Collaborative Consumption: Challening the Status Quo

With so many different sharing marketplaces emerging over the years, it’s no wonder the collaborative consumption movement is starting to be met with some growing pains and a struggle to find its identity. Having specialized marketplaces for cars, rooms, and even handbag is what has made it so successful, but they’re not without unique problems, ranging from disturbing the status quo, to trusting someone behind your computer screen.

At a glance, the shared economy is a way for anyone to utilize their most valuable assets to make money–assets that aren’t being used one hundred percent of the time, like cars, yachts, spare rooms. At the end of the day though, things like airbnb and Uber are disturbing the traditional way people used to vacation and travel by providing the same service, sometimes cheaper and often times more convenient. This obviously presents a problem: if things like Uber are presenting a cheaper alternative to taxi cabs, what about the taxi cabs?

The hotel and taxi service haven’t changed much since their inception, so a little rocking the boat is great–some good ol’ capitalistic competition. The difference, however, is that people trust hotels (for the most part) and people trust taxis (again, for the most part), if not based on history, than based on the government regulations, licenses and standards these establishments have had to adhere to for years.

That’s where the sharing economy’s growing pains come in.

Hotels and cabs have established brands and trust mechanisms integrated into their everyday existence. The sharing economy currently has people photocopying their driver’s license to confirm they are in fact people. See the difference?

But that’s not to say you can’t trust anyone online. Many specialized marketplaces, like Relay Rides, Rover, Airbnb, Angieslist–and basically every other one–have evolved  to allow users to create specialized profiles, verify their identity, and provide user reviews. This aggregate of their online behavior for services provided enables a potential customer to trust more completely the product that they are going to be receiving.

It’s these efforts of the users to reduce their anonymity online, to be more than a username, that can encourage growth in the market. Things like a trust resume can empower people to project who they are online, and universal measurements of trust such as transparency, community engagement, and longevity are behaviors that have been long rewarded offline, and on.

Your new neighborhood: The Internet

There’s a classic scene that can sometimes pan out on tv, the movies, or even in your own kitchen. You’re baking, but realize you’ve made a grave mistake in not having bought any sugar at the store. Worry not! Your neighbor surely has some sugar. So you grab your measuring cup, walk down the hall, and you knock on your neighbors door. Problem solved.

Now, in 2013, a cup of sugar has become a car (or a babysitter, or a boat, or even a castle), and your neighbor, conveniently, is the internet. In this analogy, the hallway is the sharing economy which has been making noise for a few years now, and shows no signs of slowing down. But how–and more importantly why–did this grassroots, Burning Man-esque movement (if you can call billions of dollars a movement) come to be?

Hiring people to take care of your kids, dogs, and home has been around for a while. But finding things or services that are now common in the sharing marketplace used to be about flipping through the Yellow Pages for a plumber, asking a friend if you could borrow his van, or scouring a rideshare board. That type of searching can be tedious and  often times can lead to compromise–like I need that car back in half an hour–or even substandard work–like “you were supposed to knock out that wall, not this one.” And at the end of the day, the number of acquaintances and recommended handymen are drops in the ocean.

The end of the 20th century gave a solution–albeit a debatable one–for the tediousness of the 10 pound phone book. Craigslist emerged and compiled anything the denizens of the 1995 internet could want: buying/selling of bikes, houses, pets; the exchange of services for cash or goods, and vice versa; and of course jobs and haikus. But the site can often times be cluttered, criminal, and at the end of the day, more tedious than a phone book.

Enter the sharing economy. With the advent of airbnb.com in 2008–and it’s subsequent meteoric rise–a slew of other goods, task, and ride sharing websites emerged as a more specific and regulated way to find the neighbor with the things you need. And over time, as some companies learned the hard way, trusting the micro-entrepreneurs being employed became more and more important.

What the sharing economy has done is expanded the neighborhood and redefined what it means to be a neighbor. There’s a limitation to your personal grasp that the sharing economy eliminates, but also puts under a microscope, ensuring that the people are trustworthy, that they are in fact real people, or that they’re actually delivering what they say they will.

Whether collaborative consumption is here because of a demand for the services, or people not wanting to deal with perfect strangers anymore, who knows. The thing we do know, however, is that it’s here to stay.

Shared Fears in the Sharing Economy

A few weeks ago my girlfriend set up an interview for a nannying position through Care.com. She and the family in question exchanged a few messages via the babbysitter marketplace before agreeing to meet. No more than a few days later, my girlfriend forced me into the passenger seat to drive 45 minute out to the suburbs to meet two elementary aged kids under the hawk-like gaze of their mother.

But why was I going?

The short answer is trust. The long, drawn out answer is that both her and I had a very real fear that this family didn’t exist. That she would walk up to the front door, be greeted by a Hannibal Lector type, then swiftly murdered. Me being there was a sort of safety net: in case this family, whose identity hadn’t been verified through Care.com, did turn out to be a murderer, at least I’d be able to call the police. But not everyone has a boyfriend to holster.

A few weeks later–and a few weeks into her nannying for this very real family–I think about the other side of that equation. Before the family hired her, but after meeting her, the mother paid 60 bucks to have a background check run on my girlfriend. It dawned on me that these people were operating under the same assumption we had. They didn’t want to invite a criminal into their home, exactly like we didn’t want to be invited into a criminal’s den.

And for a very long time this is how many peer-to-peer marketplaces, like craigslist, have operated: in the dim lights of the internet. Things are only illuminated when you go to the Wendy’s parking lot to pick up that lawnmower from SnoBunny58, and those exchanges are proceeded with a looming anxiety that my girlfriend, and her new bosses, both experienced.

Bringing those dark corners of online identity to light has become the goal of many peer-to-peer websites–hence the ability for the mom to run a background check. But online verification and establishing trustworthiness has yet to become the standard, leaving many collaborative consumers sharing not only their possessions, but their fears as well.

What’s Wrong with Airbnb’s New Verified ID System

airbnb-logo_380x271How much information are people willing to surrender in order to improve their own safety?

A pertinent question, given the uproar over the recent NSA leaks over top secret data mining and surveillance programs. Of course, Airbnb is not the NSA, but they’ve been facing a similar dilemma since their new Verified ID system launched at the end of April in an effort to promote trust and safety between Airbnb guests and hosts. Instead, it triggered a backlash among some users and may have done more harm than good.

Basically, the new verification system requires Airbnb travelers to submit a form of offline identification, either their passport or photo ID, along with access to their Facebook or LinkedIn profile in an attempt to match users online and offline identification. Users that do not satisfy the online ID requirements are then asked to submit a short video introducing themselves to other Airbnb members.

Doc Searls, a long-time Airbnb user and aficionado of online identity systems, wrote this blog post recently, titled, “Let’s help Airbnb rebuild the bridge it just burned.” A quick scroll through will give you a good idea of some of the new system’s shortcomings. Ironically, many users cite their unwillingness to buy into the new identification system due to a lack of trust in Airbnb’s online security. Others simply didn’t see the need for Airbnb to require passports and Facebook accounts when what they’ve done in the past has worked just fine.

Airbnb has had tremendous success in the past because the entire service was built around one key purpose: bridging the gap between travelers and hosts. In a way, this new verification system acts as a wedge that splits the two, adding an additional obstacle that might discourage anyone not comfortable with sharing additional information.

That’s why if I were a host, I wouldn’t want to lose bookings for requirements that I don’t need. If I can tell you have a clean track record but you haven’t verified your Facebook account, I’d probably be okay with you staying in my place. And if not, I might impose stricter requirements, only accepting people who have verified accounts. As a result, I might be better protected, but I’d also get fewer bookings. That’s a fair compromise.

For some Airbnb users, verification through Facebook/LinkedIn is a step backward. Airbnb has collected users’ addresses, phone numbers, credit cards, even social security numbers (for tax documents), so why do they need access to social profiles? One disgruntled user had this to say in the comments on the Airbnb blog:

“My ‘reality’ has been verified by my hosts and my guests: people in four countries have left feedback about their experiences with me… I’m happy to send you my drivers license, but don’t see why you would need it, when you already have the rest. There is just no way I’m linking up my Facebook account so you can data mine my friends, keep an eye on my day to day activity, or examine my relationships. There are enough safety checks on me through the relationship we’ve already developed.”

In defense of Airbnb, what they’re trying to do makes a lot of sense. Anonymity is a serious issue for a service that encourages users to let strangers stay in their homes, especially when Airbnb is underwriting the insurance. The Verified ID system is a commendable effort toward that end. I don’t think people have any problem with verifying who they are, they’re just not comfortable with giving up more personal data when they don’t see the need, and rightfully so. In the digital age, a user’s data might be their most valuable asset. It should be safeguarded and used with discretion. It should belong, as we say, to the people.

A reasonable compromise may be found in the world of third-party online reputation systems, like TrustCloud. These services work on the side of the consumer by giving total control over how much information users are comfortable with providing, and at the same time giving Airbnb what they need, which is verification, without giving up access to users’ data.

What Airbnb needs to do next is reconnect with their community and find a way to meet safety requirements with information users are willing to share. If some are reluctant to connect their Facebook and LinkedIn profiles, they should be free to keep using the service without a Verified badge so Airbnb can see if it causes a drop-off in guest approvals and bookings. How users respond to the Verified ID badge is the best indicator as to whether or not the new system is actually improving the Airbnb experience.

Would you trust Airbnb with a copy of your passport and access to your Facebook account? Let us know in the comments.

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.

How do you know you can trust someone?

trust

Source: kylesteed on Flickr via photopin

Trust in the offline world is very different from online encounters. So what information should you base your decisions to trust another individual on the Web on?

In the real world, trust comes from a combination of time and context. The longer you know someone, the more you’re able to predict his or her behavior in certain situations. You know, for instance, that even if friend X is a complete slob in his own home, he takes perfect care of hotel rooms and rented apartments. You have the necessary information to trust friend X.

Online relationships generally don’t have the luxury of being built on either time or context. As the sharing economy grows, we need a way to make sure that online trust can be as meaningful as offline trust. To do that, we need to think about how we measure trust and reliability.

Insurance companies give us one model. Actuarial science works by predicting risk based on statistical analysis. Basically, that means that insurers make predictions based on patterns. For example, women are charged less for car insurance because they have tended in the past to get fewer accidents and speeding tickets.

Of course, that doesn’t mean that every woman drives more safely than most men, but for insurance companies, there’s an acceptable risk. They stay in business by making enough money from other income that they can offset loss from exceptions to the rule.

When you’re participating in a sharing economy, it’s not enough to make predictions based on patterns. Being the exception to the rule can be disastrous both financially and emotionally, especially if you’re sharing your home or your car.

A similar example is your credit rating. Credit scores are calculated by analyzing someone’s past behavior in order to predict future behavior. While this may be relevant in many cases, the analysis doesn’t allow for outlier events such as sudden health problems, unemployment or other unpredictable events. These events can compel people to act less responsibly than they might otherwise.

An effective system for measuring online trust doesn’t just attempt to predict risk, it looks closely at the time and context of relationships. Even without the luxury of context, there are ways to make sure that people are worthy of trust. But we can’t do that by relying solely on past behavior.

Should I share my car?

Pundits have declared that the sharing economy is poised to shift into high gear in 2013– but not without a few speedbumps, one of them being the question of insurance.

carsharing

Source: Touring Club Suisse/Schweiz/Svizzero TCS

An article in the New York Times brought up the complicated liability issues surrounding RelayRides and a fatal accident that occurred with one of their renters last year.  Shortly after this article surfaced Shareable published an article saying that the New York Times greatly exaggerated the risk of p2p carsharing. According to their research, there is no risk of being dropped by your insurance company for renting out your car in the states of California, Oregon, or Washington, as other articles have suggested. In all other states, the insurers legally still have the right to cancel your insurance policy – however, there has not been a single reported case of this happening yet.

There is yet another important question: even though p2p carsharing companies offer additional liability insurance coverage of $1,000,000, as for instance Getaround does, who pays if the costs associated with an accident exceed this sum? It’s logical to assume that the car rental pool is responsible for insuring the vehicles.  However, as it was in the RelayRides case, that insurance is largely supplemental.

One argument goes that, if an accident occurs, the driver of the vehicle should be responsible for damages. But some people think the car’s owner should be responsible because they chose to hand the keys over to someone else.

But there’s yet another wrinkle: the fact that most of these rentals are for short periods of time.  What’s the rule for renting it out for only a couple hours?

Naturally, the insurance companies (just like the tax collector) aren’t sure what to make of the sharing economy and their role within it.  It’s a game-changer.  Fortunately, a few insurers are recognizing the potential of this new way of doing business and working on ways to become part of it.  In the meantime, owners and renters – of anything from cars to apartments – would do well to read the fine print.  Just in case.

Get ready for more sharing in 2013!

Sharing in 2013

Source: (nz)dave on Flickr via Photopin, CC

After an exciting year of triumphs and crises for the sharing economy, its adovocates and entrepreneurs, it can be predicted that 2013 is going to be an important year for peer-to-peer marketplaces(p2p) to start becoming more mainstream.

Let’s take a short look at some of the important events that happened in the sharing economy and online trust space in 2012:

In January, Airbnb reached first 5 million night booked and was able to double this number by June, making it the poster child of successful collaborative consumption platforms. Carpooling.com announced its expansion to the US after receiving $ 10 million in funding by Daimler; on-demand ridesharing services experienced a crisis after being asked to cease and desist by California regulators while the major of San Francisco is working to promote these new business models in his newly created Sharing Economy Working Group.

Notable events in the sphere of online trust and identity were collaborative consumption advocate Rachel Botsman’s talk at TED Global about trust as a new currency for the sharing economy, the founding of the Collaborative Economy Coalition last summer (of which TrustCloud is a founding member), as well as the Respect Network, a network for the trusted exchange of personal data.

Despite the regulatory and insurance issues many p2p marketplaces face, one can be confident that government and entrepreneurs will succeed in finding solutions to these challenges in the months to come. Neal Gorenflo, co-founder of Shareable Magazine, formulated a very inspiring vision for the potential of the sharing economy:

I don’t think there’s anything else that can radically reduce poverty and resource consumption at the same time, something humans must do to stabilize our global climate and society. The sharing economy is not only a real solution, it’s also an inspiring true story. People experience it as empowering. It puts people in a new, constructive relation to one another.

News from TrustCloud

Not only did a lot happen in the collaborative consumption space altogether, there was also a lot of action at TrustCloud. We are proud to announce that after our launch in public beta last June, our user base has grown by over 700 % since mid July!

Thanks to our growing list of partners – from Tripping to Rover, Sharetribe, Ridepost, About.me, Skilio and Jointliyou can already put your online data to use on a number of p2p marketplaces with your TrustCard. If you have not given it a try yet, 2013 is your chance to start living more sustainably, make or save cash and connect with your local community by renting out space to travelers, pet sitting for your neighbor, sharing car rides or offering your skills.

We have many more partners in the pipeline, so stay tuned for upcoming our announcements.

Thank you to all our users for a great launch in 2012. We look forward to another great year of building trust in the sharing economy.

The big challenge for P2P marketplaces: regulation

There’s been a lot of excitement recently around the emerging sharing economy and collaborative consumption business models. Despite all the enthusiasm, regulatory challenges could dampen the outlook of many disruptive, peer-to-peer (p2p) business models.

sharing economy

Source: Pink Sherbet Photography on Flickr via Photopin, CC

As we have written about previously, the sharing economy has brought forth many innovative business models that enable individuals to save and earn money, reconnect with their local communities and shift to more sustainable and environmentally conscious lifestyles.

The innovative, untried nature of these emerging online business models also puts them in a head-on collision course with regulators. While many of these disruptive business ideas are shaking up established industries, like hospitality or urban transportation, in a good way, the regulatory framework they require is still missing.

Arun Sundararajan, professor at New York University Stern School of Business, recently gave an interesting interview with TechCrunch about how to regulate the sharing economy without blocking further innovation.

Its not surprising, when there is something new and innovative, for there to be regulatory challenges around safety,

he told TechCrunch.

Especially p2p marketplaces are faced with these issues, since they enable private individuals to undergo business-like transactions such as renting out their space, car or offering their labor. An increasing number of such transactions has begun to cross the line from being recreational or making a few extra dollars to becoming a significant source of income. This makes these activities commercial and, as Shareable Magazine has pointed out, puts many platforms in a legal grey area.

Here are some of the most pressing ongoing regulatory issues related to p2p business models:

Taxis Challenge Ridesharing
One of the most prominent regulatory issues of the past months has been taking place in on-demand ridesharing in California. The two San Francisco startups SideCar and Lyft enable people driving through the city to give others a ride by connecting through a smartphone app. Since these services’ drivers do not have certified taxi licenses (but do undergo extensive screening), California regulators sent them cease-and-desist letters, leading to an uproar in the California ridesharing community.
In 2010 Uber, a high-end on demand ridesharing service, was also in hot water for competing with regular taxis. The Taxi and Limousine Commission of New York (TLC), the only taxi provider in the city, refused to grant the company the right to operate in the municipality.

Do short term apartment rentals violate rental laws?
P2p vacation rentals — marketplaces that let people rent out their living space for short periods of time to travelers–are increasingly being challenged by city authorities. Many local laws in urban areas prohibit short-term rentals for under 30 days. Nor is the hotel industry exactly thrilled about its new competitors, who are neither regulated nor pay hotel taxes.

Just a few weeks ago, the New York Times reported that many Airbnb hosts in New York are breaking the law (unknowingly) and could be subject to five figure fines or eviction. This has unleashed debates on who is responsible for informing hosts on their local laws and who is accountable in the rare case that something does happen. Since these limitations are not stopping the p2p rental market from continuing to grow at a rapid pace, solutions to these legal challenges are needed soon.

Insurance and p2p carsharing
Even though the actual risk of being dropped by your insurance company when renting out your car on p2p platforms like Getaround, Autonetzer or Voiturelib is very low, it is worth mentioning that insurance is another important area in which the majority of marketplaces still lack a regulatory framework.

In his interview with TechCrunch, which you can watch below, Arun Sundararajan, emphasized that now is a good time to take a step back and look at what the role of regulators should be in the sharing economy. In an industry this new, there is still a lot of work to be done. But if marketplaces work together to raise awareness among regulators, it should only be a matter of time for these challenges to be overcome.

In 2013, we’ll be looking more closely at legal challenges and insurance issues for p2p marketplaces.

Why do you trust? For many different reasons.

Trust in different situationsPeer-to-peer platforms are popping up everywhere on the Web. If you wanted to, you could almost organize every part of your life with the help of such marktetplaces: travel, mobility, eating, learning, ..the list is endless. When you talk about trust between users of these platforms, one discussion that often comes up is that different types of sharing platforms require different dimensions of trust.

Think about all the occasions you might “trust” someone. When you lend a friend a book or DVD, you’re trusting them to give it back to you in mostly the same condition as when you lent it to them. Now think about all of the people you’ve lent little things to. Would you let everyone of those people borrow your car? Would you trust your child with each and every one of them? The answer’s no.Though we may not consciously realize it, we categorize people we know by levels of trust. These levels aren’t neatly divided, either. There are plenty of cases where we’d trust a friend or family member with our life, but we wouldn’t trust them with our money.

 
The trouble with our trust levels is that we can’t always describe exactly how we arrive at these categorizations. There’s an element of time; we’re more likely to trust people we’ve had long relationships with. We trust our powers of observation; when someone’s irresponsible in one situation, it’s easy to believe they’re irresponsible in other situations as well. Finally, we trust our gut, the hidden feelings that simply cannot be qualified.When we don’t have the luxury of actually observing someone’s behavior, we have to trust middlemen. We ask a friend to recommend a babysitter or housekeeper, we make requests to closed communities for information about sensitive issues like medicine. Even online, people demonstrate certain patterns of behavior that can be analyzed to determine their trustworthiness in different scenarios (borrowing a DVD versus babysitting a child).
 
Clearly, a single “size” of trust is not sufficient across all platforms.  Fortunately, there’s a growing body of online data exhaust that can be analyzed into layers to provide a more exact picture of a person’s behavior. Read more about how TrustCloud wants to leverage this data in our previous blog post.