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Summary:

The sharing economy can take advantage of mobile, always-on connections and data analysis to help optimize our consumption. But there are still obstacles to overcome.

Zipcar
photo: Zipcar

As the sharing economy hits the mainstream it will force businesses to rethink customer acquisition and retention – in a world where the customers, increasingly often, are the business. The sharing economy, where businesses such as Zipcar or Airbnb provide resources or a platform for people to share goods when they need them, is growing thanks to always-on connectivity and real time data.

How big is the sharing opportunity?

Looking around the typical home or business, it’s easy to see any number of under-used assets. Studies of several dozen cities worldwide agree with remarkable consistency that the typical car is parked roughly 95 percent of the time. At home, more than 60 percent of homes house two or fewer people, but about the same percentage of homes have three or more bedrooms. At work, in the server rooms of companies, CPUs are running their clocks on idle at least 90 percent of the time.

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It’s not that 100 percent utilization should be a goal, since there is value in keeping some slack. At 95 percent of theoretical capacity, average total time to complete a task (including the wait to begin) will typically be 10 times as long as at a 50 percent average load. A one-hour response becomes an overnight wait.

“One plus spare” is therefore a perfectly reasonable model for many situations – but “base load plus 19x spare capacity” is far more difficult to justify in economic terms.

Overcoming the reasons not to share

Yet, how do businesses encourage people to share? There are four major barriers to sharing, each of which invites a solution in terms of technologies and practices that are clearly feasible and ready to scale.

  • Ease of discoveryTraditionally, it has been difficult to discover shareable assets that are owned by people who don’t rent things out as a full-time occupation. Close communities, such as student dormitories, have enough needs in common — within a small enough radius — that a simple bulletin board may suffice; in urban neighborhoods, something like Craigslist or Freecycle finds enough density of opportunity to be worth the effort of operation and participation.

    Mokriya Craigslist app 3

    Opportunity exists to shift from exclusive use to shared use even in less densely packed communities. A third-party branded service could enable registration of a newly bought product in a sharing network, as easily as an owner registers for new-product warranty coverage; at the same time, decreasing logistics costs could expand the feasible geographic size of a sharing community, in partnership with a service provider such as the UPS Store network or Mailboxes Etc.

    Someone is going to create the category-defining network of storefront locations that avoid the need for borrower and lender to schedule pickup and return of a loaned item, instead offering convenient pick-up service at the lender’s home for transfer and availability at 24-hour locations convenient to the borrower.

    The social revolution of structured connection (based on location, interests and other attributes) is key to this ease of discovery. Social network communities drive their own growth by continual outreach. It’s therefore in the interest of vendors to encourage these arrangements that bring people into a community of potential buyers, even if they enter as renters.

  • Economy of trustBorrowing depends on the borrower’s trust that the borrowed article will be in good condition and the lender’s confidence that it will be returned likewise. Renting from an established brand, whether the borrowed article is a car or a handbag or an arc welder, is a common means for the buyer to ease discovery and reduce risk; the terms and conditions of such rentals (usually including a credit card number) offer the lender the converse protection against theft or damage. Lower barriers to entry and perhaps better overall performance, are now arising in reputation economies such as eBay’s. However, that trust comes at a price — a formal academic experiment shows eBay’s program results in an 8 percent increase in the cost of goods.

    The opportunity exists to build a more portable reputation service that individuals can use in many settings, compared to the proprietary reputations that are specific to a community such as eBay. There’s room to create something in the trust revolution that both raises expectations and lowers costs of making customers more confident in taking action.

  • Efficient paymentsPlummeting transaction costs have already made it typical for even small purchases to use electronic payment; services such as Square have offered entry into the credit card economy for vendors of small services who could never meet volume and management costs for a traditional merchant account.

    Square
    Opportunity exists for shareable items to have their own associated financial accounts, for a bill to be paid to the piece of equipment rather than to the owner — making it easier to share or sublet an item, with revenues from sharing during a period of time being automatically assigned to the parties managing that item during that time.

    Off-the-top allowances, for costs such as maintenance or storage, could be collected automatically in an account that was owned by the item itself, turning a shareable asset into a single entity, carrying with it all the resources needed to keep it in serviceable condition and further reducing the complexity of ownership for the individual who is not a full-time rental service provider.

    Writing and deploying the applications to do this would be a forbidding obstacle, except for the apps revolution of superior productivity and radically simpler deployment that we see already in cloud-based platforms.

  • Accountable asset careFinally, in any case where a shared asset is subject to wear and tear, there’s potential for conflict over which of several users is creating what share of needed maintenance and repairs. The internet of things is bruited about as a platform for many innovations, but in this case, telematics monitoring of item use can be a basis for automatic and objective allocation of costs among users. This model is already being applied in spheres such as automobile insurance ratings. Existing mechanisms used in factories are ready to move into the SMB and consumer sectors as well.

Making all of this feasible is the big data revolution of powerful collection, analysis and understanding that’s further enabled by the mobility revolution.
Addressing these obstacles to convenient, trusted sharing can extend proven models into much broader use. It might seem that more sharing would reduce product sales, but sharing could also maintain or even increase sales: people who aspire to own a top-tier product, but can’t persuade themselves that they can afford it, might rationalize the purchase by telling themselves they’ll offset the cost with income from sharing. Further, additional exposure of a premium brand to customers who might never imagine buying it could intensify their desire to own it.

Recognizing and encouraging this leverage opens the door to compelling advantages of a collaborative customer relationship, from open innovation to affinity communities of customers and fans, further driving business forward. To anyone who asks if these collaborative networks are actually a business, one need only reply: “See the customers?”

Any business whose customers are not the focus of attention will be hard-pressed to compete with a model in which the customers are the business.

Peter Coffee is the VP & Head of Platform Research at salesforce.com inc.

  1. “Opportunity exists for shareable items to have their own associated financial accounts, for a bill to be paid to the piece of equipment rather than to the owner — making it easier to share or sublet an item, with revenues from sharing during a period of time being automatically assigned to the parties managing that item during that time. ”

    I have to say that I do not understand exactly how this would work. Maybe I am missing something. When you have time, could you give us a small example.

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    1. If several people are sharing a car, the old way of doing things would be for someone to pay for maintenance and then get the others to chip in. If you rent from an old-model rental agency, your share is built into the rate.

      Today, we could have the car “own” an account that pays its costs of upkeep, and automatically bills the sharing parties by whatever algorithm they’ve decided: some combination of mileage and, perhaps, peak versus off-peak weighting factors.
      – No middleman taking a markup.
      – Transparency as to who’s paying for what.

      We’ll figure this out as we go :)

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    2. Old model: one person pays the bills and gets others to chip in. Or car rental company builds this into its rates.

      New model: the car has its own account that pays the costs of upkeep, and bills the sharing parties on whatever basis they’ve agreed. Mileage, for example, with weighting factors for city versus highway or peak versus off-peak.

      No middleman markup. Transparency as to who pays what. Or someone will come up with a better way…

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  2. Brilliant.

    Companies that fight, rather than adapting to, the sharing economy risk losing their share of the profits.

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  3. It’s hard to imagine it ever happening. Someone would have to do more than a little work for nothing. i.e. buy the car and set up and manage the account etc. Someone would have to own the car and maintain it etc. It’s all beyond me.

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  4. http://www.brightneighbor.com is aggregating multiple sharing economy portals into a single search. The race is on!

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