If you live in one of Central Canada’s biggest cities, you may already have seen them. There are now 1,000 rentable Bixi bicycles in Toronto, 100 in Ottawa and a remarkable 5,000 in Montreal. Even more impressive is the Vélib’ system in Paris, whose 20,000 two-wheelers constituted the world’s biggest bike-sharing system until recently. The city of Hangzhou, China, however, has now shattered that record, with 61,000 publicly shared bikes—and plans for even more.
In each of these cities, self-service bike stations are dispersed around town, from 10 in Ottawa to more than 1,000 in Hangzhou. The idea is that riders can hop among these stations, paying a fee to take out a bike at one and drop it off at another.
Bike-sharing services are part of a burgeoning trend called “collaborative consumption”—a movement toward sharing and renting rather than owning—that’s creating opportunities across a diverse array of sectors. Several exemplars of this new breed of company are already doing a substantial volume of business. For example, Public Bike System Co., the Montreal-based firm that owns the Bixi networks, reported $51 million in revenue for its fiscal year ended January 31, 2011, and $1.5 million in profit. Two years after launching with a single system in Montreal, the company has expanded fast outside Canada, adding networks in Minneapolis, Washington, Boston, Melbourne and London.
And Zipcar Inc., which pioneered sharing four-wheelers for as little as an hour at a time, has achieved even greater scale. Cambridge, Mass.-based Zipcar’s revenue topped US$186 million in 2010.
Of course, renting and sharing are nothing new. What has changed dramatically over the past few years is the expansion of this type of business into a long list of sectors in which it wasn’t previously financially viable. This proliferation of sharing-based services could spell an opportunity for you to launch a new business or add a new line to an existing one. But it could also threaten your revenue base by allowing consumers to avoid buying the things that you sell.
Collaborative consumption is about far more than just bikes and cars. I-ella.com, which features web pages for loaning, borrowing and swapping clothes, urges consumers to “Share your closet.” For more formal affairs, there’s Bag Borrow or Steal Inc., which rents designer handbags—as well as jewellery, watches and sunglasses. ThredUP Inc. offers parents a way to swap clothing that their kids have outgrown, and Rent That Toy! operates a similar service for children’s playthings. Airbnb Inc. provides people with a convenient way to rent out rooms—or even their entire homes—at nightly rates. And for the more cash-strapped, there’s CouchSurfing International Inc., which globetrotters use to find kindred spirits with available sofas.
Zeynep Arsel, a marketing professor at Concordia University in Montreal who studies collaborative consumption, says this is a “crystallizing moment in history” for the trend. She says the Internet, a growing green movement and a recession that has induced more people to watch their wallets have together created a collaborative-consumption trifecta. Although the trend kicked off three or four years ago, says Arsel, it has now reached the point at which “it’s becoming a legitimate marketing phenomenon.”
None of this would have gotten off the ground without the Internet. Now, instead of buying an expensive power tool that you’ll use again rarely or never, you can just borrow it through Zilok.com. Type in your location and what you’re after, and the website will fetch your options, along with pricing and availability. The web has made it that simple: people can post items freely and instantly, and today’s rapidly advancing search tools make it easier than ever to dig through massive, ever-expanding directories and find the closest person who’s willing to share what you need.
What’s more, sharing is green. Having dozens of people take turns sharing a product—say, a pressure washer to remove old paint from concrete floors—uses up fewer resources than if each person were to buy his or her own. Still, how important is green thinking in the rise of collaborative consumption? The problem is that while some people are genuinely motivated by wanting to do the right thing for the planet, many others talk a good game but don’t follow through in their behaviour. And there’s no hard data available on the split between the two groups when it comes to sharing-based services.
Arsel says that although a desire to be green is one of the drivers of collaborative consumption, many marketers mistakenly assume that it’s the principal driver. But, she says, a series of interviews she has conducted with active users of sharing-based services suggests that being green is less of an incentive to use them than convenience and saving money.
Just as there’s more than one factor driving collaborative consumption, there’s more than one business model. Tomasz Tunguz, a principal at Menlo Park, Calif.-based VC firm Redpoint Ventures Inc., identifies two: business-to-consumer (B2C) and peer-to-peer (P2P). Tunguz says the first wave that got rolling three or four years ago was primarily B2C.
Zipcar is a prime example of B2C in that the company owns the product and the consumer deals directly with the company, not other consumers. While Zipcar has similarities to traditional auto-rental firms, there are marked differences. The firm has a flat rate that includes gas, insurance—the whole shebang. It will rent by the hour: just $8.75 for 60 minutes in a Mazda 3 in Toronto. Zipcar aims to be a lifestyle choice: you’re a member and frequent user; it’s your go-to for big grocery trips. And you can make a reservation mere minutes in advance, a feature that would have been far too pricey to offer with pre-Internet methods.
Still, it’s P2P that Tunguz sees leading the current second wave. In this model, customers deal directly with one another, with the company acting as an intermediary that provides a platform allowing people with compatible goals to connect. For instance, I-ella.com provides a means to share clothes and, in return, collects a 10% transaction fee. Such businesses often have slow starts, living or dying by word of mouth. But they’re ultimately less risky and far cheaper to run, since users shoulder most of the costs.
This could, however, lead to a market oversaturated with competitors, as barriers to entry are low. That’s why gaining a critical mass of users is, more than anything else, the key to success. Users are the ones who give value to your service; without them, you’re just another website.
For existing businesses, there’s a dark side to all this sharing. Tunguz says discount retailers could face new competition as bargain hunters discover a new money-saving tool. And sharing sites could also threaten brand loyalty, says Giana Eckhardt, a marketing professor at Suffolk University in Boston. Take sites such as Bag Borrow or Steal that let people rent handbags; if you’re just using the purse for a week, says Eckhardt, “you don’t feel like you’re necessarily a Gucci person.”
For these reasons, it may be time to start thinking about beating third parties and rival companies to the punch by adding sharing to your roster. That said, cautions Tunguz, cheaper items won’t be as much of a draw for consumers, who likely won’t change their spending habits to save $5 on a hammer. But they might for a $500 item.
Another thing to keep in mind, especially if you’re going the P2P route, is the issue of trust. How can you reassure potential customers that it’s safe to do business with strangers through your service? Consider what Airbnb went through in July. The San Francisco-based P2P service lets people all over the world rent out their rooms or homes at nightly rates, offering travellers a cheaper and, often, more interesting alternative to hotels. But this summer, an Airbnb member severely vandalized the home of a San Francisco host known as EJ.
“The damage was so bad that EJ’s life was turned upside down,” wrote CEO Brian Chesky on the firm’s blog. “We should have responded faster, communicated more sensitively and taken more decisive action.” Airbnb transactions now include vandalism insurance of up to US$50,000—and EJ received the first payout.
Yet Airbnb did have several safeguards in place, says Lauren Anderson, innovation director at Collaborative Lab, a Sydney, Australia-based consultancy that specializes in collaborative consumption. She points to review and recommendation systems to help weed out fraudsters and vandals. “Until now, Airbnb had a pretty perfect track record,” says Anderson.
Indeed, she sees the company as a real success story. Airbnb, which launched in 2008, struggled at the beginning. But its persistence has paid off. In July, the Financial Times reported that Airbnb was valued at US$1.3 billion.
When Collaborative Lab consults with entrepreneurs who are interested in getting into a sharing-based business, says Anderson, “We look for that kind of determination.” With it, she says, collaborative consumption will become big enough that sharing will one day be just as easy as going to the shop and buying something new.