Weekly Update

What the share economy can learn from the cloud

In the past few years we have seen accommodation-sharing company Airbnb grab a valuation of over $1 billion and car-sharing leader Zipcar squeak into profitability sooner than expected. Those developments, among others, suggest the share economy is alive and well, but how can this space continue to grow? It might take a hint or two from cloud computing.

In the share economy, consumers opt for services over ownership. Rather than owning a car, you pay for one only when you need it. The cost of ownership is spread across a multitude of users, which leads to the conservation of resources.

This philosophy is also at the heart of the cloud computing model, which has fueled margins and profitability for the likes of Google, Rackspace, Amazon and Salesforce.com. Brave IT managers decided that rather than house and maintain servers themselves, they would entrust their data to the cloud and pay for storage and compute time as a metered utility. This, in turn, allows cloud providers to share servers across multiple customers and to maximize resources.

So with that in mind, it’s worthwhile to suggest a few areas where the share economy could learn from a relatively more mature industry like cloud computing.

Build trust. Airbnb discovered the importance of trust the hard way last summer, when an Airbnb host had her apartment trashed and robbed, which raised questions about the service’s security. Cloud computing faces a similar uphill climb: Major companies struggle to convince large enterprises, governments and the health care space that their data will be safe in the cloud. Former federal CIO Vivek Kundra went as far as writing an op-ed in the New York Times, urging the government to speed cloud adoption and arguing that the security experts at the likes of Google and Amazon were as good as those in government. If share economy companies like RelayRides, a peer-to-peer car-sharing service where consumers rent their cars by the hour to strangers, want to see growth, making customers feel safe (and insured) will be critical. And in the share economy and the cloud, the relationship is continual, which means constantly tending to customers’ sense that their data and belongings are secure.

Be elastic. Amazon’s EC2 stands for “Elastic Compute Cloud” for a reason: Whatever the needs of its customers, it has the ability offer more capacity, which is why it has counted a massive customer like Netflix, which has grown over the past few years to over 30 percent of downstream Internet traffic, as a customer. While Zipcar’s business model has received some criticism due to the large cost it carries of owning and maintaining fleets, a big advantage for the company is that it can expand to the needs of its customers: Over the past two months, Zipcar has aggressively sought and obtained government business from the U.S. General Services Administration, the state of Illinois and New York City. The ability to expand like this allows Zipcar to move beyond individual consumers and go after big government and, I suspect, large enterprises in the near future.

Make the market itself more flexible. In a September blog post, Amazon cloud guru James Hamilton described the new Amazon EC2 Spot Instances. It’s a program in which customers are allowed to bid for unused cloud capacity at Amazon, and pricing fluctuates based on supply and demand. While not for large enterprises that need to book fixed amounts of compute time, the solution is nonetheless a great way to maximize the overall use of excess capacity. For the share economy, this is a tougher idea to execute, but there may be opportunities to find innovative ways of selling off excess capacity and having the market adjust to demand. A bidding market could, for example, exist for excess car sharing, vacation homes and commercial real estate, so that customers with greater flexibility have the chance to bid on off-peak, unused capacity, leading to even greater utilization.

We are in the early days of a growing share economy as consumers opt for convenience and resource sharing over ownership. Each sector, whether it’s vacation sharing or commercial real estate sharing, will face unique challenges. But looking at some of the strategies the cloud has employed can help point young share economy companies in the right direction.

Question of the week

What else can the share economy learn from cloud computing?