Chapter 11 Sharing Economy and Collaborative Consumption PDF

The Sharing Economy, Collaborative Consumption, and Efficient Markets through Tech Dr. Bharti Motwani 1  Section 11.1: Learning Objectives 1. Recognize firms often categorized as part of the “sharing economy” or participating in “collaborative co...

The Sharing Economy, Collaborative Consumption, and Efficient Markets through Tech Dr. Bharti Motwani 1  Section 11.1: Learning Objectives 1. Recognize firms often categorized as part of the “sharing economy” or participating in “collaborative consumption.” 2. Gain a sense of market size, impact, investment, and business valuation in these sectors. 3  Introduction Technology allows diverse product and service providers to connect with consumers. Offers far greater reach and efficiency than traditional markets. Efforts are enabling a generation of “citizen suppliers.” Product owners become providers of rentals. Rooms (Airbnb) Cars (Turo) Boats (Boatsetters) New class of micro-entrepreneurs providing personal services. Car rides (Uber, Lyft) Pet sitting (Rover) Meal prep (Feastly) Home services (Care.com, Angie’s list, Handy)  Introduction (cont’d) Some firms are buying inventory and renting it out. Rent the Runway with dresses Zipcar with autos Chegg with textbooks These categories of products are “collaboratively consumed.” An individual takes possession of an item for a period of time and then returns it for use by others. Consumers collaborate as financiers, pooling capital to back projects (Kickstarter, GoFundMe) and provide loans (LendingClub, Kiva). Internet-enabled market makers. Roots in eBay and craigslist.  Some Examples of Firms Often Characterized as Part of the “Sharing Economy” or “Collaborative Consumption” Goods: Pre-owned: eBay, craigslist (peer-to-peer supplied); thredUP (firm- owned inventory). Loaner products: Zilok (peer-to-peer supplied); Rent the Runway, Chegg (firm-owned inventory) Custom products: Etsy, CustomMade. Services: Professional services: Upwork, crowdSPRING. Personal services: Angie’s List, Handy, TaskRabbit. Delivery: DoorDash, Grubhub, Instacart, Postmates (self-employed drivers for restaurant or grocery delivery), Drizly (drivers and alcohol inventory owned by suppliers).  Some Examples of Firms Often Characterized as Part of the “Sharing Economy” or “Collaborative Consumption” (cont’d) Transportation: Transportation services: Uber, Lyft, Didi (cars supplied by drivers). Loaner vehicles: Turo (peer-to-peer supplied), Zipcar (firm-owned inventory). Places to Stay: Office space: LiquidSpace, ShareDesk (peer-to-peer supplied inventory). Places to stay: Airbnb, HomeAway, Couchsurfing (peer-to-peer supplied inventory). Money and finance: Money lending: LendingClub, Kiva, Prosper (peer-to-peer loans). Crowdfunding: Kickstarter, GoFundMe, Indiegogo (peer-to-peer capital).  Section 11.2: Learning Objectives 1. Identify the factors that have contributed to the rise of the sharing economy. 2. Understand the competitive factors that influence success in marketplaces that support collaborative consumption.  Share on! Factors Fueling the Rise of Collaborative Consumption Many sharing economy firms were born during a prolonged, worldwide economic recession. Stagnant wages have boosted consumer interest in low-cost alternatives. Encouraged a whole new class of lay people to offer services for hire. Many of the services also have an environmental benefit by fostering reuse and diminished consumption.  Winning in Electronic Markets Early players gain scale, brand, and financial resources. Technology allows for peer-to-peer supply without need for inventory. Airbnb doesn’t own its hotel rooms. Uber and Lyft don’t own cars. Some services do oversee inventory to gain more control and offer higher quality. Rent the Runway packs product for delivery, runs a massive in- house garment cleaning effort, and retires dresses that are noticeably worn. In fragmented markets, marketplaces extend the value chain by connecting suppliers and customers with search and discover, scheduling, payment, reputation management and more.  Social Media for Virtuality & Trust Strengthening Word of mouth through social media accelerates the growth of the sharing economy. One survey reported that 47 percent of participants in the sharing economy learned about the services they used via word of mouth. Uber has proved inherently viral. Every seven riders attracts one new Uber user. Uber coupons to attract friends 91% recommend the last service to a friend or colleague. Social proof: Positive influence created when someone finds out that others are doing something. Drivers and customers link to lyft through their facebook accounts. Some concerns include trust and safety issues. Audit trails help with trust. Ratings can help with trust, safety, and service but ratings can also reflect a crowd’s bias and reinforce discrimination.  Can You Share Nice? Challenges of Safety and Regulation Instilling trust doesn’t mean that firms are without safety issues. Participating in the sharing economy raises questions for insurers. Will firms pay out if there is a “sharing economy” incident with a supplier, or will they try to refuse? Some sharing economy firms offer service providers additional coverage and protection guarantees. Some governments have explored additional insurance regulation for sharing economy participants. Many local firms also benefit from taxes and regulatory fees from industries threatened by the sharing economy. Groups opposed to new, rival efforts can represent very powerful lobbies.  Can You Share Nice? Challenges of Safety (cont’d) Another major concern for firms in the sharing economy is uncertainty around the ability of these firms to continue to consider their workers as independent contractors and not employees. If improperly classified, employees may not receive important workplace protections: Minimum wage Overtime compensation Unemployment insurance Workers’ compensation The issue has gained the attention of state and federal agencies and presidential candidates, and raises the specter of class action lawsuits.  WePay Winning Big: Processing Payments and Taming the Crowd Through “Social” Security WePay is a firm that has stepped up to offer simple payment solutions that specifically target the challenges of buyer/seller platform operators. WePay combats challenges in several ways: Veda fraud-fighting technology analyzes social profiles to get firms up and running with payments in a streamlined process. Has transaction history from hundreds of thousands of customers currently sending billions of dollars a year through the firm’s systems. Machine learning technology continually update the firm’s fraud models to adapt to new patterns it uncovers. WePay makes adding payment capabilities to any site as easy as embedding a YouTube video, with a cut-and-paste of pregenerated code.  Section 11.3: Learning Objectives 1. Identify and give examples of how large firms are investing in, partnering with, and building their own collaborative consumption efforts. 2. Gain insight into the advantages of collaborative consumption firms for traditional industry players, and enhance brainstorming skills for identifying possibilities for other firms.  Future Outlook: Established Players Get Collaborative Alphabet & Toyota: Invested in Uber Alphabet and General Motors: Invested in Lyft Volkswagon: Invested in Gett (Get Taxi) Apple: Invested in Didi Condé Nast: Invested in Rent the Runway Source: Walgreens: TaskRabbit partnership solomon7/Shutterstock.com IBM: Worked with Deliv Avis: Acquired Zipcar Source: tanuha2001/Shutterstock.com Source: rvlsoft/Shutterstock.com  Section 11.4: Learning Objectives 1. Understand how Airbnb has built a multibillion-dollar sharing economy firm. 2. Recognize the appeal the firm has for suppliers and consumers. 3. Identify sources of competitive advantage and additional challenges as the firm continues to grow. 4. Understand how technology can build trust, even in an area as sensitive as selling stays in private homes.  Airbnb—Hey Stranger, Why Don’t You Stay at My Place? Multibillion-dollar hospitality industry empire. Over 200 million guests have stayed with Airbnb so far. With listings in 81,000 cities and 192 countries, there is no other single hotel group that approached the firm’s worldwide reach. Listings include: Castles Yurts Caves Water towers Private islands Igloos Glass houses Tree houses Figure 11.3: Unique Airbnb Properties  Airbnb—Hey Stranger, Why Don’t You Stay at My Place? (cont’d) Trust is essential for the sharing economy to work. No one is anonymous on Airbnb—guest identity is verified via a two- step process. The firm offers a $1 million guarantee for hosts, secure payment guarantees, and 24/7 support phone service. Airbnb monitors transactions and communication at deep level: Reservations Payment Host/Guest communication Subsequent reviewers Technology hunts for scams  A Phenomenal Start, but Not Without Challenges In many areas where Airbnb operates, providers of the service are breaking the law. Running a business in an area not zoned for it. Health and safety laws governing hotels require things like sprinkler systems, exit signs, and clean towels. Competition threat, including HomeAway. Several hotel firms have experimented with homesharing, including Marriott, Accor Hotels, and Hyatt. Travel sites like Booking.com and TripAdvisor now incorporate competitors into their search.  Section 11.5: Learning Objectives 1. Understand the appeal of Uber both to drivers and consumers. 2. Discuss how Uber leverages technology to radically improve on the service and cost structure of traditional cab and limo services. 3. Understand the implications of executive behavior and harmful corporate culture on the firm, its hiring prospects, investors, and customers. 4. Recognize how technology also empowers a data-driven enterprise that crafts strong and deepening competitive advantage over time.  Uber’s Wild Ride: Sharing Economy Success, Public Company Concerns, and Lessons From a Fallen Founder Uber had raised $21 billion so far, and boasts a private valuation of over $70 billion. Uber claims to create over 50,000 new jobs a month, nearly all are drivers. Uber drivers do better than taxi drivers in both flexibility and pay. Uber services: Trust and convenience. Customers summon their ride with the tap of a smartphone app. Riders can also set their pickup and drop-off destination and get a fare quote for their trip. All payment is handled through an app.  Uber’s Wild Ride: Sharing Economy Success, Public Company Concerns, and Lessons From a Fallen Founder (cont’d) Product-market fit: A key concept in entrepreneurship and new product development that conveys the degree to which a product satisfies market demand. Successful efforts should be desired by customers, and scale into large, profitable business. Runs a lean cost of doing business: Eliminating the capital cost of a fleet (cars are owned by drivers, not Uber) Customer feedback reduces the cost associated with auding driver quality and provides a continual evaluation of performance. Customers regularly complain of one downside—surge pricing: Uber raises prices where supply doesn’t meet demand to encourage drivers to work.  From Rebel to Revulsion: When Uber Behavior Became Hostile and Required Big Change Problems began piling up: Strikes by drivers, protests by the taxi industry, aggressive political push-back. Accusations of the theft of self-driving car tech. Dishonesty began to be seen as an Uber cultural trait. Rival Lyft accused Uber of unethical behavior, including calling and canceling Lyft rides to crater the efficiency. Culture shown to be hostile to women and minorities. Had been hacked, exposing personal data of 57 million riders and drivers. It's unclear just how damaging the fallout has been for Uber. Network effects may make customers stick with a firm, even if they'd rather not remain. Talent and the fundraising wallet may be far stronger in pushing a firm to recognize and deal with repellent behavior.  Tragedy, but Tech Raises the Safety Bar Technology helps Uber keep a high safety bar. Uber app knows who the drivers are at all times, who was picked up, and where they were taken. Bad performance are exposed and customers (and drivers) empowered to shine a spotlight on what might have been previously hidden. Collectively, this offers a safety bar conventional cabs Source: Tero simply don’t offer. Vesalainen/Shutterstock.com Uber continues to invest in new technologies: Exploring voice recognition and biometrics to further strengthen driver verification. Implementing a panic button linked to emergency services.  Uber : Driven by Data Employs mathematicians with PhDs in nuclear physics, astrophysics and computational biology. The staff optimizes algorithms to determine number of drivers, where demand is, and dynamic pricing. “God View” is a software system that shows maps, cars, locations of customers. Uber’s massive data haul allows it to cut prices and attract drivers to power continued growth and expansion.  APIs to Expand Reach Uber is embedding everywhere in digital world. The firm offers an API (application programming interface) that is essentially a published guideline on how other developers can embed Uber into their own apps. The service launched with eleven partners, including OpenTable, United Airlines, TripAdvisor, and Hyatt Hotels. A new initiative, Uber Health, offers APIs for integration into health care products. Another example of network effects help solidify a firm as a winning platform.  How Big Can this Thing Get? Challenges include: Regulatory concerns Maintenance of quality service Uncertainty of expanding in global markets where competitors exist Analysts differ on Uber’s valuation, but some speculate the firm may be laying the groundwork for expansion into a variety of logistics businesses. Former CEO stated that he sees the firm as a “software platform for shipping and logistics.” Experimented with bike messenger, restaurant, and same-day delivery service. Begun to test its own self-driving car technology. The firm has shown a prototype vertical take-off and landing vehicle that’s a cross between a helicopter and prop plane.  How Big Can this Thing Get? (cont’d) In Uber’ favor are network effects. Riders will choose apps with more drivers. Drivers will make money if they have more riders. Uber’s growth concerns: Rival Lyft put up growth numbers much stronger than Uber’s recent declines. During Uber’s 5.2 billion loss quarter, Lyft revenues were up 72 percent and active riders up 41 percent. Firm has made terrible investments. Auto-leasing program Uber Freight Initiative Sloppy with excessive hiring and has had to cut jobs. 32