Peer pressure

The rise of collaborative consumption has
smart entrepreneurs already investing

There were few who foresaw the rise of collaborative consumption – yet, in retrospect, its rise was entirely obvious. Born out of the global financial crisis, it marries the green movement with the internet to tick plenty of politically correct boxes along the way.

At a time when greed definitely is not good, along comes an idea that is not only sustainable and involves community, but which also has technology at its heart and allows people to make money. In this world nobody gets ripped off, waste is anathema and we all feel great about sharing our assets, spaces, land, houses, time and even money.

Rachel Botsman, a Sydney writer and speaker who has become a global spokesperson for the movement, believes it is as significant as the Industrial Revolution. Its raison d’etre is “disintermediation” – cutting out the friction points (otherwise known as middle men) in the supply chain and replacing them with people-to-people (or peer-to-peer) transactions that match buyers directly to sellers. It’s a brave new world without real estate agents, banks, financial intermediaries, car rental companies or travel agents.

“It’s not just about sharing assets, it’s about recognising that the whole business model we’ve structured and worked with for the past 50 years has become obsolete,” Botsman says.

Australia has an estimated 50 internet sites where individuals with spare capacity have become empowered suppliers. Do you have a spare room in the house that nobody uses? Rent it out to a visiting traveller. Not using your parking space or driveway? Charge a fee for another person to use it. Your car sits idle most of the week? Hire it out to commuters. Driving to Melbourne next week? Why not be a courier?

On the demand side, it’s for those who don’t want to buy a car but might need one occasionally, or for people who’d like to grow their own vegetables but don’t have a garden.

US$1.3 billion: Current estimated valuation of the global peer‑to‑peer private accommodation facilitator Airbnb. – Austin Carr, Fast Company, June 2012

British IT expert Gary Schwartz, who runs jargonfreehelp.co.uk, believes the movement is a natural progression from buying based on credit. “People have worked out from the internet what are the most trusted sources of information,” Schwartz says. “Now they’re working out the cheapest way to do business.”

Many say the movement’s weakest link is its inability to build in trust or creditworthiness. People are reluctant to rent a car to a stranger or hire out a precious belonging that might not be returned.

Botsman counters by saying people are beginning to use social media to identify and verify each other. Your profile on Facebook, Twitter and eBay may become your passport to proficiency and trust. As the sites mature and critical mass is achieved, members accumulate reputation – a more valuable currency than solvency or credit ratings.

Openshed.com.au, which aims to match people’s unused tools to others in need, has 800 members Australia-wide sharing anything from clown suits to slide projectors. So far there has been no abuse of the system, says co-founder Lisa Fox. Her challenge, she admits, is to achieve “hyper-localism” – if someone has a drill on offer in Victoria, how can someone in Brisbane borrow it? The site needs close-knit communities to work.

Fox is working with clean-tech incubator Ignition Lab to build on communities such as schools or local councils, but there is some way to go. So far it’s the non-product assets that are working more effectively, people offering money, skills, space and time – entities not tied to a location.

People are even lending each other money with no bank involvement. In Britain, Zopa is the most reputable social lending site, announcing itself as the place where “lenders get lovely returns, borrowers get low-cost loans and money becomes human again”.

Botsman says the default rate on people-to-people loans is reportedly just 0.9 per cent as a whole. “The social lending sector will be worth US$2 billion by the end of the year, and it’s only three years old,” she says. In Australia it is just beginning at sites like igrin.com.au and lendinghub.com.au.

No doubt the collaborative consumption movement has a long way to go, but smart entrepreneurs and angel investors are already investing. Fox recognises there are still far more bystanders than participants. The movement needs to build trust and critical mass, but to change the world will take nothing less than a full shift in consumer behaviour.

Will the models work?

Collaborative consumption sites may be entrepreneurial, but getting one up and running can test a founder’s patience – not to mention the business model.

Drive My Car trades on the basis that society has many spare cars. Some people barely use them, others are away for long periods. Why not monetise them when not in use?

The sticking point, says chief executive Howard Moodycliffe, is not supply but the mindset. People are reluctant: it’s not like renting out your drill set.

“It’s a different model and we’re still trying to get people to understand it,” Moodycliffe says. He needs more cars and access to them for periods of more than a month. “It costs as much for us to put someone in a car for seven days as it does for six months,” he says. “The sweet spot for us is from one to six months.”

The model competes directly with traditional rent-a-car companies such as Avis and Budget, although Drive My Car says its service can work out to be 80 per cent cheaper than traditional car rental companies. It’s long-term, peer-to-peer car rental model also differs from day rental players such as GoGet, which runs its own fleet and uses allocated parking spaces.

Drive My Car puts an 18 per cent fee on rentals, charging extra for insurance and roadside assistance. A Holden Barina will cost a renter about A$27 a day, a BMW 3-series about A$70. From the owner’s perspective a car’s type, age and number of kilometres on the clock factor into the earnings. The owner of a 2008 Toyota Yaris will receive A$12.50 per day, for a Ford Focus about A$15 and a Toyota Camry earns about A$20.

Another that’s still testing its model is GoCatch, a Sydney-based operation that uses a smartphone app that connects taxi drivers directly with passengers. The driver takes bookings through the app, while the passenger can see the driver approaching on real-time maps using GPS technology.

Co-founder Andrew Campbell says passengers and drivers are being “disintermediated” from the Cabcharge system and taxi call networks. It has about 60,000 signed-up passengers, with job volumes growing “at the rate of 20 per cent a month”. The app offers an electronic audit trail, doing away with receipts, and awards drivers points if they are willing to take shorter fares.

“Earn gold status and we give the driver the longer, more valuable fares,” Campbell says. The company is about to monetise the system – drivers will be charged only for large jobs, between 5 and 10 per cent of the fare.

“So far we have been focused on just making the application work,” Campbell says. “We want to get this right.”