Corporations meeting the challenge of the sharing economy…?

Corporate business plans and market control are being challenged by the expansion of the sharing economy and its “collaborative consumption”. Some corporations are ignoring the challenge. Some are fighting it. Some are creatively joining it. All these responses add up to a complex and rapidly evolving economic landscape that’s not well recognized by the general population.

Co-Intelligence Institute board member Heather Tischbein sent me a remarkable article, “Corporations must join the collaborative economy” by Jeremiah Owyang.  It claims that the growth of what it calls the collaborative economy – the peer-to-peer dynamics increasingly known as “the sharing economy” in my circles – is an inevitable challenge that corporations will have to respond to whether they want to or not.

FORCES DRIVING THE EXPANDING “SHARING ECONOMY”

The article describes a number of societal, economic, and technical developments that are driving the emergence of the collaborative economy. These include supports for connectivity – including increasing population density and people’s desire for community accompanied by the rise of social networking and multi-function mobile devices. Also people’s attitude are shifting: More of them are more altruistic and motivated by a desire for sustainability and for more flexible livelihoods. They feel less need to own things as long as they have access to the services those things provide. Finally, both corporations and citizens are trying to monetize their idle resources, an effort that becomes easier as new payment systems are developed.

I was surprised that this list of forces driving the development of the sharing economy does not include “reduced purchasing power caused by economic downturns, inequity, and unemployment”. It seems obvious to me that when people don’t have enough money, many of them start sharing and working creatively to survive together. The article also does not particularly note that more people are satisfying their needs through doing things themselves – building, fixing, gardening, and so on – both individually and together. Nevertheless, the article’s analysis is quite interesting for the factors it does cover.

Written for corporations by an industry analyst, it naturally focuses on the impact the sharing economy has on corporations. The main impact is that when people share goods and services, companies lose sales and profits. The article considers the example of cars: “Every car-sharing vehicle reduces car ownership by 9-13 vehicles; a revenue loss of at least $270,000 to an average auto manufacturer. The cascading [effects of this have] far-reaching impacts to auto loans, car insurance, fuel, auto parts, and other services.”

In a fascinating sentence summarizing the dynamics of this assault on corporate dominance, the article explains: “Companies risk becoming disintermediated by customers who connect with each other.” In other words, peer-to-peer economic relationships make people less dependent on corporations to satisfy their needs and desires.

The article goes on to describe how the evolution of the Internet has shifted the relationships between sellers and buyers. The first era of the internet (in their analysis) was one-way, allowing corporations to better market their products to more customers. The second era was social, empowering everyone to share their ideas and culture. The third era – what the article calls the Collaborative Economy – empowers customers to share actual goods and services, thereby enabling the previously mentioned peer-to-peer dynamics to undermine corporate dominance.

The article is based on an extensive powerpoint report that includes a fascinating appendix of 200 collaborative economy initiatives in dozens of industries – from familiar car shares and home shares like AirBnb and well-known crowdfunding sites, to less-known sites for renting toys and clothing and for sharing and swapping tools, parking spaces, skills, books, gardens, storage and more. So we find the full report serving as a valuable reference not just for corporate strategists, but for anyone interested in getting more involved in the sharing economy.

 

THE BATTLE BETWEEN CORPORATIONS AND THE SHARING ECONOMY

The underlying issue addressed in the article is, “How can corporations retain market share in a sharing economy?” This question is but one facet of a larger trend described in Moises Naim’s book The End of Power and in my critical review of that book:  It is becoming harder to use and retain centralized power in all sectors.

So in the business sector we find centralized corporate power being challenged by networks through which erstwhile customers share products and services with each other, cutting out corporations as intermediaries. Corporations who have for decades provided those same products and services are variously responding to this challenge with denial, suppression, co-optation, or creatively shifting their business plans to join the collaborative parade.

(As an aside, the article notes that peer-to-peer networks can also create targeted forms market pressure to promote social change. For example, Carrotmob organizes “mobs” to demand sustainable products and then promises to patronize the targeted company if they respond positively. Carrotmobs can even create local businesses. The Carrotmob site proclaims: “In a Carrotmob campaign, a group of people spends money to support a business, and in return the business makes an improvement that people care about.” Interesting approach to activism!)

At one extreme of the corporate responses to all this, we find existing businesses attempting to preserve their business plans and markets by working with regulators and legislators to make certain sharing activities difficult or illegal. We see this in battles over movie sharing, regulations to impede AirBnb-type homesharing, and the prohibition against sharing cars at airports. Although the “Corporations must join the collaborative economy” article and report unfortunately do not mention it, legal challenges to the new economy are being creatively addressed by the Sustainable Economies Law Center, pioneers in law for the sharing economy. I recommend their site, their mind-opening video “Economy Sandwich“, and their groundbreaking American Bar Association handbook Practicing Law in the Sharing Economy.

HOW DO CORPORATIONS PARTICIPATE IN THE SHARING ECONOMY?

At the other extreme of corporate responses to the sharing economy, Owyang suggests that companies can participate by reworking their business plans to include one or more of the following three strategies:

1. Company-as-service: Instead of selling products, a company can satisfy customer needs with a service, or with a product delivered as a service – e.g., through rentals or subscriptions. For example, the carpet company Interface achieved renown as a sustainability innovator by shifting from selling whole carpets to renting out carpet tiles which they maintain by replacing and recycling individual worn tiles.

2. Motivate a peer-to-peer marketplace around the company’s brand. In this case, a company helps their customers connect with each other to co-purchase, resell, swap, or otherwise share the company’s products, extending the use and reputation for their brand. One interesting aspect of this is that users who want a higher priced item can, thanks to the company’s networking services, more easily afford to buy it together and then share it. This dynamic also increases the demand for products that last and can easily be repaired, and for customer support and warranties that cover multiple users.

3. Provide a platform on which customers can co-create, enhance, produce, share, distribute, and evaluate the company’s usual or new products, services and markets – even doing mutual customer support services – with the company sharing the rewards of success with participating customers through profit sharing or free products and services or other awards.

This picture of diverse responses has made me appreciate that there’s more going on here than the sharing economy simply emerging to replace the corporate economy which is collapsing from internal contradictions and external environmental challenges like climate change and peak oil. The next decades will clearly see much conflict, hybridization, and unpredictable emergent phenomena as these different ways of organizing economic activity interact, challenge, and support each other.

THE SPREAD OF THE SHARING ECONOMY

Here are some facets of the emerging sharing economy which I see spreading in ways that give me hope, within which innovative companies may seek niche markets:

  • DOING IT OURSELVES: More people are producing and fixing things themselves, individually and together – through Do It Yourself (DIY) activity, the Maker Movement, repair cafes, the fixer movement, and variations of old-fashioned barnraisings.
  • MORE SHARING: More people are gifting, sharing, and exchanging what they have that satisfies the needs of others – through mutual aid, the gift economy, barter clubs, etc. This is especially done with products that are expensive or mostly sit around in people’s garages or on shelves not being used. Among the side effects of this is greater demand for more durable and shareable products and for support from companies over the lifetime of a product with multiple users.
  • GOOD WORK WITH FEWER JOBS: More micro-entrepreneurs are creating small local or internet-mediated businesses – sometimes simply freelancing their personal services or selling crafts on Etsy.com – rather than working for someone else. This dynamic is part of the “de-jobbing” of the economy and has also stimulated greater sharing of tasks, offices, and retail space.
  • COOPERATIVES: More people are collectively owning and operating businesses through co-ops, community enterprises, and crowdsourcing ventures.
  • PUBLIC CREDIT SYSTEMS: More communities are creating their own credit systems, from local currencies and credit exchanges to crowdfunding and state-owned banks

To varying degrees these activities are transforming the familiar corporate-controlled economy. Corporations fill our needs for goods, services and jobs in exchange for money – and then those corporations use their profits to shape our economic and political lives. In contrast, the emerging “sharing economy” empowers decentralized activity through which people work together to fill their own and each other’s needs, through both collaborative economic activity and participatory democracy. Collaborative networks promise (or threaten, depending on your viewpoint) to replace competitive corporations as the primary organizing mode for economic activity. Collaborative networks also foster efforts to replace elite political parties and institutions as the primary organizing modes of politics.

WE’RE ALL CONNECTED: SUSTAINABILITY AND GIFTING

Owyang’s report focuses on business challenges and market opportunities. It does not highlight the dominant feature celebrated by sustainability activists: the sharing economy drastically reduces consumption. Not only do people need to buy far less stuff for themselves, but we find less centralization and thus less need to transport people and products. Both these factors reduce society’s ecological footprint in terms of waste, toxicity, and climate change. Thus the sharing economy is a BIG factor in building a sustainable future.

Furthermore, the report does not highlight the growing dynamic of “gifting”, whose refreshing logic and power are amply described in Charles Eisenstein’s book Sacred Economics. Owyang does briefly note gifting as an expression of people’s desire for sustainability. But gifting is far more than that, radically shifting the foundational assumptions of economics – from money and exchange (based on assumptions of separation) to generosity and gratitude (based on assumptions of connection). In an economy based on our intrinsic interconnectedness, the role of corporations would become even more intriguing, requiring that they evolve into public benefit corporations (“B-corporations”), co-ops, or non-profit public service organizations – or at least become fully answerable to the public as publicly chartered entities whose activities are periodically reviewed by the public.

But all these dynamics are just getting started. At this stage of our economic evolution, I think it is very wise to encourage leading-edge for-profit corporations to actively, creatively, and profitably participate in the transition to a sharing economy which, in turn, will prepare the way for our further evolution towards an economy more grounded in gifting, relationship, and life.

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