12 Conference Report #techonomy12

Collaborative Consumption and the Sharing Economy

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  • (All photos by Asa Mathat)

Speaker

Arun Sundararajan
Professor and NEC Faculty Fellow, New York University


Sundararajan: It’s really good to be here. This has been a fascinating day. There’s been a lot of rhetoric around collaborative consumption and the sharing economy that I’ve been exposed to over the last year. If one listens to this, it might seem like collaborative consumption and the sharing economy are sort of the panacea for a lot of different things. World peace. Like global warming. It’s going to bring down democracy. It’s going to change capitalism.

My focus today is going to be a little narrower. I’m going to focus on what I and what others are starting to call the peer economy. But just to set the stage, I have a question for you guys, really a poll. Just to sort of give me a sense for where we are.

How many of you have heard of Uber? TaskRabbit? SnapGoods? RelayRides? Girlmeetsdress?

Okay. How many of you have offered up your home as an airbnb share?

I guess this is not the right crowd to be asking that question to, right? A bunch of people at the Ritz Carlton. (Laughter).

But at this point in time, over 40,000 people are staying at an airbnb share. They have chosen this from over 200,000 listings, which is airbnb’s inventory. And to put that number into context, the parent company of the Ritz Carlton, Marriott International, across all of its brands and all of its properties, if my numbers are right, has less than 150,000 rooms in its inventory.

Okay. So you know this—and if airbnb is a little too ritzy for you, there is another site called CouchSurfing. The inventory there is potentially limitless. I hear this one is up for grabs, actually, so you guys better watch out.

So the sharing economy—or what’s called collaborative consumption of the sharing economy—spans not just accommodation, but local transport, household appliances, household services, clothing.

And to me, as someone who is interested in digital disruption, it’s sort of interesting for two reasons. One reason is that it seems to expand the scope of the industries that might be digitally disrupted.

When Napster came along and we got used to MP3s, it didn’t take too much of a leap to realize this was a digital product. It was sort of departing from its physical artifact. There was the distribution channel of scale. So the music industry was likely to be disrupted.

You thought a little bit further. You would say video entertainment is probably going to go as well. Publishing, books, newspapers, magazines.

But, you know, hotels, local transport, household appliances? It’s really interesting, because this isn’t the kind of disintermediation of the real estate broker or the travel agent that the dot-com era brought. What we hear are these physical assets are actually being disaggregated and offered as services, so it’s a whole new supply paradigm. That’s one reason why I find it interesting.

Another reason why I find it interesting is because it seems to be the culmination of three prior digital disruptions. One of which is like commerce going digital, like we’re used to buying something from a digital interface now.

The second is peer-to-peer exchange going mainstream. We’re used to using the Internet as a way of exchanging things across peers.

And the third is the digitization of social, which has increased the level of digital in our lives. Made it more comfortable. Made us more comfortable with it, but more importantly started to bring online some of the real world assets—like reputation, like histories, like social capital—that will be the trust infrastructure for the sharing economy.

Okay. So people call it the sharing economy. They talk a lot about collaborative consumption. I prefer the word “peer economy,” because these are real marketplaces in which people are sort of paying for what they get. These aren’t just things where there’s exchange. These are sort of big marketplaces.

I mean, airbnb did a survey recently that suggested over the last year, their impact on the San Francisco economy was $56 million. This is one city in the United States, which is 25 percent of their listings, and this is one company. At the rate at which they are growing, their growth rate doubled between the end of 2011 and the beginning of 2012. You can see this is going to have scale in terms of its fraction of the economy.

So as an economist, that’s the first reason why I’m interested in the peer economy: its scale.

The second reason why I’m interested in it is because it poses some interesting measurement challenges. Erik Brynjolfsson alluded to some of those this morning. They are sort of similar in some ways. When you’re disaggregating existing physical assets and repurposing them as services, you’re not making the same kinds of capital expenditures that you would make if you set up a new hotel chain or you bought a rental car fleet.

So as a consequence, these aren’t going to show up in the same way in the GDP. In terms of GDP, numbers aren’t going to capture their impact the way they should. We have a measurement challenge there, which is always interesting.

They are also going to impact employment. The number of partially employed people is growing, and like this sort of collaborative consumption and the peer economy is only going to expand that. So that’s the second reason why as an economist I’m interested in the peer economy.

The third reason, which I’m going to spend the rest of my time on, is because the industries where the disruption is happening are also industries in which there is a lot of local regulation. There are these layers of local regulation, and there are some fascinating dimensions to regulation. I’m going to try and go through four of them. Let’s see how far I go.

The first dimension of regulation relating to the peer economy that I find interesting is that ever since I was an undergraduate, there has been some variant of the question: Should a digital intermediary be held liable for actions that are taken on its platform by others?

You know, there was an MIT bulletin board on which pirated software was shared, and we went through eBay and Napster, the file sharing network, all the way to SOPA and PIPA, where digital intermediaries like Google and PayPal were sort of pulled into the conversation as sort of regulatory tools.

Now, you may not be connected to the peer economy, but because it is disrupting industries that are heavily regulated, it’s something that you should pay attention to. Because the case law that will be the precedent for future questions—future answers to the question “Is a digital intermediary really liable for actions that are taken on its platform?”—are probably going to happen in the next decade with these peer economy platforms. So that’s one reason why—one dimension of—regulation that’s really interesting.

Another dimension of regulation that I find really interesting is that, you know, I think of regulation as a form of government risk management. You know? The government is trying to, in this case, sort of ensure the safety of, or lower the risks associated with, the supply of these disaggregated assets in this sort of new service economy.

Now, whenever the government comes close to regulating anything digital, it makes me pause. Makes me worry a little, because, you know, government regulation is often good when things are stable. Because regulation is fundamentally backward looking.

And, you know, in an industry where you need reacting or risk management that is reactive and that is forward looking, firms do a much better job than the government will.

So that brings me to my third dimension of regulation, which is the interest of the market makers, people like airbnb and RelayRides are not that different from the interests of the government. Because the regulation over here is being pointed at the participants in these marketplaces and not at the intermediaries themselves.

The intermediaries want what the government wants, which is to ensure the safe supply under this new supply paradigm, so that safe exchange can take place, like in their marketplaces.

And they’re doing it by the use of digital institutions. Things like eBay are a reputation mechanism. The reputation mechanisms that have emerged around all of these marketplaces that are in some fundamental way playing the same kind of role that physical institutions—like properties rights, like contracts, like access to banking, like courts of law—played in sort of old world economies. They are facilitating seamless exchange.

And because the interests of the private entities involved here are pretty well-aligned with good objectives of government, I think that, you know, we’re at a point where regulation perhaps can be supplanted or supplemented by these digital institutions.

There were a couple of more points that I don’t have time for, including incumbents and leveraging customer goodwill. But I wanted to close with one observation, which is that yesterday we heard that wonderful presentation about the fabulous four.

Given the rate at which this economy is growing, I expect that in the not-so-distant future, there’s going to be, you know, a similar session, but it’s going to have the fabulous five. And the fifth company is going to be airbnb or one of those other companies that is the primary exchange, the primary intermediary, for this newly emerging peer economy.

Thank you for your time. I hope you found it interesting.

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  • Finally, a really thoughtful economic/markets analysis of the potential inherent in this new arena of business/life/world. It helps to have the economic profile integrated with issues of technology and regulation, because they’re all very much in play in the peer economy.

    Excellent article, thank you.