Here’s What’s Driving Collaborative Consumption and Where the Market May Head Next

Posted on Jun 9, 2013 | 26 comments


I spoke this past week at the LeWeb conference in London, which was a superbly well run event with a very quality production team. Kudos. The 20-minute video of my presentation is here if you’re interested.

And it was convenient for me because we also held our annual London board meeting of DataSift, who helps companies processes and analyze large volumes of social plus enterprise data in realtime.


Final le web london (june 2013) from Mark Suster

The topic of the conference was “The Sharing Economy” and as I read many of the session title descriptions I realized that people would be talking more about “collaborative consumption” (think airbnb, taskrabbit, uber) than about why people are sharing more on Instragram & Snapchat.

You can of course view the presentation in SlideShare above or download it directly for free here.

Why is Collaborative Consumption Becoming a Hot Trend for Startup Companies?

As I outlined in my talk, I believe the greatest Internet companies created over the past 15 years have been “deflationary” meaning they are driving down the prices or goods & services. They are also driving down the margins they make and are offering products that are initially lower functionality than their competitors.

I described that phenomenon in this post.

Declining prices & margins in a small market  is much less interesting. But as we now know 33% of the world’s population is now connected to the Internet, the majority of traffic to the major Internet properties is now global and at Benedict Evans pointed out in his recent report, more than 70% of the world’s literate population will have a smartphone within 4 years.

Screen Shot 2013-06-09 at 6.50.00 AMPrices down. Network Up. But what else?

The world still has economic challenges that often aren’t perceived by many of us the tech world in our little cocoons of Silicon Valley, NYC or Los Angeles.

Screen Shot 2013-06-09 at 7.22.22 AM

Example: More than 50% of all youth in Greece & Spain (34% in Italy) are unemployed and if you take “under-employment” it is even worse. I we know the if people miss getting on the career ladder for just 3 years it can affect the entire trajectory of their lifetime earning potential.

In the US that number is 17%, which is still too high.

Add unemployment to debt. Student debt alone in the US is now $1 trillion, which $100 billion being added / year.

These types of trends are unsustainable.

Screen Shot 2013-06-09 at 7.23.47 AM

I believe that market conditions drive innovation as much as great entrepreneurs do. As they say, “necessity is the mother of all invention.”

So those underemployed people who have part time jobs but need more wages will gladly take on 5 dogs / week in their house on DogVacy.

The person who is between gigs will gladly drive people on Lyft or offer out their spare bedroom on airbnb.

Consider the case of Tradesy founder Tracy DiNunzio who could only launch her startup by giving up her bedroom for a year and earning $28,000 that allowed her to not have a full time job that year.

If your closet is full of clothes and your credit card is full of debt – of course you’re going to trade clothes with other people rather than only buying new stuff.

Screen Shot 2013-06-09 at 6.19.37 AM

You can watch the 20-minute video of my talk if you want here.

What are the Types of Collaborative Consumption Companies?

I broke down the types of CC companies into 5 main buckets today to give a framework to think about your startup if you’re entering this space:

1. Tapping into global markets – There are talented people in the world who can’t earn a “global market rate” for their services but when you open them up to global demand – boom! An obvious example of this is oDesk. Another is DeviantART who are able to tap into hundreds of millions of people around the world who produce art and help them making a living. That’s why dA has nearly 70 million monthly actives producing 2.5 billion page views making it the largest communities of artists in the world.

2. Empowering the under-employed – I spoke about this briefly already. When you have millions of unemployed youth plus millions more not earning a high-enough wage they are going to find ways to make extra money on the side by running tasks, sitting dogs or reselling their closets. Market meet reality.

One area I didn’t talk about in the presentation that really interests me and seems underserved is helping to empower senior citizens. We know that this generation has retired without enough savings. We see our seniors increasingly at Walmart or Starbucks check-out lines. But who is going to put these people back to work part time in their homes and one their phones – tapping into beautiful brains that don’t have the same physical abilities they once did?

3. Moving from hierarchic to flat structures – Some of the peer-to-peer markets are driven where a flat structure is better suited than a top-down model. Here I talked about Lending Club where I understand hedge fund managers are now deploying capital to lend directly against pools of borrowers.

But an equally obvious case is BitCoin where people who live in Iran, Syria or Libya may rather put their money into non-governmental units (even knowing the risks) than to trust their local governmental leaders to protect their assets from inflation or seizure.

4. Breaking down markets requiring physical barriers – I am also very interested in cases where people break down physical barriers that limit wages of instructions while costing too much to students. The obvious cases I mentioned are ones like Udacity but I believe this trend will encapsulate personal trainers, financial planners, depression or substance counsellors, etc. Anywhere where the service provider can earn more at a lower margin by proving more service to the masses.

5. Making existing markets more efficient – There are of course markets that have always existed – like the taxi or limo service markets – that are simply being made much more efficient through companies like Uber.

Screen Shot 2013-06-09 at 7.19.33 AM

Will this Trend Last?

In my mind there is no doubt this a lifetime trend.

Venture capital will be easy and then hard. The press will romance the topic and then spurn it.

That always happens.

But the key drivers: un / under-employment, personal & governmental debt, globalization, resource scarcity, transparency & shifting demographics will mean collaborative networks will form throughout our life.

It is the antidote to top-down control.

I also spoke about the trend of open communications from radio to TV to telephony. I believe the natural success to that is Twitter more than any other technology of our generation. It is open and empowering. But with empowerment also comes awareness of what others have that you don’t. Which leads to disenfranchisement. And rebellion.

Think Tunia, Egypt, Syria and now Turkey.

Transparency can breed discontent.

And the solutions to many of the worlds problems will come from the people as much as from governments.

Collaboration. We’ve only just begun.

Screen Shot 2013-06-09 at 7.43.06 AM

How Will it Evolve?

I did spend some time in the presentation to how consumption networks will evolve. It was my sixth trend and one I really believe in. In a world where P2P networks threaten existing business value chains some companies and systems will disppear.

But there are always ones who adapt and thrive. And if you can create a company that can help existing players jujitsu their nimble startups you’ll do well.

One such company is Deliv. They are taking the same approach as an Uber or Lyft (finding drivers who want to earn a bit more) and in stead of matching them up with consumers they match them up with local retailers to deliver goods to people’s homes.

Think about it – most retailers can’t compete with the scale and costs of Amazon.

But they do have a local physical location in your neighborhood.

And what if you could meet the holy grail of same-day delivery for the same cost as overnight on UPS.

That’s what Deliv enables. Retailer wins. Driver earns extra income. Consumer gets same-day deliver.

Win.

I suspect you’ll see many more companies helping business tap into consumption networks in the years ahead. Companies like this don’t capture the sexy headlines in the same way as cars with pink mustaches on them. But they do tend to build large and profitable businesses.

  • Matthew Faustman

    “I suspect you’ll see many more companies helping business tap into consumption networks in the years ahead.”

    Great to see you speaking/writing about this topic and could not agree with you more. B2B marketplaces and distributive work platforms will continue to popup and thrive. I would guess that these will mostly be vertical plays (like Deliv for deliveries) vs horizontal plays (TaskRabbit for business). It will be interesting to see how the companies executing on these marketplaces solve some of the difficult challenges inherent with marketplaces. Any thoughts on some of the factors that make these type of companies successful? Or is too early in the game to draw conclusions?

  • YairR

    I agree that unemployment / underemployment will be a huge structural driver (54% of recent graduates in the U.S. are either unemployed or underemployed) in the P2P economy. I do wonder, however, how quickly the shift will occur to those at the bottom of the economic pyramid to allow more participation on a GLOBAL scale.

    Yes, “those underemployed people who have part time jobs but need more wages will gladly take on 5 dogs / week in their house on DogVacy.” Supplemental income is superb if I’m a recent graduate / barista at Starbucks in Santa Monica and can make some extra money on TaskRabbit or rent my room out at AirBnB but the demographics of those sites skew to the highly educated, tech savvy, white, and middle-aged. Some of the real market winners in the coming years will be those companies that enable more participation from the real bottom of the period (the bottom of the 54% underemployed or 17% unemployed), not the ‘assumed’ bottom of the period – of which a Starbucks barista/graduate is not.

  • http://arnoldwaldstein.com/ awaldstein

    Mark–

    I’m interested in Deliv as local that is driven by the web but fulfilled by a marketplace of terrestrial locations is a driver for my thinking and work lately.

    The upside is huge, the execution is a nightmare.

    Nightmare cause quality across merchants is huge. That is why 1 800 Flowers sucks 8 or 9 times out of 10 times.

    Nightmare cause as you i increase the SKUs from few to many you need to normalize the POS systems at retail. It’s a huge mess that I’m deeply familiar with.

    Any information you can provide on them?

  • http://twitter.com/leoalmighty Leo Chen

    Incredible amount of insights & examples packed into 20min. And I noticed your slick new IWC. ;)

  • Mr.Mike

    This is an interesting trend but it is just a band-aid over the real problem of under-employment that will only get worse as automation becomes more prevalent. Humans are becoming less and less necessary and it only a matter of time before there isn’t enough of a demand for human workers to sustain the economy as it exists today. I have no idea what the solution is but we need to start thinking about what societal shifts we need to make to keep people relevant in an age of automation.

  • http://bothsidesofthetable.com msuster

    well – the critical component is that companies like Deliv don’t have to build 2-sided marketplaces (ie buyer and seller) – if you can aggregate one side you’re well on your way

  • http://bothsidesofthetable.com msuster

    might be. I’m not sure how you immediately tap into bottom when skills, hard work and trust all matter in the decision to use labor

  • http://bothsidesofthetable.com msuster

    well I think use case very different than 800 flowers. in the case of Deliv the customer still orders the product they want (think TV from BestBuy or iPad from Apple) and a driver picks it up and delivers it to you.

    With 800 flowers you get into product variability

  • http://bothsidesofthetable.com msuster

    Ha. Thanks, Leo. Wish you were there. Much of our GOAP crowd was!

  • http://bothsidesofthetable.com msuster

    I don’t think P2P is the only cure to automation but it’s better than a swift kick in the ass ;-)

  • http://arnoldwaldstein.com/ awaldstein

    So the customer is ordering direct from the catalog/POS system of the vendor that is delivering?

    Presuming that is right and I think I better do some more digging before I ask other questions as I seem to have too many of them.

  • http://www.twitter.com/rohamg Roham

    it’s interesting you focus on the lower rungs of our planet when discussing collaborative consumption. CC interests me because it promotes redistribution of wealth from rich –> poor (or upwardly mobile). From an entrepreneur’s perspective, I prefer targeting the middle class instead of thinking of CC as a tool to elevate the poor. If you think about TaskRabbit / Lyft / Uberx and to a lesser extent Airbnb – I would argue that demand from the upper classes because of the convenience they add has contributed more to their success than a glut of supply because of unemployment. Consumers are who is driving the collaborative economy – GenerationX’ers who can afford hotels but stay at Airbnb for the charm factor, young professionals who’ve let go of the trappings of yesteryear’s vehicle ownership culture and are using Uber to get around everywhere, i-bankers with high salaries who want chicken wings delivered at 2am, or Gen-Y management consultants who don’t have time to change their own lightbulbs. These same folks, when older and richer, will reinvigorate intense demand for more luxurious forms of CC: exotic car sharing, exotic vacation homes (a la Inspirato), etc. Our generation has dumped the idea of “ownership” and is moving (has moved?) wholesale to “experiences” and “membership”.

    I do agree collaborative consumption also has the chance to help the poor, but IMHO that will primarily be through their participation in (some will certainly say “exploitation by”) these new channels of work – as opposed to “deflationary pressures” and lowered pricing for previously luxury goods (this will rather benefit the Middle Class). Anyone who has been poor knows that they *already* run on a sharing economy. To paraphrase an important lesson of yours I think of every day when evaluating new ideas: it’s comparatively harder to provide a “10x better experience” to the poor – simply because they care about price more than convenience. Convenience is, as you know, much easier to build a profit margin with :)

  • Greening

    It does’nt have to be re-distribution, it can be creating new wealth?

  • MrMike123

    My concern is that in an economy in which humans trade labor (work) for goods and services there is a rapidly approaching tipping point at which most tasks will be more cost-effectively performed by machines than people so opportunities to earn a living will dry up. Will we even need a Lyft or Deliv when cars drive themselves? Google is making that happen. At some point we’ll need to find a fair way for people to satisfy their basic needs like food and shelter when we can’t think of anything worthwhile for them to do that can’t be done better and less expensively by machines.

  • http://bothsidesofthetable.com msuster

    You are choosing to focus on those cases the cater more to the well-to-do like Uber.

    But there is: oDesk, eLance, DeviantART, Kiva and a host of other websites that do a decent job of narrowing global economic gaps. Still caters to the educated but not just a “rich kids” solution set.

  • http://www.linkedin.com/profile/view?id=18847600&trk=tab_pro BillMcNeely

    Great point. The key to the P2P kingdom seems to be a smartphone. If your broke and your 2 months behind on your AT&T bill and it gets turned off before TaskRabbitt approves application, your screwed.

    Willing to work hard, trustworthy and skills are mute )all things that describe most un/underemployed veterans ) if you can’t communicate within the confines of the modern world. @msuster:disqus @YairR:disqus

  • http://www.startupmanagement.org/ William Mougayar

    I’m having flashbacks to 2001 when the “Collaborative Commerce” B2B theme started, whatever it meant. CC was supposed to re-start the Internet bust caused by the failed electronic marketplaces, but it didn’t. It was another way of depicting the evolution of e-business.

    Therefore, I might sound a bit pessimistic about this theme (CC for consumers), just to provide a bit of level headedness around it. I caution against hypothetical business models that have yet to materialize and I get a bit cautious when I hear scenarios like: IF this, then that, then we can do so, and it means this whole thing, etc… , and tying it to politics, society and traditional economics is sometimes a stretch.

    To imply that “Sharing” creates economic value that is tectonic is pushing it a bit, and that’s not directed at your presentation, but rather aimed at the implied grandiosity of the conference’s theme.

    I know there are 2 things that have been happening since Day 1 of the Internet, and they are:

    1. Disintermediation, resulting in re-intermediation with new players, via lower costs, more value, or new services not possible before. (and you can prob slot most the current examples today under any of these categories- e.g. AirBnB, KickStarter, Uber, Coursera, etc.

    2. More users means more business models can be supported at the required economies of scale.

    We can give fancy names to trends, but at the end of the day, what really moves the needle is real value creation from innovative services and products where the Internet is the enabling platform, the essential infrastructure, the transactional layer, the distribution network and the operational fabric across a variety of personal and business needs.

  • http://www.twitter.com/rohamg Roham

    thanks for the reply Mark :) great examples. i still maintain that the demand engine in every one of these platforms is the “upper middle class”. didn’t mean to imply rich kids.

    from a startup founder’s POV (given that this is your main audience): in building a CC business it seems better to de-risk demand first. Because of the trends you outlined in this blog post, supply markets can be created relatively easily in most cases once demand at a suitable willingness to pay has been established.

    the only point i was trying to make with the first comment was that this “suitable WTP” seems to be thus far easier to establish with wealthier users, which is hardly surprising. how much wealthier is of course simply a matter of degree.

  • http://christianbusch.blogspot.com christianbusch

    They still have to solve the two-sided problem, Mark: they have to aggregate supply, as in delivery guys, as well as demand as in stores. Similar situation to ebay really.

  • Howard Marks

    I agree with the presentation’s thesis. I would like to add that our economies in the West will change because we have an increasingly older population with a relatively small birth rate compared to developing countries in Asia. This means that we are going to shift wealth creation to other nations. The shared economy is one way to become more efficient but not necessarily to grow as an economy. As we all are retiring, who is going to pay for health care and way of life ?

  • http://bothsidesofthetable.com msuster

    Yes. This is scary. And why dealing with immigration reform is also important.

  • http://www.Trigeia.com Trigeia Twins

    As an entrepreneur, I am very interested in the P2P business model. Do not take this as a self-promotion post because I am launching a P2P mobile startup. I read your post and could not help to comment on the deflation aspect and also on companies like deliv.

    Deflation is fueled by the sharing economy, but i have to say that people are driven to this model because of the disappearance of the United States Middle class. Consumers have less and less disposable income and of course they want their income to be worth more. But, I believe that regardless of deflation, consumers and people in general are always looking to get more income and goods after all that is what capitalism is all about. .

    Companies like Deliv launched during the dot com era and were not successful. Currently they can only profit in small densely populated areas because of fuel prices. And there is not many people that want to pay a premium price for on-demand delivery.

  • http://www.Trigeia.com Trigeia Twins

    Technology does not decrease the demand for workers. It might be hard to believe but automation makes for efficiency and increased outputs. Therefore, companies need to increase their input. Someone has to operate the machines.

  • Mr.Mike

    This simply isn’t true. Many factories operate lights-out. Just for fun, let’s follow your line of reasoning: fewer people producing more leaves more people producing less or nothing at all. If only the people producing are earning then they are the only ones in a position to purchase and consume that which is being produced. At some point the only people left earning money are the people designing products that almost nobody else can buy because most of the manufacturing and supply chain is automated. I’ve been an engineer for 32 years and have seen the changes. I also freely admit that I’m part of the problem.

  • Dena Patrick

    Great piece, with excellent comments. I was especially impressed that you mentioned senior citizens.

    As a lifelong social entrepreneur, turning 50 fairly soon, I’m appalled by the lack of attention (and investment) given to ventures created by entrepreneurs over 40. Not only is the older demographic a target for CC startups, many innovative ideas for the same can come from WITHIN this demographic if given a chance. :)

  • Dan

    You should check out RepStamp (www.repstamp.com) that tries to cope with the multiple identities that these many marketplaces have created by creating a universal reputation system