This abstract is written for the 2nd International Workshop on the Sharing Economy and presents an ongoing study (January 2014 – December 2016) that is being conducted by Martijn Arets. Crowd Expedition is an independent and individual research project.
Many industries are being shaken by new, disrupting businesses that are based on platforms that create an environment in which individuals (peers) find each other and exchange, collect and combine money, resources, skills and knowledge. Start- and scale-ups in the fields of crowdfunding, sharing economy and crowdsourcing are growing exponentially by tapping into existing ‘resources’ others have already bought, rented or leased. With the promise of empowering the individual, these platforms use the fact that the ‘old’ economy is ‘stuck in the mud’ to break rules, ignore existing tax agreements, and more.
With valuations of up to 50 billion dollars per scale-up, it is clear that venture capitalists believe in the potential of this so-called collaborative economy. Yet, even though all these new developments seem new, many of them are ‘old-skool’; organised and financed from the inside. Most of the value that is created goes to a select group of people, suggesting that this so-called ‘collaborative’ economy is not as collaborative as it suggests.
In 2011, I finished the first equity based crowdfunding campaign in the world, in which 171 investors, together, pledged the necessary 20,000 euros for the translation, design and print of my book ‘Brand Expedition, a journey visiting Europe’s most inspiring brands’. This achievement brought me many good things: I was elected best Dutch entrepreneur in 2011, had the opportunity to share my story at TEDx Kalamata in an ancient amphitheatre in Greece and was asked to be one of ‘40 Young Potential European Leaders under 40’. Behind the scenes, I lost almost 100,000 euros on this campaign due to legal and tax issues, a terrible business model and the issue that the investors had no idea where they had put their money. What I saw, however, was the potential of peer2peer platforms (platforms that bring together demand and supply: money, resources, workers, skills and knowledge). I believed (and still believe) that this will influence every industry over the next ten years. But I also saw that a lot had to change before these developments would result in a sustainable model from which all stakeholders would be able get the right value, and before these developments would reach their full potential. I also anticipated a sense of urgency: crowdfunding was, in my opinion, just the beginning of the collaborative/crowd/sharing economy. Seeing the potential and the challenges made me want to start this research project.
The Crowd Expedition research dives deep into the collaborative economy, and investigates the following:
- What is happening
- Who are the main stakeholders (and how to interpret them)
- What are the main dilemmas
- How can these be solved
- Developing a vision on possible future scenarios
These sub-questions will help answer the main question: “what is the real added value and potential of the collaborative ‘crowd’ economy, and what has to change to make this happen?”
To achieve this aim, a hybrid approach was chosen. The research started with 125 interviews with experts and entrepreneurs in the field aimed at obtaining answers to the first three questions mentioned above. These interviews helped sharpen the scope of this research project. Next, another 125 interviews will be conducted in order to obtain answers to questions 4 and 5. The first preliminary conclusion will be discussed with 10 big economic thinkers. The second preliminary conclusion will be shared through a closed crowdsource method in order to gain input and feedback on every interviewee.
In order to obtain a better impression, the researcher also participates, both on the demand as well as on the supply side, in the collaborative economy platforms.
After the first two years of research I can share some of my temporary conclusions regarding the main and sub questions based on: 250 interviews in 12 countries (with entrepreneurs, experts in the field and scientists), dozens of discussions on Twitter and Facebook, and by reading all relevant articles on these developments.
What is happening, who are the main stakeholders and how can we interpret the developments?
It is the combination of the growing amount of digital-minded and connected citizens and the constantly diminishing costs and complexity of software and hardware that boosts the upswing of the digital platforms, enriched by mobile apps. Smart (but far from perfect) algorithms, fed by (real time) data and GPS, are increasing the costs of matchmaking and are making it possible to have almost real-time insight into the available (idle) capacity in the market.
The main stakeholders and their profile are:
- Start- and scale-ups
We are seeing a huge amount of technologically-driven startups, mostly backed by Venture Capitalists, entering traditional markets. Most of the time, the founders of these companies are part of a team of three; all have the skills and mentality to actually DO things. At great speed, they start, build, fail, adjust, and re-build their service. In this way, they are constantly experimenting and making their product (and themselves) better, while building up a user base. The only exception in this field are the fintech startups, since they have to adapt to the strict regulations in their field.
When I focus on the sharing economy, the first domains that are entered are the domains that are on top of the list of expenses of the average household: housing, transportation and food. All markets, with transportation being number one, have a reputation for being non-customer-driven. This is also where you can see the big differences in culture: that of the ‘old economy’, with practical managers, versus that of the ‘new economy’, with technology- and marketing-driven entrepreneurs who know how to sell their promise to their stakeholders: users (demand and supply) and the government. Under the guise of disruption they break many existing regulations.
Existing corporations hardly know how to respond. They don’t want to abandon their cash cows, are short-term assessed by their investors and have great operational managers on the top, but no changemakers. The best thing they can do is invest in – or buy – new startups, work together with these and hope they will be infected by the startups’ entrepreneurial DNA or that they will be able to create an innovative project that probably will never change the core of the organisation. Some them know they have to change but have no idea how. Still, the fact that they are moving slowly does not mean that we should forget them in this field. Corporations are like a diesel engine: it takes some time to get up to speed, but once they are on their way….
For local and national governments, there are three challenges (and opportunities).
First: how to deal with these new initiatives, the speed of innovation, the brilliant marketing strategies and the brutal way of operating of these new organisations: Ignore them, give them some space to learn and grow, or try to control them completely? I see many governments struggling with this situation, especially because they don’t want to be the greedy innovation killers of services their voters love. Besides that, there is an interesting tension between local and national governments. In practice, local governments have to deal with these new developments, while the regulation has to come from the national governments. Some cities are taking control, like the city of Amsterdam with their regulations on – and collaboration with – Airbnb.
Second: how to use the government’s internal resources (goods and skills).
Third: how to become a better (and less expensive) government, using the techniques and philosophy of the sharing economy. The government is an institution that facilitates the running of society by its citizens. How can a government act like a platform that empowers its citizens? For instance, how the government of Estonia is running its country – like a platform – is highly interesting. By doing that, they can offer their citizens a level of services which they never could afford using the traditional instruments. Focusing on the sharing economy (broad definition) the government can offer its citizens tools like a book sharing app (a decentral library without a physical building), offer subsidy-matching on crowdfunding, close economically inefficient bus routes and replace them with car-sharing or ride-hailing services, etc. This brings me to the second important question: should governments build and run (sharing) platforms themselves, or should they find a way to work together with existing startups and scale-ups in the field? This would give the more morally-driven startups the chance to focus on the social value created for all layers of the citizens, without having to focus on the business model.
- Consumer / prosumer
The last and maybe most important and vulnerable stakeholder is the empowered consumer. This is the individual who enters the sharing economy and constantly switches between the role of consumer and producer. I call them the prosumer. The sharing economy offers benefits to this stakeholder, but there might be a serious downside. Since the decisions of non-professional individuals are based on short-term incentives, many of these prosumers do not have a well-informed idea of the true price, and the risks they are taking. This is exacerbated by the fact that platforms want to avoid that their ‘on demand’ workers are deemed labourers from a legal perspective), since this will kill their exponential growth. Yet, it would be too easy to simply state that these platforms should offer fixed employment to those that provide their services through them.
What the main dilemmas are
While many people, the media in the first place, are extremely positive or extremely negative about these new developments, there are a couple of dilemmas that don’t reach the headlines (enough). I will highlight the most important ones:
The true price of exponential growth
The fact that organisations like Uber are growing exponentially is impressive, but the main question is: at what price? Uber is the biggest taxi company in the world, but it doesn’t own a single cab. Still, in practise there cars are on the road. They break down. They need to be replaced. They make accidents. They kill people. The risk is for the drivers, most of whom have not followed much of an education. An important question is: are these people able to calculate the true (long-term) price?
This brings me to the responsibilities of sharing platforms. Platform organisations are asset light and shun responsibility for what happens on their platforms. They pretend they are ‘just’ a platform and don’t take any responsibility for the transaction, or its consequences. But is this true? You, as a supplier or a customer, also visit certain platforms because you trust the brand of, let’s say, Airbnb or Kickstarter.
The true price discussion will become more relevant over the coming years, since many platforms have the ambition of securing a monopoly position on the market.
Values vs money
Many sharing platforms pretend to be ‘new’. This might appear to be true on the surface, but when we study them closely, we see that these organisations are organised and financed in a completely traditional manner. This is one of the biggest dilemmas of the sharing economy.
Many of their founders have an intrinsic motivation to ‘fix things’. They want to change the world. This sounds like a solid, sustainable model, but when you look at how these platforms use short-term financing models such as Venture Capitalists, I am curious as to what will really happen over the next five years.
Because of the fact that the platforms are short-term financed, it forces them to create a bubble of value, which has negative consequences for the growth of the sharing economy. While sharing platforms facilitate sharing, they don’t share anything themselves. They all want to built their own little empire. Remedying this is not easy; after all, creating your own software is good for the valuation of your platform. Sharing isn’t.
Data and transparency
Transactions in the sharing economy can be made because of smart algorithms that make a real-time match. With this, the sharing economy pretends to improve transparency. This is not true, however. It improves functional transparency. It shows you the data you need to make the transaction and to give you a secure feeling. But in the end, you have no idea what happens in the black box.
One of the biggest data issues is reputation data. Something which should be in the hands of the individual user involved becomes a strategic asset that platforms use to create huge valuation and use as a glue to lock customers into the platform. There are already some startups active in the field of providing an independent reputation data profile, filled with data from all the platforms they use. Which will offer great opportunities for the future, but which also raises dozens of new questions and dilemmas.
Besides these dilemmas, there are some social issues we should give some serious thought:
- Ownership: central vs decentral (based on blockchain) and cooperatives
- How the sharing economy might increase the gap between the poor and the rich
- The true price of the sharing economy
- Discrimination: it is a peer2peer system; you share with your peers
- Exclusion of platforms on the demand and supply side.
A short summary of the possible future scenarios
Despite the challenges mentioned above, there are – underneath the radar of the media – some highly interesting developments going on which have great implications for the future of the sharing economy.
The finiteness of the monopoly power of platforms
A (sharing) platform provides its customers four kinds of value. In my following publication, I will share insights in how the exclusive added value of (global) platforms will increase.
- Rating and reputation
Rating and reputation is a strong way for platforms to lock you into their system. After all: when you build up a great reputation on Airbnb the chances that you also will start using other accommodation sharing platforms is limited, since you will have to start from scratch again. There are two developments going on in this field:
- external reputation platforms such as eRated and Traity give users the opportunity to build up an independent reputation profile. The benefit for users is that they are not locked into the system and can use ratings from different platforms to build a solid reputation, without losing control of the process. The benefit for new platforms is that they can use these services to increase the speed of the go-to market, since a new user brings his own reputation, which increases the speed of time to market.
- a call from governments to protect citizens and create regulations that force platforms to share data. Governments can combine this with the need for a digital identity passport. Many users now use their Facebook profile for this purpose and I think that this is an extremely bad development. A (certified) digital passport, in combination with a person’s reputation data, will not only protect the individual, but will also boost the growth of the sharing economy. It will be a digital identity whereby the user is in control of who can see what data.
Insurance is a service which was exclusively facilitated by platforms, since the regular private insurances do not cover the risks of sharing. This is a temporary ‘problem’. Dutch insurer Centraal Beheer Achmea has already introduced an ‘Airbnb’ insurance. It is a matter of time before a car sharing insurance becomes a default option in a private car insurance.
The price of software decreases extremely fast and it will be free in the end. Services such as Sharetribe already offer free, or extremely cheap, open source tools that allow the starting up of a sharing platform within a couple of minutes. These services will lower the thresholds for non-tech-savvy individuals who wish to start their own platform without making any big investments.
- Critical mass of participants
Sharing economy platforms only function when they have a critical mass of participants. For global solutions this will remain a challenge, but there is one issue that many people forget when talking about global leadership: most transactions in the sharing economy are conducted on a local level. For example: I will never cycle more than 5 minutes to catch a shared car.
Based on these four points combined, I predict that there is a great future for locally-owned and organised platforms. Aggregation platforms who combine the APIs of local platforms then can compete with the global players.
Shared ownership models
There are some highly interesting developments around new and old shared ownership models. The old models include forms whereby the people who bring value to the platform benefit from the sum of its parts. The new models, such as Decentralised Autonomous Companies based on Bitcoin’s blockchain technologies, will be the next step. The first examples are already online, such as the decentralised version of Uber La’Zooz. They have yet to find an effective way to reach the big crowd, but the potential is enormous.
All the developments described in this abstract show us that there is more to come. They also show us that we are not only discussing sharing within the collaborative economy. Every issue discussed touches broader social and environmental discussions.
This year the Crowd Expedition will focus on bringing this discussion to the next level. I am not a typical scientist, but I do believe that research leads to more research. Which is typical for the times we are living in: don’t try to find answers, find better questions.
Most of the interviews are (partially) recorded on video and published on the researcher’s YouTube channel:https://www.youtube.com/user/crowdexpedition. The 250+ videos have been watched (dd January 2nd, 2016) over 150,000 minutes by individuals from 140 countries.
Most important videos used for this abstract:
- interview Juliet Schor: https://www.youtube.com/watch?v=-Qq7GyF3smc
- interview Koen Frenken: https://www.youtube.com/watch?v=ztpUQxbvEO0
- interview Neal Gorenflo: https://www.youtube.com/watch?v=IZ9-LU4b7TU
- interview Jeremiah Owyang: https://www.youtube.com/watch?v=zlbn7ZRlT3g
- interview Michel Bauwens: https://www.youtube.com/watch?v=bSP0TDYQvcs
- interview Kaspar Korjus, Managing Director of the e-Residency programhttps://youtu.be/KDJe3UGrmMw
- interview Siim Sikkut, Digital Policy Adviser at the Government Office of Estonia https://youtu.be/KLppu6Wc_Bo
- Juho Makkonen, Sharetribe https://youtu.be/Kk8Mclb_LSw
- Juan Cartagena, Traity https://www.youtube.com/user/crowdexpedition
- interview Susan Shaheen: https://www.youtube.com/watch?v=a5E2ztb8dOM
Together with K. Frenken, T. Meelen and P. van de Glindt we published an article on The Guardian ‘smarter regulation for the sharing economy’ ‘http://www.theguardian.com/science/political-science/2015/may/20/smarter-regulation-for-the-sharing-economy