by JD Sartain

How the Collaborative Economy Will Change the Way You Do Business

News Analysis
Apr 24, 2014 5 mins
Collaboration Software Consumer Electronics E-commerce Software

The Internet puts the goods, services and expertise you need at your fingertips. Some call it a 'collaborative economy' focused less on transactions and more on trades. Others see a throwback to the early days of economic exchange. Either way, it's quickly changing the way we do business.

In the maker movement, people create goods using 3-D printers. Expand this idea to the collaborative economy and individuals share goods instead of buying and owning them from what they see as inefficient institutions.

Such movements will be a “powerful disruption” to businesses, says Jeremiah Owyang, chief catalyst at Crowd Companies and an advisor (and former analyst) at Altimeter Group. “If you thought social media was disruptive, you haven’t seen anything yet. Social media only disrupted communications, customer care and employee relations. This next movement disrupts business models to its core.”

Collaborative, ‘Sharing’ Economy Has 5 Key Elements

Owyang identifies five keys areas of the collaborative economy:

1. Goods. Women in particular share clothes and jewelry in order to access an unlimited closet without buying so many “things.” Startups such as 99 Dresses, Poshmark and Threadflip serve as buy/sell/trade sites that provide name-brand products that customers can continually recycle.

2. Services. A variety of sites, such as eLance, Freelancer, oDesk and TaskRabbit, let people share their time and/or expertise.

3. Transportation. When people share rides through companies such as Uber and Lyft, they may not need to buy a car at all.

4. Space. Websites such as DesksNearMe, Liquid Space, ShareDesk and PivotDesk provide an alternative to signing a long-term lease by letting individuals rent desks, offices or meeting rooms in somebody else’s space. Homeowners are getting in on the act, too, thanks to Airbnb, which Owyang says now has more listings than IHG, the largest hotel chain in the world.

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5. Money. Crowdfunding and peer-to-peer lending sites such as Kickstarter and LendingClub are taking off. LendingClub, for example, lets individuals loan money and earn interest or borrow from individuals or investors at 5 percent APR, Owyang says — all while sticking it to the wealthiest “1 percent” that owns the banks.

Collaborative Economy New Term for Old Concept, Some Say

Not everyone sees this emerging trend as a collaborative economy, though. Brian Solis, principal analyst at Altimeter Group, views it as a sharing or cooperative economy — “one where people commercialize their possessions or time to those who choose to use, not buy, in exchange for something of stated value.”

In that sense, Solis says, it’s not necessarily as collaborative as one might think: “It’s actually facilitated and optimized through smart, mobile-first software platforms that connect people, goods and services, shared experiences and commerce.”

Evan Quinn, research director at Enterprise Management Associates, agrees, saying the notion is nothing new: “Perhaps some ‘thought leaders’ have forgotten that barter was humanity’s first means of economic exchange, and there are still plenty of physical markets all over the world where goods are exchanged for goods.”

In the Internet era, digital flea markets and bartering sites abound, with reviews and other feedback mechanisms on sites such as Craigslist and eBay offering both a form of collaboration and a digital take on the Old World bazaar, Quinn says. The same goes for vacation rental sites such as VRBO and FlipKey, which in addition to rentals offer users the chance to trade a week on their own property home for a week at someone else’s.

[ Feature: The ‘Closet-Sharing’ Economy: Thrift Shopping Without the Effort ]

“We may have digitized this economic model, but the model remains largely the same. What has changed is the inclusion level,” Quinn says. “Anybody with an Internet connection can opt into being included.” If anything, he says, what’s happening is a “collaborative exchange.”

Participants Must Weigh Value Against Transaction Costs

Not surprisingly, the economics and practicalities of sharing vary tremendously by the type of asset, the market, and the way in which that asset can be charged, according to Forrester analyst Ted Schadler. Individuals must consider the value and the transaction costs — that is, it more expensive to conduct the transaction (including mitigating any risk) than it’s worth?

Borrow a mixer from your neighbor, Schadler says, and the transaction “cost” is walking next door to get it and then owing the neighbor a favor. Use an online service to rent a mixer, meanwhile, and you pay the cost of picking it up and dropping it off. “It might be worth it; it might not.”

Schadler cautions that borrowers should note the transaction costs before proceeding. The Internet dramatically lowers the transaction cost of publishing the availability of your asset and finding the asset you want. Assets will be shared in a so-called collaborative economy when the transaction costs are lower than the value derived. This means consumers should (and can) rank the categories based on the value of the asset and the transaction cost of renting the asset.

If Collaborative Economy’s Easy, No Reason It Can’t Catch On

What makes the sharing economy unique, Solis says, is its evolution. With evolution comes simplicity, and with simplicity comes commodity and approachability — suddenly, everyone has something to contribute without building or learning a complex infrastructure.

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The same goes for anyone seeking alternatives to mainstream commercial products. When people have the option to earn extra income, or save by using instead of consuming — all in an informed, frictionless exchange and without giving it a second thought — this trend can only be expected to expand and disrupt.

“I don’t believe that a strict person-to-person digital commerce environment will arise to remake our economy much more than the Internet has already disrupted the global economy and the business models, [since] the increase in P2P exchanging doesn’t obviate the need to produce the original product or service,” Quinn says. “Next time someone texts you to stop by a neighbor’s garage sale, or next time you have a friend pick up your kid from school while you get the takeout for both families’ dinner, you can say, ‘Hey, I’m participating in the Collaborative Economy.'”