Today’s dispatch: What does it take to create a successful “Airbnb-style” company?
Collaborative Consumption, aka the “Sharing Economy“
Unless you’ve been hiding under a rock, you know that “collaborative consumption” is all the rage. Whether it’s peer-to-peer marketplaces for housing, transportation, services, or old clothing — the idea of using technology to facilitate economic transactions between two individuals (rather than between consumers and companies) is coming into its own.
The Airbnb of Anything: The Growth of P2P Markets featured leaders in this fast-growing industry talking about their challenges, and what they’ve learned along the way.
The key takeaway? If you want to be successful in this space, you need to solve two problems: fear and inventory.
The first problem: Fear
The first problem is simple: People are afraid to trust strangers.
This point seems obvious, but, as Lauren Anderson, Innovation Director for Collaborative Lab, pointed out, in some ways these new peer-to-peer marketplaces are actually a return to what’s been “normal” throughout human history (albeit with a modern technological twist). How long have we been trading and bartering? Quite a while. The difference is that it used to happen in small groups, where each individual could be assumed to have good intentions, and social norms encouraged collaborative behavior.
What companies like Airbnb (represented on the panel by Joe Gebbia), TaskRabbit (represented by Leah Busque), and thredUP (represented by James Reinhart) are doing is essentially recreating these small communities of like-minded users, and developing social norms and enforcement mechanisms to police behavior.
What mechanisms work?
As Busque made clear, we need innovation in the “trust space” for these markets to fully succeed. But, there are options right now:
- Set up a good vetting process. TaskRabbit, a peer-to-peer marketplace for personal services, has a four-step vetting process for its new “Rabbits.” There’s a social security check, a background check, and various quizzes and training.
- Allow people to build a reputation. Ideally, you want many of the market participants to be repeat players, who can build a reputation over time. Options here include ratings, reviews, social proof, and gamification. And it’s important to consider both recent and historical reputation. At thredUP, a marketplace for used kids’ clothes, for example, users receive an overall rating and a separate rating for the three most recent transactions.
- Tap into existing social information. As sites begin to integrate with Facebook, they’re finding that users who connect up their “real life” Facebook profile are more trusted, and ultimately make more money.
- Don’t be afraid to enforce norms. TaskRabbit has a “two strikes and you’re out” policy, whereby users are banned from the site for two instances of bad behavior (not showing up on time, doing a lousy job on a task, etc.). Airbnb has a team of customer service people and a community on the ground to enforce cooperative norms.
All the panelists agreed on one thing: The need to match your “trust systems” to the transactions you’re facilitating. Are you inviting a stranger to stay at your house, or to pick up your drycleaning and deliver it to you personally? Those transactions require a higher level of trust than buying used kids’ clothing.
The bottom line: People will try to screw you over, and, if there’s more money at stake, they’ll try harder. Setting user expectations (and making it clear that each individual market participant has the obligation to do a “gut check” on every transaction) can go a long way towards avoiding problems down the road.
The second problem: Inventory
The second big issue if you’re trying to start one of these marketplaces is more mundane: getting enough inventory on both sides of the equation.
If you’re TaskRabbit, it doesn’t do much good to have tons of people waiting to run errands, if there’s no one on the other side looking for errand-runners. Similarly, with thredUP or Airbnb, you need both buyers and sellers.
What to do?
How can you build a marketplace when you’re just starting out?
- Busque suggested really nailing down one side of the equation first. In TaskRabbit’s case, they had plenty of potential Rabbits, which enabled them to focus their customer acquisition on the Rabbit-employing side of the equation. To stay afloat while the market developed, they rolled out the service in specific neighborhoods/zip codes in Boston and San Francisco. They measured activity at the neighborhood level, and found that more traffic in a particular ‘hood lead to faster growth rates, as word spread via word-of-mouth.
- Reinhart agreed that it’s critical to get one side of the equation sorted early on, but thredUP took a totally different approach to developing their marketplace. Rather than going hyperlocal, they focused on developing a nationwide supply as quickly as possible, so the geographic dispersion of their user base gave them a critical mass of clothes.
- Finally, Gebbia emphasized that it’s fine to do things in the beginning that don’t scale. in the early days of Airbnb, they found 100 passionate users in NYC, and talked to all of them individually about what they liked and disliked about the service. Scalable? No. But it got them passionate brand advocates, who loved the service and wanted to share it with all their friends.
Where is collaborative consumption heading?
Everyone agreed that it’s early days for the collaborative consumption industry. A few broad trends:
- Continued geographic expansion. Nearly 75% of Airbnb’s business is overseas, and TaskRabbit gets requests all the time to expand into other countries (their goal: to disrupt labor markets on a global scale).
- Expansion into mobile. When you can take a photo of your couch, instantly upload it to a neighborhood resale site, and sell it in a few hours, why bother with the hassle of listing it on eBay? Mobile apps bring the “right now” ability that’s very compelling for a lot of these marketplaces.
- Re-commerce. As consumers become more likely to resell garments and other items, companies have the potential to help them do so (capturing some of the resale value in the process). An early example is Patagonia, which facilitates the resale of its garments.
- A shifting legal and political landscape. Right now, there’s a gap between our 20th century laws and these 21st century companies. Established industries are reacting in different ways. With car sharing, large car companies are getting in the game (see GM and RelayRides). However, on the hotel side, existing companies are lobbying to limit the supply of peer-to-peer rentals, protecting their own profits in the process.
At the root level, these peer-to-peer marketplaces are creating opportunities that didn’t previously exist — from micro-entrepreneurship to sharing and using resources more efficiently.
They can also facilitate interactions that couldn’t easily occur previously. For more details, check out our profile of SideTour, a peer-to-peer marketplace for “authentic experiences.” Call it the Airbnb of experiences!
Where do you see the collaborative consumption industry heading in the next few years?
Alison Monahan is a web developer, turned lawyer, turned entrepreneur. She runs The Girl’s Guide to Law School and co-founded the Law School Toolbox. You’ll find her on Twitter at @GirlsGuideToLS.