When we started this journey to rank and rate cities on contextual use of technology, we identified ten key trends to drive our research agenda. So it was interesting to find analysis about the collaborative economy, which touches on three of these: consumerization, the shift to mobility, and changes in sourcing trends.
Jeremiah Owyang, then an industry analyst from the Altimeter Group worked on ‘Adopting the collaborative value chain’. The collaborative economy is seen as an economic model where ownership and access are shared between people, startups, and corporations. Customers are now sharing information and ideas via social technology, but in future they will be sharing products and services. This will be far more disruptive to the status quo than social media has been so far. We already have a number of ways in which people are sharing services and goods, including Airbnb instead of hotels, odesk as a way of hiring freelancers, and 99 Dresses as an alternative to buying clothes. Social media is, after all, a very good way of putting people who want something in touch with people who have it.
Can these ad-hoc sharing examples work on an economic scale?
The collaborative economy is essentially the next phase of social business. The first phase was distinguished by the disruption of communications, marketing and customer care, as traditional models for all these were turned upside down by the advent of social media. Customers are now starting to use these technologies to buy products and share them with each other. This is clearly going to affect core business models, however you wrap it up. If customers are free to share, then the market is radically smaller.
For example, every car-sharing vehicle leads to 9 to 13 fewer people owning their own car. This means that the average car manufacturer is losing around $270,000 through each car-sharing vehicle. And this has knock-on effects for other industries too: insurance, car servicing industries, parts manufacturers, and those providing car loans. All will see a smaller market for their products through customers sharing products and services.
Of course it’s good news for start-ups who are facilitating the sharing, such as odesk. However, perhaps more surprisingly, the manufacturers are also moving into the collaborative economy themselves, recognising the trend, and looking for ways to work with it. Toyota, for example, rents cars from dealerships, and Patagonia, the high-end outdoor clothing company, has partnered with Ebay to encourage customers to buy and sell its used products, expanding the market for its brand, albeit second hand.
Why should city administrators care?
The primary goal for most city administrators is to improve the standard of living for their citizens. Is that they can do this while reducing the carbon footprint then so much the better. The collaborative economy promises to meet both of these goals. However as we share more the total revenue of companies will decline and with it the tax revenues for city administrations. So they need to look ahead and participate more actively in the collaborative economy is an important strategy for cities. RT meter identifies three models that city development funds can encourage, and therefore be part of the value chain
- The first is company-as-a-service, where the product is offered on a subscription or rental basis, rather than as a product to buy. Examples include Netflix, Toyota’s car rental agreements, and oDesk. Companies believe it makes sense to them and to customers to offer fast-changing products on a subscription basis, so that customers can ‘trade up’ more easily.
- The second model is motivating a marketplace. This focuses on fostering a community around the brand or product, encouraging second- and even third-hand sales within the community. This can act to open up new markets to the company: for example, Patagonia has made contact with young people who cannot afford its goods new, but who are happily buying second-hand on Ebay, and may in future become customers for new products.
- The final model is providing a platform, which effectively taps into crowd-sourcing. Companies make themselves and their products available as a platform on which others can build, whether professional developers or personal users. The idea is that customers work together to create value for themselves and for the company. Ebay is a good example of this model.