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January 24, 2013

The Sharing Economy is coming of age

by Collaborative Fund Team

In San Francisco, you can find the “Airbnb-of-everything.” Just as Airbnb capitalized on the fact that many of us have a spare bed, bedroom, or even apartment from which we’d gladly make some money,  many other industries have followed suit. Today, you can earn money by  filling the spots in your car on a road trip, being a personal tour guide for out-of-town visitors,  lending your car out when you’re not driving it, or  doing odd jobs for people in the city.

At  Collaborative Fund, the fund I founded to invest in collaborative businesses, we are helping to support a cultural shift away from excess, hyper-consumption, and ownership, and toward access, sharing, and efficiency. We hear about new stories that exemplify this shift all the time, like programmer Avi Flombaum  quitting his day job at a startup where he was CTO because his hobby teaching Skillshare classes earned him $100,000 in one year. Few teachers make that much in traditional schools.Or Curtis Chong,  who earned $5,300 in a year letting others drive his Honda Civic worth $4,800on RelayRides. These marketplaces enable people with excess supply to find demand, unlocking viable economic activity.

Still, there are key questions facing these budding markets: job creation, regulation, and long-term business growth.

JOBS

Taking a step back from the success of Flombaum and Chong, it’s clear we’re living in a job-anxious landscape with high unemployment and frustrating under-employment. As startups like Skillshare or RelayRides gain traction, peer marketplaces are coming under the microscope. Economists and journalists  question whether the technology boom of Silicon Valley actually creates jobs. The Kauffman Foundation reported that the number of new employer-enterprises (business that hire others) has declined since the 2008 recession, despite entrepreneurship rates increasing.

Apple, the most valuable company in the world,  only employs 43,000 people, most of whom work in retail stores and earn roughly $25,000 a year. So we have to ask, do gigs—some full-time, some part-time—qualify as sustainable jobs? If I make the majority of my income selling jewelry on eBay or Etsy, or hosting guests in my spare room on Airbnb, is that my job? If not, what is a job?

In a partnership with design firm IDEO, Collaborative Fund attempted to answer this question by imagining ways people might sustain themselves in the future, and identified some of the businesses already reshaping our definition of work. We were prompted by the term the  gig economya nation of freelancers that now includes  one in three working Americans. While many of the new companies facilitating this lifestyle are young, the sector has shown rapid growth, and municipal and federal regulators are taking note.

REGULATION

Regulation of Internet-facilitated sharing has a standing history. Napster demonstrated how peer-to-peer sharing could wreak havoc on institutions, and even entire industries. Craigslist is still a buy-at-your-own-risk platform. And today, ride-sharing services like Uber—where black-car drivers act like on-demand taxis— has come under fire for operating in gray areas of legality. Airbnb has  faced regulatory challenges at the municipal level in San Francisco and New York, and the California Public Utilities Commission  issued a cease-and-desist warning to Lyft and SideCar, two popular ridesharing services based in San Francisco.

The regulatory instinct is to resist new forms of economic exchange to protect both buyers and sellers from fraud or danger. But beyond the questions of trust and reputation, regulators and investors alike are wondering: Does it slow down construction if we use Airbnb instead of hotels? Does it slow down Detroit manufacturing if we share cars and rides instead of buying new ones? Does increasing productivity from existing resources hinder economic growth?

The oft-cited  Jevons paradox proposes that using a resource with more efficiency actually increases, rather than decreases, the use of that resource. But it’s  not obvious that efficiency and growth are complements. So, should the laws of small business taxation apply to someone who is a full-time Skillshare teacher, like Avi Flombaum? Some worry that these new businesses will create an informal economy, which  lacks the safety nets of social security, health insurance, anti-discrimination, and taxation. These are defining aspects of our social fabric, no matter your politics, and it’s time to rethink how we support them in this new economy.

LONG-TERM GROWTH

You have to be wary of over-exuberance by entrepreneurs and investors, who could latch onto this trend for quick gain instead of creating a true foundation and scalable businesses. Remember the post-The Inconvenient Truth enthusiasm for startups targeting the green and eco-friendly audience? Much like the “Airbnb-of-everything,” today, then we saw the “Eco-of-everything.”Most Lyft drivers or TaskRabbits we’ve encountered are just glad to have income coming from somewhere. And beyond individual gain, these marketplaces boost local economies. Airbnb hosts  have contributed $56 million in spending to San Francisco; $43.1 million of that figure supported local businesses around the hosts’ homes. But platforms that facilitate opportunity to create wealth must be built to last. Otherwise their impact is nominal, if not damaging to the ecosystem long-term.

THE FUTURE

Here’s the history lesson: Many of those “green startups”—even those with big venture backing—failed because they lacked authentic core values, patience from their investors, and, most importantly, a solid foundation built on real business logic.

The road ahead for collaborative businesses will be filled with many obstacles. Governments will struggle to keep pace with innovation. New businesses without a sound economic plan will fail. In the near-term, our economy will continue to be based largely on consuming new products and services en masse.

However, I’m optimistic. Collaborative businesses are now working their way out of the hype phase and getting tested and refined in ways that will determine their long-term role in the economy. Entrepreneurs and consumers are finding efficiencies and adapting to the reality of a world with fewer resources and latent potential. As jobs evolve away from traditional corporate models and regulatory challenges get worked out, collaborative businesses are poised to generate the greatest financial return on investment over the next decade and beyond.

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