Thursday, May 9, 2013

The Three Market Drivers: Causes for the Collaborative Economy

Temple of Poi 2009 Fire Dancing ExpoThe Three Market Drivers: Causes for the Collaborative Economy:

Above Image: Fire Dancers metaphorically ignite movement in Union Square, the center of SF commerce.
Your customers are trading products and goods –rather than buying them from you! Want to know why? We’re conducting research in a pragmatic method to find out why, and then answer what companies should do to respond. Below is a preview of the upcoming report.

[Business Disruption: Consumers don't need to continually buy from companies, as they are sharing, renting, lending, goods & services among themselves]

I’m knee deep in interviews for the upcoming report on this topic, the Collaborative Economy, which will answer how corporations can be part of this sharing movement –and not be left behind.  In my previous post, we’ve made the case this is the next phase of Social Business, and have probed 200 startups from the sharing movement, and have compiled a list of brands that are already participating like Barclay’s, Toyota, BMW, and Walmart.

[This rising behavior is being caused by three major trends: social, economic, and technology drivers]

Analysis of Three Market Drivers: The Causes for the Collaborative Economy

In the research interviews, books, and blog posts or presentations I’ve consumer, here’s some of the causes of the movement.  I don’t expect this to be a comprehensive list, and request your additions in the comments.

1) Social Drivers
Social Drivers Root Cause Example
Population Density While also listed in Economic Drivers, the density enables sharing to happen with less friction. Zipcar took off in urban SF, where owning a car is impractical. Zipcar’s scattered storage lots gave customers quick access to wheels, often walking distance.
Mindset of Sustainability Greening, Cleaning, and Sustainability have been hot topics for years, this bolsters the need for economic conservation and long term thinking Many of the startups we interviewed discuss how this is about re-use or preservation of resources, rather than buying new products anew.
Common Youth Lifestyle In Sharing Magazine’s book, Share or Die, Neal Gorenflo writes that this sharing mindset is common among college students who’ve limited resources. For resource strapped students, Chegg enables students to trade textbooks –rather than buy the high margin bookstore.  Furthermore social networking is normalized in their behavior.
Altruistic Mindset In some use cases, gifting or paying it forward is common in this movement, see list of gifting startups. A recent UCLA poll found that over 75 percent of incoming freshman believe it’s “essential or very important” to help others in difficulty, the highest figure in 36 years.

2) Economic Drivers
Economic Drivers Root Cause Example
Increase in Earth Population Massive China and India are at 17% and 30% population growth rates, respectively, America at 22% citing wikipedia. When I was born in the 70s, world population was in aprox 4b, today it’s 7.1b, When I reach 75, pop will be 9b, data here.
Strained Resources The interviews yielded a general sentiment that Earth resources are finite and the cost to retrieve more costs more than re-using.  Those with less money are more inclined to trade, or activate their inventory for revenue. All around me, recycling programs are evident, even in the salesforce office there are recycled plates, utensils and paper
Economic Disparities Where there is a divided between have and have not, these sharing systems naturally seek to shift resources For example, we saw a boost in Bitcoin value as Cyprus was under economic strain.
 Inventory One of the root causes of this movement is idle resources sitting by the wayside can be shared and often monetizes Rachel Botsman discusses in her iconic TED speech that the average usage of an electric drill is a mere 12 minutes
Inaccessible Luxurious Those who can’t afford it, can now rent it. One successful Gen X banker told me “Access is more important than ownership” Why buy $100k Lincoln Towncar when you can rent an Uber for 30 minutes, saving cost and headache.
Influx of VC Funding Startup investors have put billions into this market of fresh new startups, our research shows that within 200 startups there has been over $2 billion of funding. Category leader Uber has received nearly $50m of funding and AirBnb has received a whopping $120m

3) Technology Drivers
Technology Drivers Root Cause Example
Social Networking Technologies These technologies provide three key features: 1) Social profiles and reputations features 2) Social graph that enables people to connect with other people 3) Transfer of information, in this case, need for resources or supply of them AirBnb in itself is a social network, there are seller profiles, and renters have their own reputation with verified IDs they goods traded are locations.
Mobile Technologies Access to resources or people requires movement for a majority of these services so mobile platforms, devices for information to transfer Many of the startups are mobile driven, for example, Lyft has a thin website and suggests users download mobile apps for this transportation site
Payment Systems I the end, this is a marketplace of goods and services. Systems and platforms are required to broach the transactions that may use traditional ecommerce or new bartering methods Taskrabbit asks me to use my creditcard while other systems like Bittorrent are fueled off Bitcoins.

What it means: This is a long term movement –not a passing fad

So there you have it, I see three categories and at least thirteen distinct drivers for the Collaborative Economy. Like social was to us in 2007, this is a broader movement that impacts many aspects of society and therefore business. If these market drivers are long term (often social and economic ones are) then it means this movement is likely to persist and only increase in velocity. If you thought social business was disruptive, this next trend will impact us at a much deeper level.

Related Resource:

I’m not an expert on this topic, so instead, I’m interview them.  We’ve interviewed these sources for the upcoming report (full sources to be cited in report), I highly recommend following them to learn more about the impacts of this movement.
Business Articles on this Trend:

For many, this movement requires blessings from business rags before broaching with executives, here’s a few articles I’ve found helpful
Image Source: David Yu, creative commons license.