The Dark Side to the Collaborative Economy

Graffiti alley at night
As part of my ongoing coverage of the Collaborative Economy (read all the posts) it’s important we explore all facets of this disruptive trend to corporations, not just upsides, but the downsides as well.  I also see that “marketplace friction” is a sign of the disruption that occurs as power changes hands, which should make the seasoned web strategist want to look closer.

If you’re from the sharing movement and are offended by this post, my opposite of this post is The Three Drivers of the Collaborative Economy, where I documented over a dozen specific attributes that are driving this movement.  Please read it.  While the recently published Report on the Collaborative Economy lists the key challenges continues to obtaining traction, let’s focus in at a deeper level on what’s counter-acting this market, and look at both sides objectively.

Index of Challenges: The Dark Side of the Collaborative Economy

  1. It might be illegal.  In some cities, it’s against the law to act like a business if you’re not one.  Amsterdam ruled that unlicensed hotels (houses) were not legal.  We’ve seen similar rulings in cities like New York and Berkeley.  It’s difficult to move forward if sharing has been deemed a criminal behavior.
  2. New is better than used.  No more unwrapping new videos.  You’re getting nothing but hand-me-downs for the rest of your life, Johnny.  New products have their appeal.  They’re shiny, unbroken, and devoid of anyone else’s grimy fingerprints.  New cars, houses, clothes and even baby toys have intrinsic value over sweaty, beaten and ‘proven’ older products. Imagine an AirBnb, which provides value-added services of security, food, concierge, and of course, that coveted mini-bar, versus hotels.
  3. The sharing mindset challenges traditional values.  Call it hippy-dippy; call it radical liberalism; call it anti-consumerism; call it the anti-thesis of what a healthy society is built on; call it whatever you want.  Not only will society cause those who don’t share to feel selfish, the very core values of some Western societies are rooted in owning a three-bedroom house and white picket fence a sign of success of, reinforced by marketing to “live the dream.”  The mindset of sharing with others challenges the very values and principles that many consumers and business owners have been taught to fight against.
  4. Traditional business models are threatened as the crowd becomes empowered over institutions.  Undoubtedly, existing corporations are being disrupted by this burgeoning trend that enables the crowd to be their own company, bypassing corporations.  Corporations are left with a burning question that keeps them up at night: “What role do we play if people buy once and share many times with each other?”
  5. Governments balk in order to defend taxable revenues.  Across the world, we’re seeing governments at the local level, and sometimes federal, resist the sharing of homes or cars, as it radically disrupts business models, taxable revenues, security, transient guests, and existing institutions.  I assume that most lobbyists are gearing up, funded by corporate backers, in order to take these battles to court.  Even in San Francisco, new rulings will be unveiled next month.
  6. Service providers could be deemed a second-rate marketplace.  Second rate hacks now posing as professionals?   Professionals at hotels, restaurants, service firms and staffing agencies will tell you that their workforces are better than those found at on-demand marketplaces like oDesk or Taskrabbit.  They’ll claim that their workforces are full-time professionals, working full-time, not stay-at-home part-time workers.
  7. Concerns over public safety and quality control leave regulators reeling.  Berkeley showed concerns that transient migrations of guests to neighborhoods could be a public safety hazard.  Furthermore, as startups like Feastley arise that enable anyone with a kitchen to act like a restaurant, concerns over food safety arise.  In a morbid case study, accidents and deaths in car sharing led to great concerns over safety, as unlicensed drivers act like taxi drivers, putting those around them at risk.
  8. Legal liability is challenged as ownership and access models are diluted.  Who’s liable if a car is shared, rented, or borrowed and then crashed by a stranger?  That is an example of the questions posed by insurance companies that the legal sector and owners of assets will face.  While websites like RelayRide offer insurance policies up to $1 million for autos, will that cover a tragedy caused by users of this service?
  9. Lack of spending reduces the overall market, impacting jobs and the economy.  Forget your silly startup; the bigger issue is that sharing reduces taxable revenues, jobs, consumption and economic injections from consumers spending widely.  If no one ever bought anything again and, instead, just shared, fixed, and made their own products, capitalism as we know it could start to unravel.
  10. Lack of trust in two-sided marketplaces leaves owners at risk.  To quote contrarian, Milo Yiannopoulos, who presented a compelling speech at LeWeb, he “Works hard for his nice stuff and doesn’t want strangers touching it,” (paraphrased) strikes a chord with many. Furthermore, we’ve seen case studies of AirBnb properties being looted or damaged, or cars that were part of the sharing economy crashed.  It’s hard to trust strangers, despite Facebook connect systems.
  11. Collaboration in an economy ripe during recession, but not during a bull market.  Penny-pinching is great during financial struggles, but during times of boom, it creates an undesirable friction, as I can buy new with wild abandon.  Economic disparities aside, the developed nations will discard the silly notion of sharing when, instead, they can own more at will.
  12. Oligarchy is reinforced, as owners rent to the economically deprived.  The rich get richer as those who have the resources to build and fund startups, or the resources that will be used in these marketplaces or used on demand, will continue to generate the money.  In fact, traditional corporations, like car rental companies, have purchased car sharing startups in this space, securing their place in the market.  Venture capitalists and investors, who already stem from the 1%, seal their place in power positions by being owners of the movement.
  13. Excess venture capitalist funding inflates an artificial marketplace.  Those crafty venture capitalists continue to inject funding into startup clones, so their portfolio is also proven to have them covered in the car-sharing market, hotel-sharing market, services-shared market and office-sharing market.  This artificial injection casts traditional business models aside, as startups have one focus:  market adoption, rather than business models that will sustain, as they prepare for an IPO or an M&A exit.
  14. Startup saturation in every category confuses the market.  With over 20 car sharing/renting/on-demand car services available, how does one keep track of who does what?  Trying to invest in the right service leaves those who would consume confused, and creates marketplace churn.  With barriers to entry so low, what’s to stop this market from continual wasteful churn, as everyone tries to do the same thing?
  15. Socialistic values are at odds with free market capitalism.  Boom.  I swore to myself I wouldn’t bring it up in public, but it warrants a discussion.  The collaborative economy, like the internet and social media is a form of socialism where the crowd gains power over institutions.  History is rife with examples of variations of socialism being challenged, not working at all, or in a few cases, working just fine (see Northern Europe).  Nothing I learned in business school prepared me for these radical models where corporations, and capitalism as we knew it, are upended by this radical change.
  16. Lack of standardized reputation systems.  Currently, the startups don’t share reputation systems, and are generally siloed.  While over 50% have deployed Facebook Connect, the ratings and review data of the individual goods being offered, or the owners, are not being shared in a consistent way.  Solutions, like Trustcloud, have emerged, but lack broad market adoption.  (Added this a few hours after I posted
  17. A conduit for the underworld.  There is an emerging black-market in every category, unchecked by regulatory bodies.  Need I say more?

A sign of market disruption is heat from friction as power changes hands.
Friction comes from disruption, which gives us pause to look more closely at market drivers and market resistors.  This growing list illustrates the challenges this market will have to contend with, take head on and overcome in order to become a mainstay in society.  I’ve provided some additional resources that aided me in compiling this list, to which I hope you will add your comments.  The market will fight these challenges for years to come.  We’re just at the very beginning.

Related Resources: Marketplace Friction

Update June 27th: Respected Shareable magazine has joined me in the debate, and posts a worthy response to my critique, please read.

57 Replies to “The Dark Side to the Collaborative Economy”

  1. Wow, this is painting with a huge, uncontrolled brush. Some quick feedback:

    1. the collaborative economy is not against the law. A limited number of specific practices are. Potlucks, clothing swaps, luxury goods rental, coworking, carpooling, hackerspaces, bikesharing, and more have no regulatory problems.

    2. Some may think that new is better than old. Others experience that things made in the past are of higher quality.

    9. We don’t need to worry about sharing destroying jobs. Multinationals who have offshored jobs and replaced workers with technology have already done that plenty. That’s actually one reason sharing is taking off, because corporate American wanted their cake and to eat it too. It wanted no responsibility to labor and to increase sales and profits of their products. But you can’t have a consumer economy without consumers with jobs and disposable income. Don’t blame sharing for job losses. Blame short-sighted capitalists.

    15. Please, sharing is not socialism. Socialism is centralized, state-control of the economy. The sharing we’re witnessing here is encouraged by independent enterprises and engaged in by choice. It’s self-organized, not centrally planned. We do have socialism in the US, corporate socialism, where large multinationals and industries are heavily subsidized, escape taxation, get cheap access to public goods for inputs, and have paid for favorable regulation. US agriculture is subsidized to the tune of nearly half a trillion dollars. As taxpayers, we’re forced to pay those subsidies. Now that’s socialism, not sharing as an individual freedom.

    16. Not anymore true than the traditional economy.

  2. To your point 15, and although it requires a longer debate, you were right to point out “capitalism as we knew it”. There’s a narrative bias in describing what we think capitalism is.
    Capitalism doesn’t require corporations, it merely states the private ownership of assets, with a price mechanism to balance demand and supply. It’s also a a socio-economic system “where the crowd gains power” (to quote you once more).

    It’s the level of regulation (say, on competition —anti-trust— and abilities to form corporations for instance) and government intervention & representation (and I’m not making a political statement here) that makes one capitalistic system different from another one.

    In that sense, a system where people have access to private assets of other people, rendered liquid by a price mechanism (including free, as it’s a price decided by a private party), like the collaborative economy you’re describing is not an anti-thesis of capitalism. For some, it can even be its pinnacle.

  3. Been following this collaborative economy analysis for a while with great interest. Sounds to me like the same arguments made for and against open source in the software realm a while ago. I suspect the same outcome will ensue but I could be wrong 🙂

  4. The worst is #13, where the VCs make this a bigger market than it should be, and ruin it for everyone. It’s like crowdfunding: can be good on a small scale, and will cause terrible repercussions on a grand scale, just because of human nature. Once there are a few bad actors, in comes the government to regulate and ruin it.

  5. Open source, social media, open research, and collaborative economy all follow similar patterns of trials and opportunities as the power shifts to the democratized crowds. Thanks Jerome.

  6. That’s a great point Paul. Perhaps I could better phrase it as “Capitalism as we know it, which is mainly around corporations that dominate the mind share”. This movement shifts to the local.

    This model is still going to challenge capitalism as we know it, as now ownership is shared –not always privatized.

  7. Neal, thank you for the clarity and perspectives. We should chat this over one of our afternoon hang outs. For those that don’t know Neal, you all should, he’s the founder of Shareable Magazine, which you should read if you’re interested in learning more about this space.

    Yup on point 1, you’re right, we only saw this as being unlawful in a few home and car sharing, as well as any DRM issues that have existed since we had VCRs

    2) Agreed. Will vary by market, on older being better than new.

    9) The upside here, is that the collaborative/sharing economy can enable the unemployed to be activated to work, providing they have a skill of value. I may write about this in another post, but not for this one.

    15) I’m seeing folks define this in many ways. Socialism can also mean shared ownership and shared access of central items and resources. This can be government or crowd driven, I’m not opposed to who makes the decision to define this. This warrants further discussion.

    16) It depends on if we count Cragslist into this market.

    Thank you again for the dialog, you clarified great points, but I think we should further discuss 15.

  8. Great post. In contrast to @nealgorenflo:disqus , I do think the collaborative economy destroys jobs, the same way the assembly line or containerization did. Greater efficiency just means you need less people doing the same thing. Innovation is positive, and I’m all in favor of it, but there’s a reason it’s called creative destruction. Take ride sharing / on demand services like Uber. It’s possible that the new convenience of getting a ride will massively increase demand to match the new supply, but who knows? If you’re an old school taxi driver, the next five years are probably not looking good.

  9. Greg, it’s true that greater efficiency generally means less jobs. However, all the things you need to create a product or service are rapidly getting cheaper and cheaper. This will create new jobs through entrepreneurship. As you probably know, big companies are not a significant source of new jobs. Small business and startups are where most new jobs come from.

    On balance, I think individuals and local economies win, and big companies lose (if they do nothing). A lot of people can live on the long tail of products and services big companies can’t afford to go after. Innumerable small niches are emerging where individuals and small businesses can survive.

    On taxis, in San Francisco taxi companies charge drivers $205 for the cab before they roll out of the yard. This is called “the gate.” The hours are inflexible. 12 hour shift minimum. You can make more money on more flexible terms driving for Lyft or Sidecar. You could even rent a car, drive for Lyft, and make more money. Cabbies are doing one of two things. Hate on Lyft and Sidecar. Or switching.

    Still, no one knows for sure what will happen job wise. More research required.

  10. Jeremiah, you’ve done the space a great service by getting critical dialog going. As a nonprofit, we’re definitely advocates, though not an uncritical one. You’ve raised the bar for dialog, and that’s good for the space.

    And now let’s get back to this socialism thing…

    Three quick points:

    -a VC-backed, privately held corporation is capitalism even if it helps people share. I think Paul’s analysis below is useful.

    -I agree, there are more expansive definitions of socialism than I implied in my first comment, but it’s the heavy state control version that Americans are most familiar with and fear the most. And that’s definitely not what’s in play here and it could be damaging, given Americans intense negative feelings about socialism, to call it so.

    -at Shareable, we do cover cooperatives, which we think are a big part of the sharing economy. Cooperatives are financed, owned, and controlled by members (as opposed to management or investors). Some define this as socialism. I define this as economic democracy. But who cares what you call it, coops are often better businesses on many fronts – overall performance, pay to employees, resilience in downturns, and as providers of stable employment. In fact, coops worldwide employ more people than multinational corporations. The US Midwest is the coop center of the US. It’s a half a trillion dollar sector overall (in annual turnover). So there’s a significant chunk of our economy that’s the non-state controlled version of socialism. And a lot of it is in the most conservative part of the country. That’s because coops are extremely practical.

  11. Thanks Arjan for the further information. We’re seeing city governments initially balk (likely due to the anger of the existing taxis and hotels and hospitality industry) then realize there’s an opportunity for a new market to grow, forcing them to collaborative.

  12. As a general comment, I can say that these seem more the Dark Side of the Consumer/Large Scale production economy than Dark Sides of the cooperative economy. I see this as friction points: incumbent models are resisting the (healthy) disruption that can be caused by the adoption of the cooperative paradigm. This resistance of the status quo is due to the lack of adaptiveness that large organizations suffer at today. David De Ugarte work explains pretty well where this is originated http://english.lasindias.com/reduction-of-the-efficient-scale-size-as-the-origin-of-financial-crisis/. Some points (taxation/regulation) make really much sense but I guess that the economy of the future will be much more informal, at least until we don’t introduce new, more abundant, currencies.

  13. I would argue generally that this is in many ways a throwback to a much earlier and perhaps purer form of capitalism – people with goods and services make them available to consumers and they agree on a price. While I don’t think we’re headed back to the days of the American Frontier, this is how things used to be done – you bought what you could, built what you could and borrowed or bartered the rest.

    The grey/black economy which is relatively small in the West but much larger and more common elsewhere in the world used to be the norm. The old universe of boardinghouses is a good example of private citizens making private transactions with little or no official supervision or sanction. In most cases regulation is a relatively new phenomenon – in the old days caveat emptor was the watchword and you were on your own to verify quality, reliability, etc. We can argue pro or con on regulation, but this is hardly a new vision of the risks inherent in transactions.

    Historically we’re in a new world (in the West, anyway) of consumerism. Prior to WWII consumption of luxuries – and we can debate what that means – was limited to a small elite. Generally you bought what you needed, repaired it until you couldn’t anymore and eventually replaced it. Now we’re in a world where consumption has gone way past basic necessities. Much of what you discuss here are non-essentials so changes to the economy caused by this segment probably will be reserved to only a portion of the overall market.

    Finally, on point 15, I would argue that your choice of word is key. I would define the difference between “socialistic” and “socialism” is the former is voluntary and the latter is coercive. The irony of socialistic capitalism is that if it’s a purely free-market exercise between two consenting parties I for one can’t see any problem with it. That it’s collaborative rather than a pure exchange of cash for goods is immaterial – the market exists, buyer and seller agree on the trade and the transaction takes place. Socialism is imposed from the outside by the State – goods and services are confiscated and centralized, then doled out as the people in charge see fit. As long as I can choose to go to a co-op and pick out what I want, or choose a traditional supermarket instead and pick out what I want there I don’t see an issue with it.

    Capitalism adjusts and evolves constantly – this is just one more attempt by the market and the individuals that make up that market to find new ways of doing business.

  14. Jeremiah,

    I love the analysis, if not the name. I wish you’d gone with “sharing economy” or “commons economy” or even “peer economy” instead of “collaborative economy”. One question though–related to JeromePineau’s excellent observation: Why isn’t open source more prominently highlighted as a paradigm of the collaborative economy?

    Open source isn’t even mentioned in your report, despite the fact that community-created products such as Linux, Hadoop, and Git have absolutely disrupted the software market. Newer forms of sharing economies could learn a lot about how to organize and execute from open source communities; but not if open source isn’t included in discussions regarding the collaborative economy.

    I find this same apparent blind spot when it comes to social media. Everyone focuses on the communities found on Facebook, Twitter, LinkedIn, etc. and ignores the much more productive communities driving open source projects. I tell my clients: if you want to learn how to engage communities in productive work, start by looking at open source, not Facebook!

  15. Dan. Great points, you added to the discussion. Noted: We’re mixing shared ownership with shared government on the socialism/social/socialistic discussion.

    3000 years ago, when tribes would share the fire and food, what was that? It was just being social.

  16. Most of these points are the result of any new marketplace emerging where a dominant form of barter was already in existence. We’ve already seen this happen 10 years ago with Craigslist and before that, trading on a street corner.

  17. Ironick17. I don’t want to get too caught up in semantics, as I recall the same debate 7 years ago over social computing vs ugc, vs business blogging, vs web 2.0. If it matters, I explain why the term in the video I did at LeWeb. (link below)

    Great point on Open Source, but it’s part of the known and common web infrastructure now, does it beg mention when we’re talking about business models and new economics? Sure, a driving force, but we found that the ‘internet’ in general (including mobile and social) helped to advance the movement forward.

    http://www.web-strategist.com/blog/2013/06/04/report-corporations-must-join-the-collaborative-economy/

  18. Fair enough. When I share a snowblower with my neighbors (as I do) it’s got a transactional component – collectively we can afford a better and more powerful machine for less money than we’d have to pay individually. The tribes sharing food likewise were being social but also transacting – safety & security, division of labor, etc. but without cash to keep score.

    Bear in mind too that in the old days these social things were under the radar, but now all the government needs to do is jump on a website and watch the business happen. And then attempt to regulate and tax it.

    Loving this discussion, Jeremiah – thanks for starting it up.

  19. I agree that there’s no perfect name. I was just stating my preference.

    On Open Source, though, I have to push back. Why doesn’t Open Source beg mention, when eBay, Craigslist, and Zipcar do? They’re all “part of the known and common”, in that they’ve been around for a decade or more.

    As I said, the reason it is important to highlight Open Source is that other forms of the sharing economy can learn a lot from how Open Source communities do what they do.

  20. That’s quite a list. I will argue that eh new is better mantra is not that strong consider the whole Vintage market built on Etsy. A huge crowd people who happen to be a large part of this sharing based economy are even bigger fans of the vintage (a.k.a. used) is the new ‘New’ market.

    I just wanted to throw that out there.

  21. Jeremiah I appreciate that you presented both sides of a Collaborative Economy, or as others termed it Peer or Shared Economy. While some may want to focus on the positive and others on the negative, we do live in a World with “limited” resources/space. Therefore we are bound to see some businesses and industries move towards such Economy, while others may morph into something different.

    In the example you used for cars and growth of population, car companies understand they will need to adjust and offer flexibility.

    At the end of the day, it is the consumer that will shape the final Economy. They are the ones we are trying to please, and ultimately get them to open their wallets to purchase goods and services. Businesses and Governments may want to try and restrict some of the outcome, but with a greater educated base of consumers around the World, faster technological advancements, you can be assured of one thing: Change is coming!

    I value everyone’s open feedback on this topic, as communication is critical to any business and Society as a whole 🙂

  22. Socialism does not “work just fine” in northern Europe. These years a lot of the welfare state benefits have been rolled back up here, in both Norway, Denmark, Sweden, England and Germany. It can work to a certain extend, but beyond all kinds of side effects start occurring. Like, people on permanent welfare develop depressions and low self confidence because they feel no purpose in their life etc. It’s a big complex situation with no easy answers or solutions. Disclosure: I do believe in altruism, but not in socialism. Socialism is, in many cases, just as egoistic and oppressive as other systems.

    Another issue. The market isn’t “competitive only” and has never been so. It has always been a mix of collaboration with suppliers and employees while competing with companies providing the same product or service. We collaborate vertically and compete horizontally.

    Adam Smith described in his book Wealth of Nations in 1776 how some people produce and sell products in their spare time, and how these products could often be sold much under market price, because the producers did not have to make a living from these products. They had already secured their living through their primary job or business. This situation is exactly what we see today in the open source communities. People collaborate in their spare time because they don’t need to sell the product.

    Most of the time when people say something contradicts the market or capitalism, it usually doesn’t. It is very often just the person saying that, which doesn’t understand the market and capitalism all the way to its roots (no offense meant here).

    The market is an observation, not a construction. The market is the sum of all our actions, be it egoistic, self interested or altruistic, crime, legislation etc. The market is how people behave given a certain set of basic conditions. A free market has very few regulations and leads to one set of behaviours. A heavily regulated market has more restrictions (but it is still a market), and will lead to other behaviours. Heavy regulations usually lead to people circumventing the regulations (like buying stuff cheaper in their neighbour country to avoid taxes on that product in their home country), but that is all part of the market. The communist countries also have markets. Legal markets and black markets.

    A free market can easily contain voluntary socialism (or altruism, more correctly). These two are not at odds. But law enforced socialism is at odds with a free market (but not with a market in general).

  23. Ownership is not shared. Access is shared. By the way, lots of shared ownership corporation exist and has existed througout time. In Denmark it was called “Andelsbevægelsen”, where e.g. farmers all owned part of the dairy that processed and sold their milk. Or shopping collaboratives, where all buyers of a supermarket owned the supermarket together. These are old principles, and can exist just fine within a free market capitalistic system (and do).

  24. And eventually, if a niche has too many operators, some will fail and leave the space to the “correct” number of operators.

  25. Startup saturation in every category confuses the market.

    Sharing is based on need for both the buyer and seller. (see- ‘boarding houses’ or ‘ride shares’).

    Isn’t it necessity that ultimately drives the market and the reason why some rise to the top? Confusion is exacerbated by those who are unnecessary in it as is evidenced by the app stores.

    How long will it take to whittle to fewer, stronger offerings creating a stronger collaborative economy?

  26. Jeremiah: Just remember, you asked for it 🙂

    ON HYPER-CAPITALISM

    Regarding point #15, “Socialistic values are at odds with free market capitalism,” while I agree with the assertion, I’m not sure that it actually applies in this case. If anything, I believe the Collaborative Economy, rather than evolving along socialist lines, will eventually morph into a very rampant, omnipresent form of capitalism that I like to call “Hyper-Capitalism.”

    SMART-ISH

    I think we are just now starting to scratch the surface of the data surrounding our lives. Quantified self aficionados have been trying to crack this nut for a long time, but most of us are typically too lazy to track our personal data. With the advent of wearables and, more particularly, the dramatic decrease in the cost of sensor technology, embedded computing, and low energy data transmission, the day is coming sooner than we may realize when it will be hard to find a product that isn’t “smart” in some way or another. This ecosystem of interconnectivity has far reaching implications for ourselves personally as well as for the most mundane durable goods we purchase for ourselves.

    SKYNET WILL WASH YOUR CLOTHES

    “In a world” (yes, mimicking that movie preview dude) “where you and everything you own and everyone you know and don’t know shares an invisible connection, will the voices in your head also have Facebook profiles?” Maybe. What I can say for certain is that the minute your washing machine is hooked up to “Skynet”, the world gets pretty interesting. What if your washer/dryer opened to the outside of your house as well as the inside? And what if anyone in your village could schedule time to use it, rock up, open the exterior door (it automatically notices their proximity and unlocks itself), and wash their clothes with payment automatically being wired between you two? If we could estimate, based upon your neighborhood’s typical washer/dryer capacity utilization rates, how much your unit would get used and, therefore, how much money you could make off of it, would it help you decide on whether to purchase this Whirlpool lavandería lamborghini? How would you make this purchasing decision?

    WHAT’S YOUR PERSONAL W.A.C.C.?

    Enter the realm of Capital Budgeting. I suppose there are people out there who have budgets and stuff, but they don’t do budgeting like corporations do budgeting. If you’re a corporation, you apply the theories of modern finance (however precarious those VAR models proved to be back in ’08) to manage risk and efficiently allocate capital in a way that maximizes shareholder value. This means taking a look at each purchase in the context of your firm’s Weighted Average Cost of Capital (“WACC”) and determining if it will have a positive Net Present Value (i.e. the value of future cashflows discounted back to the present utilizing the WACC minus the purchase price).

    YES, THIS IS A LITTLE BORING {IT GETS BETTER}

    It’s not my intention to wade into the vagaries of finance in detail, but it bears inspection: if this is how businesses optimize value creation for their shareholders, why do we not employ such techniques in our personal lives? Well, 1) most people can hardly be bothered to get a finance degree in order to run the numbers, 2) the data on future cash flows is nearly impossible to gather, 3) the personal WACC — how the heck would you come up with that? and 4) the things we own just aren’t “smart” enough to pull this off {YET}. I think every one of these barriers is about to be blown away by the combination of embedded computing, networked devices, cloud / big data architectures, sensor ubiquity, and API-driven system interoperability. And a personal WACC, unicorn as it may seem, wouldn’t be too hard to calculate although it would need all kinds of adjustments vis a vis a typical corporate WACC.

    YOUR OWN PRIVATE GORDON GECKO

    If the above assertions eventuate, then the capacity utilization and investment returns of the things you own or are considering purchasing becomes visible. The implications of this are that when you go to the store and look at appliances, hardware, electronics, machinery, etc etc etc you will not only see a price, but you will see, based upon where you live, what your likely payback period is, the IRR of this personal capital expenditure, its NPV, etc. all put into a visual, digestible format than an actual non-i-banker human will understand. At this point, you can start to weigh what you really want to own and what you want to borrow / get access to in the sharing economy. Essentially, the average consumer becomes a capitalist at a very personal level as each purchasing decision gets scrutinized from the standpoint of an efficient allocation of hard-earned cash.

    UTILIZATION OPTIMIZATION FOR PEOPLE

    The minute we start to optimize our ownership of things, we will start to scrutinize how we spend our time as well because, after all, time is money. Or it should be, right? At this point we start to think about our return on that spare hour on a Thursday evening. Or the trip home from the office with an empty car and just enough time to pick up someone’s groceries and drop them off for them ({cough} {potential Waze biz model}). Well, I’m a big fan of this idea. In fact, at Trumio, a startup I’ve co-founded, we are building technology to support human capacity utilization, as cold as that sounds. But the danger is that we lose sight of things that matter. And just as the industrial revolution’s mechanical ethos was often dehumanizing in the extreme, the Collaboration Economy, if not tempered, could have a dehumanizing streak to the extent people’s time becomes a commodity similar to the time someone gets when they rent your new-fangled washer.

    MEANING MAKING

    As I mentioned in a recent Twitter post, “a world of incessant measurement fails to realize the value of things unmeasurable.” I’m really only interested in building an Internet of Skills that optimizes the use of a person’s human capacity if it contributes to the meaning they derive from their work and the fulfillment of their unique potential. I’m even more interested if we can help individuals discover what that potential is. Needless to say, I see a future where biometric data, psychology, and realtime opportunity flow help us identify and do more of the work we are really good at. Work that has value in the marketplace of human endeavor. Work that we find satisfying, enjoyable, or meaningful.

    TO SUM

    Hyper-Capitalism is the state where every aspect of our lives is optimized to produce the highest economic outcome. While I think it’s great, and I’m building tech for it as we speak, I think it’s important that we bear in mind that producing the highest economic outcome is not necessarily equivalent with producing the highest good either personally or vis a vis society. As long as we keep that in mind, I think we’ll do all right.

    “Keep all things in moderation. Including moderation.” –Anon

    @BRADHEITMANN

  27. It is no longer an argument about which system we use, or whether or not the sharing economy is similiar in any way to one ‘ism’ or another, it is just abundantly clear that the capitalist model we currently use is mathematically, economically and environmentally un-sustainable. It’s over. Some people saw this predicament 40 years ago, based on resources being finite rather than due to global warming. Well we all have no excuse but to recognise it now, and whether you agree with human generated climate change or not, it is not open for discussion whether or not we have endless resources.
    Endless resources are what all previous ‘isms’ (capitalism, socialism, communism) are based on. They are all obsolete, but expect to hear the words socialism or communism used on a scale previously un-heard of as the sharing economy gathers pace.
    To debate the sharing concept alongside any monetary system is to base it around it being merely a lifestyle choice as opposed to what it actually is, an initial solution to a pending catastrophy. We will need far bigger solutions than this in the future, but this is a good start.
    Thanks for your post however, I wanted to hear opposing views to it as I do on everything that I am interested in.
    One thing we can agree on is the concerns that I too share in who gets to own this new space. I don’t care in one sense, as in I knew a long time ago that any ideas that will help save the planet will only work initially if it also makes huge profits. The sooner we start changing and realising future possibilities, the sooner the money that the 1% use to invest will become obsolete, just like the systems that their money will help us leave behind.
    There are only so many generations that will allow themselves to be confronted with the crippling, non-sensical dilemna of only being able to adopt planet saving initiatives if it makes profit.
    I am growing in optimism and enthusiasm to the notion that generation might already be here.

  28. Not to be contrarian, but I loathe the “sharing economy.” Not its values or its grass roots concepts (I’m thoroughly in favor of less consumption, less waste, neighborly action, and better allocation of resources).

    No, what I loathe about sharing is that it’s being rapidly turned into a VC-driven method of socializing risk. Uber isn’t interested in actually providing a service — it found a way to operate a taxi service without any of the overhead, guarantees, stability, or many of the costs *of* a taxi service, thanks to the magic of claiming “Well we do it with an app!” After an initially great period, the company has clamped down on driver pay and been caught red-handed talking about spying on and attacking journalists who dare to question it.

    That’s not a “sharing economy” as the advocates of such an approach use the term, but that’s what we’re *getting* in its place. Uber, Airbnb, and a host of other services exist to further destroy the employer/employee relationship. Instead of working for a company that provides insurance, bond, and a guarantee of hours or rates, the hapless schmuck stuck providing these services gets no guarantees in exchange for serving as perpetually on-call hired help to rich Silicon Valley dwellers and their ilk.

    TLDR: I don’t hate what the sharing economy aspires to be, but I can’t stand what it’s transforming into.

  29. As I read this, I can’t help but think about the power of the “invisible hand” in correcting market “darkness”. For example, the collaborative economy is also becoming increasingly a self-aware organism, where people appreciate value (buying a known entity) over hype (funding a “magical” tech product on kickstarter) as well as value of trust (such as third party certifications and renter’s protection on AirBNB).

    In the interim, big business will keep many of the most dramatic changes at bay while the market matures – learning to appreciate the dangers and damages of a fully “open” ecosystem, and implementing the checks and balances where they are needed.

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