Trust Equals Supply in the Sharing Economy

By Brendan Petri

As a recent convert to Trustcloud and the Share Economy, I’ve had a tough time understanding how there can possibly be enough supply in a marketplace like Airbnb to sustain such an active economy.  In my crew of twenty-something friends, it seems like someone is always renting a place on Airbnb, but comparatively few of these same friends are acting as hosts.  It just seems like less of a risk to rent a place from someone than it does to rent out your place.  Staying at a cool apartment in Austin for a bachelor party?  Fun!  Renting your SoHo loft to five guys for a bachelor party?  Potentially-not-so-fun..

Having majored in economics in college, this observation on the Share Economy gave me pause.  No market can function–let alone flourish–with such a mismatch in supply and demand.  Without a supply of Airbnb suppliers somewhat in line with demand, the market’s equilibrium price would be too high, and it would crumble in the face of viable substitution options (hotel rooms, anyone?).  So, the economics geek in me wanted to know: where the heck does the supply come from?

A recent cover story in the Economist (“Peer-to-peer rental: The rise of the sharing economy”) helped me understand the source of supply.  Turns out it’s from repeat hosts: “Airbnb says hosts in San Francisco who rent out their homes do so for an average of 58 nights a year, making $9,300”.   The average host must be pretty damn satisfied with his/her experiences.

Brian Chesky backed this up with his claim that “Airbnb hosts in NYC make $21,000 a year on average, and some even up to $100,000 a year”.  Repeat suppliers are also the norm at RelayRides, where “car renters generally earn enough to cover their monthly car payments” and some report purchasing extra cars solely for the purpose of earning money by renting them out.  It stands to reason that these individuals are a) not suffering excessive anxiety from renting out their homes and cars, and b) earning a worthwhile profit from their activities.  Otherwise they wouldn’t be hosting a second time, let alone 58 times.

The sheer size of the Share Economy and specific markets like Airbnb and RelayRides suggest that these renters are not just starry-eyed members of the asset-light generation, but are rather a new breed of individuals who have determined how to leverage trust to repeatedly and profitably participate on the supply side of the sharing economy.

In social marketplaces like Airbnb, we must rely to an extent on the generally good intentions of those around us.  This does not seem like such a leap of faith when examined in light of activities that pretty much everyone does without much thought, like drive a car.  Are there jerks out there who drink a dozen beers and then drive home, endangering the lives of everyone on the road?  Absolutely, but these types are rare enough that we drive our cars without much worry.  Likewise, those individuals hosting for an average of 58 nights per year have learned that vandalism and other horror stories represent a managed risk to suppliers in the Share Economy.

Perhaps more to the point, they’ve learned that relatively minor damage to property (like the RelayRides renter who had his sunroof left open in a rainstorm) may be inevitable, but is more than offset by the profits to be made in the Share Economy.  Furthermore, these risks can be mitigated by using common sense and information provided by services like TrustCloud to root out bad actors prior to a transaction.  To revisit our drunk driver analogy: don’t we all drive a bit more defensively at 1am on New Year’s?

Miles Spencer has an interesting observation on the increasing importance of the quality of information and the speed with which we obtain it.  “Not so long ago, information was valuable for a lot longer” he correctly asserts.  Nowhere is this more true than in the Share Economy, where everyone is only as trustworthy as their last transaction.

As the Share Economy continues to develop, the quality of information suppliers have on potential customers’ trustworthiness will determine the economy’s potential for the economy.  The velocity of this information will prove just as important.  By offering clarity and transparency to the Share Economy, Trustcloud aims to remove the mental hurdles keeping people like me from participating on the supply side, helping trustworthy people become more active participants, and improving the market for all involved.

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