. Airbnb has booked about 10 million nights since it was founded four years ago, and the average customer age has risen to 35. “People are telling their parents,” says CEO Brian Chesky.
Sharing start-ups are reluctant to discuss profitability levels. Industry watchers, including Shapiro, say their profit margins, if they exist at all, are negligible, at best, for now. But most of them typically make money by taking a small cut of the transaction and will find their path to greater profits if they can generate enough volume of users.
Airbnb, Zimride, RelayRides and others have embraced the fee-per-transaction model. Others, such as Loosecubes, are looking for a more consistent stream of revenue by switching to a subscription-based model.
Those drawn to peer-to-peer sharing cite a multitude of reasons for the trend, but one stands out among start-ups and users alike: finding efficiencies by shedding excess.
Julianna Iran, a tax consultant from Pasadena, Calif., turns to Zimride to fill the empty seats in her car when she drives to San Francisco several times a year. The $40 to $50 she charges for a one-way ride helps shave her costs on gas. “You can see their profile on Facebook, and you can kind of tell if they’re going to be a creeper or if you have nothing in common with them.”
Inspired in Zimbabwe
The founders of Zimride were inspired by drivers in Zimbabwe, who pick up strangers and give them a lift for a few bucks. The company is applying that principle in the U.S., where only about 20% of seats in cars on the road are occupied, says CEO John Zimmer. “It’s highly inefficient,” he says.
While Airbnb also allows professional property managers to list their rentals, a majority of its 200,000 listings are by people renting out their primary homes, the company says.
Others turn to sharing for a chance to network a little and meet like-minded folks.
Flavorpill, an event-listing website based in New York, found an intern through a designer who used office space it had offered to creative types and listed on Loosecubes. “We’ve had some awesome people come through,” says Kim Gardner, an associate product manager at Flavorpill.
Becoming a TaskRabbit
But mostly, the business of sharing is about making some extra cash. Car owners on RelayRides make on average about $250 a month, says founder Shelby Clark.
When her contract ended in December, Cynthia De Acha, an event planner in Menlo Park, Calif., found a new income source by working as a temporary assistant at TaskRabbit.
After undergoing a criminal background check and a video interview, she was approved to be a TaskRabbit, who can bid for errands and assignments. She works about 20 hours a week for $18 to $35 an hour.
Tasks range from organizing office supply cabinets to delivering cupcakes and balloons.
“If I find a full-time job, I may not need the money. But I’m going to continue for extra income,” De Acha says.
Entrepreneurs have also tapped sharing platforms to directly market their goods and services, somewhat blurring the line between unadulterated peer-to-peer co-ops and direct sales channels.
Trust — the willingness to do business with strangers — remains the crux of the matter in peer-to-peer sharing, an issue that continues to befuddle startups and keeps them from amassing more users.
Online social networks, such as Facebook, have made verification and fraud detection easier by giving users the impression that they are dealing with people who have left traceable footprints on the Web.
Loosecubes requires users to sign up with their Facebook or LinkedIn account. Zimride users also sign up via Facebook. “We try to make it like it’s your friend walking in,” says Campbell McKellar, CEO of Loosecubes.
Zimride also primarily markets its ride-share service to universities and large companies, to give people a sense that they’re carpooling with people in their physical networks.
Hertz prefers to rent his rooms to Facebook account holders who’ve previously used Airbnb. “As a user, the trust factor is huge,” he says.
Collaborative Fund’s Shapiro isn’t so sure online social networks and peer-review systems alone can solve the issue. “I think insurance companies have a role in it.”
It only takes a few incidents to steer the spotlight to potential dangers lurking in the nooks and crannies of such transactions. Last year, a woman in San Francisco blogged that her apartment was ransacked and trashed by a guest who found the place on Airbnb.
Since the incident, Airbnb partnered with insurance firm Lloyd’s of London to introduce a Host Guarantee program that insures homeowners up to $1 million on most items in the house. It doesn’t cover personal liability and items hosts should remove prior to renting, such as jewelry and rare art. “Airbnb’s (move) quieted a lot of conversations,” Shapiro says.
RelayRides, which also provides $1 million-per-incident in insurance for car owners, is dealing with a case in Massachusetts that might have a sobering effect on its operations. A woman in Massachusetts rented her vehicle to a RelayRides customer, who was killed in an accident after hitting another car. The injured parties in the other car sued and may claim damages in excess of the $1 million limit. RelayRides CEO Clark declined to comment on the case because it’s still pending.
“Our insurance limits are very generous,” Clark says. “They are often higher than the state minimum.” Competitor Getaround has also raised its insurance to $1 million. “The previous standard was caveat emptor (buyer beware),” says CEO Sam Zaid. “A good component of what we do is screening people.”
Economic impact?
Collective sharing, while a still-growing trend, may also have a broader economic impact, says Rob Atkinson, an economist and president of The Information Technology & Innovation Foundation.
While the classic Keynesian economic view suggests healthy consumer consumption spurs economic growth, sharing encourages more-efficient use of existing goods and diverts capital to other types of consumption and investment, he says.
It’s a fallacy to assume that a consumer who sought to buy a car — but ultimately decides to rent it from a sharing site instead — would stop spending the money reserved for the car, Atkinson says.
“People can now spend on things that are of value to them,” he says. “Why buy a chain saw when you use it once a year? If we share a chain saw, we have the value of having a chain saw, and we use the money to create jobs in other industries. So the economy is better off.”