The sharing economy

By CHRISTINA COOKE
Oregon Business
June 2013

Social media is turning consumers into entrepreneurs. The end of ownership?

Find the original article here.

Screen Shot 2013-06-23 at 6.14.57 PMI’m no stranger to borrowing in the most traditional sense. I check out books from the library, rent cars on vacation and forage through my sister’s closet when my own wardrobe seems stale. But I’m a novice when it comes to the modern-day borrowing possibilities — which, on their current trajectory, have the potential to upend long cherished notions about buying and selling.

Known as the “sharing economy” or “collaborative consumption,” the latest form of sharing challenges the status quo with the idea that access trumps ownership — that drilling the hole is more important than owning the drill. Rather than buying items outright, practitioners of the new model purchase short-term access, either from a company with a fleet or a neighbor with a for-rent supply of consumer items or services.

In Portland, for example, more than 500 people rent out spare bedrooms on the space-sharing platform Airbnb — including more than 65 within 15 blocks of my house in an inner southeast neighborhood. More than 1,100 vehicles around town are up for borrow through services like Zipcar,Car2GoRelayRides and Getaround — including more than 80 within a mile of me this very moment.

On numerous other websites based in Portland and around the country, budding entrepreneurs rent out random oddities like sewing machines, pasta makers and cruiser bikes, and arrange service swaps like, “You plumb my sink; I teach you Spanish.”

Rooted in age-old American principles of community and thrift, today’s sharing economy is a modern-day phenomenon, possible only because the Internet and mobile technology can facilitate frictionless exchanges between owners and renters using “reputation verification” systems, which appraise users’ online reputations, as well as maps and satellite positioning technology. Developed because people could not afford to sustain the hyperconsumptive patterns that led to the global financial crisis in 2008, the sharing economy is also about practicality — and the creation of new business models that capitalize on efficiency and pragmatism.

Collaborative consumption encourages spending at the community level, fulfills people’s desires to connect with their neighbors and betters the environment by squeezing the most out of our resources. Yet because it opposes the well-established American paradigm that encourages individual ownership — house, picket fence, SUVs — sharing faces a number of challenges from the mainstream.

Will this emergent economy be a flash in the pan, or will the monetization of sharing become yet another disruptive business model, radically changing how the country thinks about buying and selling? From my home base in Portland, fertile ground for the new economy, I decide to find out.

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Naysayers abounded in 1998 when Dave Brook started the first car-sharing service in the country, CarShare Portland, with four Dodge Neons accessible via realtor-style lockboxes. “People said, ‘No one will ever rent cars for a couple of hours,’” Brook remembers. “‘Car ownership is the American way,’” they told him.

But people were mistaken. Turns out, demand did exist for services traditional car rental agencies did not offer, and while Brook set his rates too low to turn much of a profit, his company lived on in others: FlexCar purchased CarShare Portland in 2000 and, in 2007, merged with Zipcar.

Getaround

This January, rental car giant Avis Budget Group bought Zipcar in a $500 million deal, validating with cash the viability of sharing-economy ideas. “Clearly big companies are taking notice that this is a growing segment,” Brook says. Over the last five years, the sharing economy has taken parts of the country by storm. In 2011, Time named collaborative consumption one of the top 10 ideas that will change the world. This January, Forbes noted the sharing economy’s “unstoppable rise,” and in March, The Economist cited the “immense potential” for the model to go big. David Brodwin, co-founder and director of the Washington, D.C.-based American Sustainable Business Council, explains the appeal: “Wherever there’s an underutilized asset anywhere, the sharing economy is going to root it out, find some way to monetize it and rent it out to responsible users,” he says. “Economic necessity is what drives the whole thing.”

Many credit the room-rental website Airbnb for laying the groundwork. Founded in San Francisco in 2008, the website has helped 4 million travelers find lodging in spare bedrooms or empty apartments in 192 countries (3 million last year alone) — taking a 9% to 15% cut of each rental fee. “Airbnb’s business model is one people have tried to mimic because it has done so well in such a short period of time,” says Airbnb spokesperson Amanda Smith. “People have begun using it as an example by the way it’s proven itself.”

Since Airbnb began normalizing the idea, more than 100 sharing startups have sprung up across the country. These startups usually adopt one of three different business models. Baltimore-based Parking Panda enables people in destinations with limited parking to rent out their driveways or parking spaces. With HomeAway, which started as Second Porch in Portland, people pull in extra cash from their second homes during those unfortunate times when they’re not on vacation. And withSnapGoods, members rent out high-end housewares — guitars, karaoke machines, camera lenses, toolboxes — for a set fee per day.

Other sharing startups facilitate the exchange of services rather than goods. Santa Monica-based DogVacay matches dog owners with pet sitters (who, by contract, send daily photo updates). Lyft, SideCar and Uber, all from San Francisco, connect people in need of rides with car owners willing to shuttle them around for a fee. And TaskRabbit, which moved to San Francisco from Boston in 2010, helps people locate neighbors they can hire for odd jobs like picking up groceries or assembling IKEA bookshelves.

Finally, in the footsteps of more familiar rental operations like Blockbuster and Enterprise Rent-A-Car, other startups offer up assets they own themselves. Zipcar and Car2Go maintain fleets of private vehicles throughout cities for member use. Portland-based Alta Planning + Design has launched citywide bike-share programs in Boston, Washington, D.C., New York and Chattanooga and intends to start a program in Portland in the spring of 2014. And New York-based Shecky’s Closet rents out a wardrobe’s worth of designer clothing, jewelry and accessories, delivered by mail, for $40 a month.

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On a humid evening in early spring, Portland resident Kat West maneuvers a broadfork out the door of the Southeast Portland Tool Library on Southeast Harrison Street. She’s planning to plant a garden on a plot of land she recently purchased, and she needs a way to till the soil. “This sucker costs $200,” she says. “I don’t have that kind of money right now. Coming here and being able to borrow this as needed is invaluable.”

Tool library

The sharing economy has a foothold in many parts of the country. But progressive, community-minded coastal cities like San Francisco, New York, Seattle — and Portland — have embraced it the most. Hyperlocal sharing networks all across Portland facilitate the trade of everything from preserving equipment (North Portland Preserve and Serve) to baby clothes (St. Johns Swapnplay) to garden space (Farm My Yard) or fruits and vegetables (Portland Fruit Tree Project).

Located in a large storage closet in an Episcopal church, the Southeast Portland Tool Library offers its 2,000 members access to 1,200 donated tools completely free of charge. Upstairs in the same building, Kitchen Share SE runs a similar operation for food-related accoutrements like dehydrators and ice cream makers.

“The sharing economy is a recognition that we can use our existing stuff more efficiently than we currently are,” says Arnold Strong, CEO of the Portland startup Bright Neighbor. An online marketplace launched in 2009 to facilitate the renting, selling, lending and bartering of consumer goods and services, Bright Neighbor had 8,000 regular users across Portland’s 95 neighborhoods by the summer of 2012. Formerly housed on a website, Bright Neighbor has taken a brief hiatus to migrate to a mobile app that will relaunch this June.

“With the number of people accessing the web through mobile devices, it’s a no-brainer we’ve got to be a completely mobile application,” Strong says.

While Portland has a cultural predisposition for sharing, its livability has actually hindered the development of its sharing economy. In places like San Francisco and New York, where parking is impossible, hotels can be prohibitively expensive, and city dwellers don’t have space for extra stuff, collaborative consumption makes certain things doable and desirable that would not be otherwise.

In the Rose City, however, sharing-economy supply is a lot higher than demand, according to Steve Gutmann, business development manager for Getaround in Portland and an avid participant in Brook’s early car-share program. While 550 car owners are eager to lend out their vehicles on the service, the number of takers does not yet match. Gutmann is currently working to grow the user base, he says.

“The number of people who are choosing a low-car lifestyle is growing,” he says, “but it’s growing slowly.” In addition to Getaround, Gutmann is working on a number of other transportation and sharing services. He helped a friend launch Nimbler SF, an app for navigating San Francisco by bike and transit, and is part of a team developing both a peer-to-peer driveway-rental app called SpotPark and an app that connects buyers and sellers of stand-up paddleboard gear: GO SUP GEAR.

Matching supply and demand is just one of the challenges facing the sharing economy, however. Figuring out how the business model will relate to existing legal and insurance systems is another. Airbnb first addressed the question of liability in 2011 after a renter in San Francisco returned home to find her apartment ransacked. The room-sharing service began offering a $50,000 guarantee for loss or damage due to theft or vandalism, a limit it increased to $1 million last year.

Because current legal, insurance and regulatory infrastructures are designed to handle transactions between consumers and companies, not consumers and their peers, the sharing economy faces obstacles on a number of fronts.

While the legislatures of three states — Oregon, Washington and California — have adopted bills that account for personal car sharing, insurance structures have not caught up in other states or for other types of rental properties. Hence, to protect users, most peer-to-peer rental sites offer their own insurance policies. Getaround matches both the owner’s and renter’s personal auto insurance limits up to $1 million, and SnapGoods guarantees damaged goods will be repaired or replaced up to $5,000.

Industry regulations represent another roadblock. Sharing participants sometimes face complications because they offer the same services as companies in highly supervised industries, yet they are not subject to the same rules. Unlike traditional hotels, Airbnb hosts do not pay hotel taxes, obtain licenses, undergo inspections or have to meet safety requirements.

Sharing businesses have also had to figure out how to build trust among users, an essential component for their businesses’ functioning. Most websites offer a two-way rating system that allows both owners and renters to review each transaction, building for each an online track record others can check out. Some also link their services to social media sites like Facebook, Twitter and LinkedIn to provide even more information. Except for a few situations, the accountability tool has worked remarkably well.

Portland residents Milos and Tijana Jovanovic, who rent out the downstairs level of their Dutch Colonial duplex for $110 to $130 a night, have found their renters to be a self-selecting group. They’ve had no problems with any guests during their two years in business.

“People who stay in this type of accommodation are mellow and cool and enjoy these types of settings,” Milos says one afternoon in the bright, airy living room of the rental. “The type of person who wants to do this is the right type.”

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When eBay and Amazon first launched, people balked at the idea of surrendering their credit card information to the Web. But after the system worked enough times, people grew comfortable, and online shopping became so commonplace that brick-and-mortar stores had to adapt their strategies. Now, a decade later, with Facebook, Twitter, YouTube and the like, most people are exceedingly comfortable sharing personal information with social networks online.

Many expect the same dynamic to take root in the collaborative economy. And as sharing businesses figure out how to build trust and overcome the obstacles they’re up against, an increasing number of mainstream businesses are looking to get in on the sharing action.

Traffic

In August 2011, Avis began offering Avis On Location, a short-term car rental program on select corporate campuses throughout the U.S. Hertz developed Hertz On Demand 24/7, also a short-term car rental program, in six U.S. cities, including New York, San Francisco and Denver. And the world’s largest retailer, WalMart, is toying with the idea of crowd-sourcing delivery, hiring in-store customers to deliver packages to online buyers.

Commercial sharing businesses, run by regulars like you and me, are incredibly disruptive to the traditional system, says Gutmann. “Peer-to-peer car sharing puts a damper on the demand for traditional car sharing, traditional car rental and, ultimately, on automotive sales,” he says.

At least for now, Avis plans to keep the Zipcar operation completely separate from its existing rental business, according to John Barrows, the company’s VP of communications. Though Zipcar will reap the benefits of Avis’ infrastructure and experience with large fleets, Barrows says, “we view car-sharing as a different business model from our core Avis and Budget car rental businesses, as we serve different customer needs.”

While much remains to be seen when it comes to the merging of sharing and mainstream businesses, most big companies are looking out for opportunities, says the Sustainable Business Council’s Brodwin. “They didn’t dominate their industries by being stupid and backward,” he says. “They will have to ask themselves how they want to respond.”

As sharing and traditional enterprises figure out how they relate to one another, both will have to adapt and adjust, likely meeting somewhere in the middle. A response to the needs and desires that emerged over the last decade, collaborative consumption takes advantage of cutting-edge technology to feed people’s need to save/earn money while simultaneously decluttering their lives, reducing their impact on the environment and positioning them to forge human connections. At the same time, the new system is built around yet-to-be-resolved contradictions — because it monetizes the traditionally moneyless interaction of sharing and converts consumers into entrepreneurs.

But if the path forward is not clear-cut, the core of the sharing model shows no signs of dissolving — especially since so many entities are staking their claims, from startups like Bright Neighbor to big companies like Avis to private individuals like the Jovanovics.

Back on my smartphone, I feel overwhelmed with the borrowing possibilities a finger swipe away. The backyard cottage for rent among a grove of fruit trees on Mount Tabor is very tempting, as is a beefy ’96 pickup just four blocks up the road. I know I’d enjoy using the movie projector, screen and speakers offered by another neighbor, a man half a mile south. And the Old Town canoe with two life jackets included? I’d love to.

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