The Sharing Economy on the Collaborative Commons
The following essay is excerpted from The Zero Marginal Cost Society: The Internet of Things, the Collaborative Commons, and the Eclipse of Capitalism, by Jeremy Rifkin and appears at Common Dreams with permission.
A powerful new economic movement has taken off overnight. A younger generation is beginning to share goods and services on a global Collaborative Commons. The distributed, collaborative nature of the Internet allows millions of people to find the right match-ups to share whatever they can spare with what others can use. This is a different kind of economy -- one far more dependent on social capital than market capital. And it's an economy that lives more on social trust rather than on anonymous market forces.
Much of what we own goes unused some of the time. Sharing spare rooms or even couches has become a big-ticket item among enthusiasts. Airbnb and HomeAway are among the many start-ups that are connecting millions of people who have homes to rent with prospective users. Airbnb, which went online in 2008, boasted 110,000 available rooms listed on its site just three years later and was expanding its available listings by an astounding 1,000 rooms every day. To date, 3 million Airbnb guests booked 10 million nights in 33,000 cities, spanning 192 countries. In 2012 bookings were growing at a blistering pace of 500 percent a year, an exponential curve that would bring envy, if not terror, to any global hotel chain. Airbnb is expected to pass the venerable Hilton and InterContinental hotel chains -- the world's largest hotel operations -- in 2014 by filling up more rooms per night across the globe.
Like other shareable brokers, Airbnb gets only a small cut from the renter and owner for bringing them together. It can charge such low fees because it has very low fixed costs and each additional rental brokered approaches near zero marginal cost. Like all the new sharable sites, the lateral scaling potential on the Internet is so dramatic that start-ups like Airbnb can take off, catch up to, and even surpass the older, global hotel chains in just a few short years.
Airbnb is a private firm operating in a shared Internet Commons. Couchsurfing, Airbnb's major competition, is of a different mold. It started as a nonprofit organization and remained so until 2011. During that time, it picked up 5.5 million members in 97,000 cities in 207 countries. (Although it switched nominally to a profit-making operation in 2012, it continues as a free service, but users can pay a one-time $25 membership fee if they so choose.) Its members provide free lodging to each other.
Couchsurfing also differentiates itself from its more commercial competitor, Airbnb, by viewing its mission more broadly as social rather than commercial in nature. Members are encouraged to socialize with each other during their stays and develop bonds of friendship that continue after their visits. The goal is to help "couchsurfers share their lives with the people they encounter, fostering cultural exchange and mutual respect." More than 99 percent of the members say they have had positive experiences couch surfing. Members report more than 19.1 million friendships arising from their visits. Members also participate in more than 40,000 different couch-sharing interest groups.
Toy rentals have also enjoyed success as sharable items. Baby Plays, Rent That Toy!, and Spark Box Toys are typical. For a small subscription of between $25 and $60 per month, the services ship between four and ten toys each month to the member's home. The toys are sanitized after each shipment to assure that they meet appropriate health safeguards. Any parent knows that children generally tire of new toys quite quickly, after which they remain in a toy chest, closet, or box in the attic, sometimes for years, gathering dust. With sharable toys, toddlers come to learn early on that a toy is not a possession to own, but rather a short-term experience to enjoy, changing the very way they think about the physical things they use.
Even clothes, the most personal of all physical items, are metamorphosing from a possession to a service. Ties, of all things, are now being rented. Tie Society, a start-up in Washington, D.C., stocks more than 300 designer ties -- each of which, if bought, would cost an arm and a leg. For a monthly fee of $11, subscribers receive a box of sanitized ties to use, and they can change their tie selection monthly.
"The Collaborative Commons has the potential to massively undermine the conventional capitalist market much sooner than many economists expect..."
For women there's Rent The Runway, I-Ella, MakeupAlley, Avelle, and scores of other sites that connect providers and users across the retailfashion industry. Women who have purchased designer dresses, handbags, and jewelry connect with users who rent the apparel and accessories for a fraction of their retail purchase price.
While rentables are booming, so too are redistribution networks. It's not surprising that a younger generation that grew up recycling plastics, glass, and paper would turn next to recycling the items they own. The notion of optimizing the lifecycle of items in order to reduce the need to produce more partially used goods has become second nature to young people for whom sustainability is the new frugality.
The Freecycle Network (TFN) was an early Commons leader in shareable recyclables. The nonprofit organization, with 9 million members in 85 countries, is organized into 5,000 local groups whose members post unwanted items that are available for free to other members in the community. The founders of TFN boast that their recyclable Commons model is "changing the world one gift at a time."
ThredUP is another popular redistribution organization. The online consignment shop, which has 400,000 members, started by recycling toddlers' and children's clothes and has recently moved into women's apparel. ThredUp points out that the average child outgrows more than 1,360 articles of clothing by age 17. When children outgrow their clothes, their parents fill a ThredUP bag and put it on the front porch. ThredUP then retrieves it and pays for the shipping. Every time ThredUP finds another home for the clothing item, the provider receives a credit in the ThredUP store that can be used to obtain "new" old clothes for their growing youngster. The sharable consignment boutique sells used clothes for up to a 75 percent discount, allowing the items to be handed around (rather than down) and enjoy multiple lives. ThredUP owes its success to the Web's ability to bring together hundreds of thousands of providers and users in a distributed, laterally scaled network. Its members can browse over thousands of items on the website racks, finding just the right match for their children. ThredUP draws approximately 385,000 visits a month and sold over 350,000 items in 2012, and orders are growing by a whopping 51 percent a month.
Who could be opposed to the idea of collaborative consumption and a sharing economy? These new economic models seem so benign. Sharing represents the best part of human nature. Reducing addictive consumption, optimizing frugality, and fostering a more sustainable way of life is not only laudable, but essential if we are to ensure our survival.
But even here, there are winners and losers. The still-dominant capitalist system believes it can find value in the collaborative economy by leveraging aspects of the sharing culture toward new revenue-generating streams. Still, whatever profit it can squeeze out of the growing networked Commons will pale in comparison to the ground it loses.
Although hotels will continue to book, they are already seeing their markets decline as millions of young people migrate to Airbnb and Couchsurfing. How does a huge hotel chain, with its high fixed costs, compete with literally millions of privately owned spaces that can be shared at low and even near zero marginal costs?
Retailers of all kinds, already on the ropes with disappearing profit margins, are going to be equally disadvantaged by a sharable economy where clothes, appliances, toys, tools, and thousands of other items are continually in use through rental and redistribution networks. Extending the lifecycle of stuff by passing it on from user to user significantly cuts into new sales.
Recent surveys underscore the broad economic potential of the Collaborative Commons. A 2012 study by Campbell Mithun, a Minneapolis ad agency, in partnership with Carbonview Research, found that 62 percent of Gen Xers and millennials are attracted to the notion of sharing goods, services, and experiences in Collaborative Commons. These two generations differ significantly from the baby boomers and World War II generation in favoring access over ownership. When asked to rank the rational benefits of a sharing economy, respondents to the survey listed saving money at the top of the list, followed by impact on the environment, lifestyle flexibility, the practicality of sharing, and easy access to goods and services. As for the emotional benefits, respondents ranked generosity first, followed by a feeling of being a valued part of a community, being smart, being more responsible, and being a part of a movement.
The public-opinion surveys show a profound change in thinking about the nature of economic activity among the younger generation. The shift from ownership to access, which I first identified back in 2000 in The Age of Access, is demonstrable and growing. Collaborative peer-to-peer economic activity is already robust, with a trend line that is only going to become more pronounced.
How likely is it that the collaborative economy will disrupt the conventional business model? According to an opinion survey conducted by Latitude Research in 2010, "75% of respondents predicted their sharing of physical objects and spaces will increase in the next five years . . . 78% of participants felt their online interactions with people have made them more open to the idea of sharing with strangers." And "85% of participants believe that Web and mobile technologies will play a critical role in building large-scale sharing communities in the future." Many industry analysts agree with these optimistic forecasts. In 2011, Time magazine declared collaborative consumption to be one of its "10 ideas that will change the world."
The Collaborative Commons has the potential to massively undermine the conventional capitalist market much sooner than many economists expect, because of the 10 percent effect. Umair Haque, author of The New Capitalist Manifesto and a contributing writer to the Harvard Business Review, sees the collaborative economy as having a "lethally disruptive" impact at a much lower threshold of buy-in than normally expected because of its ability to undercut already dangerously low profit margins across many sectors of the economy. He writes:
If the people formally known as consumers begin consuming 10% less and peering 10% more, the effect on margins of traditional corporations is going to be disproportionately greater . . . Which means certain industries have to rewire themselves, or prepare to sink into the quicksand of the past.
What's becoming apparent is that a growing number of giant capitalist enterprises across a range of commercial sectors that are already facing plummeting profit margins will not be able to survive for very long against the rising tide of near zero marginal costs in the production and delivery of goods and services. Although the thousand or so highly integrated, vertically scaled megacorporations that currently account for much of the world's commerce are imposing and seemingly invincible, they are, in fact, highly vulnerable to a collaborative economy that is quickly eating away at their already precariously low profit margins.
It's not unreasonable to expect a significant die-off of the vertically integrated global companies of the Second Industrial Revolution when the Collaborative Commons accounts for between 10 and 30 percent of the economic activity in any given sector. At the very least, we can say that conventional capitalist markets will increasingly lose their dominant hold over global commerce and trade as near zero marginal costs push an ever greater share of economic activity onto the Collaborative Commons in the years ahead.
From The Zero Marginal Cost Society by Jeremy Rifkin. Copyright © 2014 by the author and reprinted by permission of Palgrave Macmillan, a division of Macmillan Publishers Ltd.