In suburban Boston, a woman hires a handyman to assemble her new IKEA armoire. A couple in Austin, Texas, puts you up in their cozy guest house for $65 a night. A Georgia woman rents her sewing machine for $15 a day.
Cars, power tools, parking spaces—most anything is now available for rent, loan or hire from strangers via websites and mobile apps. It’s not just folks making and saving an extra buck. Dozens of niche startups specializing in specific types of deals have mushroomed to broker and profit from them.
It’s all part of the sharing economy, also called collaborative consumption. If you haven’t heard of it, you will. It’s a growing trend that has inspired books and an online magazine. At least one lawyer is an expert on issues it has raised. And Forbes magazine estimates that consumers will spend $3.5 billion this year in the sharing economy.
Venture capitalists and corporations have noticed. Earlier this year, Avis Budget Group paid about $500 million for Zipcar, a car-sharing site. Airbnb, an accommodations platform, has an estimated worth of as much as $2.5 billion. One venture capital firm is now dedicated solely to investing in collaborative consumption startups.
Entrepreneurs including Mark Gilbreath are benefiting. He started LiquidSpace in 2010 to connect “corporate road warriors and mobile professionals” with corporations, hotels and public facilities eager to rent them underutilized work space and offices on an hourly or daily basis. Today LiquidSpace serves more than 250 U.S. cities, plus Australia.
There were skeptics at first, but Gilbreath, as CEO, has raised $12.4 million in venture capital. “It’s that willingness to leap and an unbending belief in the possibility of it” that enables entrepreneurial ideas to succeed, he says.
Owners of unused office space list it for free on LiquidSpace, along with photos, descriptions and their rates. The company handles billing and collects commissions when space is rented—typically by companies for their employees via a mobile app or a web portal for as little as 15 minutes or as long as one day. Other users include freelancers and consultants.
Gilbreath thinks his company is positioned to benefit from “a radical transformation” in commercial real estate in which businesses eschew long leases for temporary space, using a smartphone app rather than a real estate broker.
The sharing economy is based on underutilized assets, he says. “The asset at the core of our business is work space.” And like other sharing economy entrepreneurs, Gilbreath cites environmental and societal benefits. The company’s mission statement: “More happy people working in fewer buildings, the planet smiles.”
More Is Not Better
The sharing economy was sparked in recent years by the economic meltdown, meteoric growth in technology and environmental concerns. “I think people are tuning in to more is not better,” says Neal Gorenflo, co-founder and publisher of Shareable.net, a nonprofit online magazine devoted to the sharing economy. “We saw a sharing movement below the surface waiting to explode.”
It’s a win-win for parties in these transactions. Consumers are finding, for example, that it makes sense to rent a drill for a home improvement project rather than buying one they may seldom use again. Owners make extra money from lending stuff that collects cobwebs in a garage or basement.
Many of the collaborative consumption models are peer-to-peer transactions, in which strangers rent and loan each other items or services, usually via online brokers. To develop trust and weed out bad apples, many of these brokers such as LiquidSpace feature online peer reviews and ratings. Some conduct background checks. Payment is made through Internet platforms.
People not only want to earn extra money and reduce their consumption in these ventures, but also connect with others, Gorenflo says. “People feel isolated and they seek community.”
Airbnb is the best-known peer-to-peer facilitator. It has more than 300,000 listings, from a $10 bedroom in a Bangkok home to a $69-a-night Hawaii tree house and a luxurious Sydney, Australia, home for $4,000 a night. The company takes a percentage of each rental fee.
Another big player is RelayRides, a national online car rental broker that enables drivers to list or search for cars. Edward Salwin, a 32-year-old software developer in suburban Washington, D.C., has been renting his 2010 Toyota Corolla and 2009 Toyota Camry for more than two years. The Corolla is rented most days in summer and 15 to 20 days a month in winter, he says.
Salwin isn’t the next Warren Avis. He rents one car for a paltry $4 an hour, the other for $4.50. RelayRides bills the users and pays Salwin, minus the company’s 25 percent commission, which includes $1 million in liability coverage. “I could probably charge more,” Salwin says. “[But] my core mission is collaborative consumption in general.”
RelayRides screens potential renters, and although one left Salwin’s Camry’s sun roof open when it rained, “there really haven’t been any horror stories,” he says. “It’s been remarkably smooth.”
Technology Spurs Sharing
Sharing isn’t new, but the proliferation of smartphones has made it easier. Millennials are the first generation to grow up with ubiquitous social media and evolving technology, and they have fueled the growth of the sharing economy, Gorenflo says.
They also have different views of ownership and consumption. A study this year by the Pew Research Center found that people ages 18-34 are buying fewer homes and cars and incurring less debt than in the past. Couple that with the fact that young adults have been postponing marriage and families for some time now, and collaborative consumption makes sense. Not surprisingly, many of the entrepreneurs active in the sharing economy are in their 20s and 30s. A lot of the startups are based in San Francisco.
The sharing economy isn’t unique to the United States. Zilok, a site where members can rent everything from a juicer to a chain saw, began in France. Shareyourmeal, an online platform that promotes neighbors sharing meals they’ve cooked, started in Amsterdam. Seoul, South Korea, has undertaken initiatives that include promoting sharing enterprises and subsidizing the expenses of some of them. Plus, many of the sharing economy businesses based in the United States—such as Airbnb and its free predecessor Couchsurfing—are global. Airbnb says it’s in more than 33,000 cities in 192 countries. Couchsurfing says it connects hosts and guests in 100,000 cities.
One of the newer startups is Zagster, a private bicycle-sharing service with a similar business model as Zipcar in that it’s not based on peer-to-peer transactions. Just as Zipcar owns the vehicles it rents, Zagster owns the 500 or so bikes in its fleet. Co-founders Timothy Ericson, 27, and Jason Meinzer, 30, founded a company they named CityRyde that consulted with city bike-sharing programs before starting Zagster.
Launched in late 2011, Zagster has received $1.5 million in venture capital. It limits placement of its bicycles to hotels and resorts, office parks, apartment complexes, and college campuses in major U.S. cities. Unlike Zipcar’s revenue, Zagster’s doesn’t fluctuate with how often its inventory is used. Nor does it have to deal with billing bike riders. That’s because the company charges its customers a monthly fee to provide and maintain the bikes. The customers then decide whether to charge their users a rental fee and, if so, what that fee will be.
“We put a bike on the ground, we know exactly what our revenue is going to be,” says Ericson, who has never owned a car. And Zagster has modest marketing expenses. Its customers, including some Hyatt hotels, Cisco, Quicken Loans and Yale University, promote the service to their own customers and employees.
The Zagster system is simple. A user chooses a bike, texts “start” and the bike’s number, then receives a confirmation text message with the access code for the bike’s lockbox. “If it’s easy to use and put in places that are convenient, people will use it,” Ericson says.
Corner Office to Dog House
Another sharing economy startup is DogVacay, which Aaron Hirschhorn began in March 2012. Pet sitters typically go to a pet owner’s home, but at DogVacay it’s the reverse. Dog owners can search online for a host for their pooch in cities in all 50 states, make a reservation and pay. Hosts, who often have dogs of their own, set rates. DogVacay takes a 15 percent cut.
Hirschhorn’s background is in tech consulting and venture capital, but he began a side business of boarding dogs in his Santa Monica, Calif., home in 2011 when his two dogs seemed dispirited after being boarded at a kennel. He spent nothing on marketing, but within eight months he and his wife made more than $30,000. “We knew this was a problem we were solving,” Hirschhorn says. The couple quit their day jobs and formed DogVacay.
Now they have 40 full-time employees. They vet potential hosts through a five-step process that includes an online application, a reference check and a telephone interview. Hosts are rated on the company website. The average score is 4.97 out of 5, Hirschhorn says. The company can also help match dog owners with the best host for their pets, and it provides complimentary insurance for the hosts’ and the customers’ dogs, as well as 24/7 customer support.
DogVacay has raised several million dollars in venture capital. “Living and breathing your business in the early stages… gets customers and investors to buy in more easily,” says Hirschhorn, 35. “They sense your passion.”
So does his toddler son. The first word he pronounced: dog.
Among DogVacay’s hosts is Michael Lam of Queens in New York City. He was a programmer at Goldman Sachs until summer 2012. “I wasn’t happy working in a corporate environment. I decided to do something on my own,” he says. Now he’s a full-time host to boxers and beagles, poodles and pugs. “Never in a million years did I think I’d be doing something like this,” says Lam, 30.
Lam is serious enough about the job to have become certified as a dog trainer and in pet CPR. He charges $50 a day, and often makes $2,000 to $3,000 a month.
Sure, dogs sometimes “mark” or pee in the home he shares with his wife, and there’s all that poop to pick up. But Lam sounds as pleased as a pup gnawing a chew toy. “I’ve absolutely adored dogs since I was a child,” he says. “This is so fun and so interesting.”
A Winning Trend
Collaborative consumption businesses aren’t without controversy, however. Some cities are struggling with whether to regulate them, and how. New York City officials, for example, have investigated and fined residents for violating regulations barring short-term rentals for their apartments. San Francisco officials maintain that Airbnb should be paying its 15 percent hotel tax, just like a Hilton or a Marriott. Companies with smartphone apps for peer-to-peer taxi services have had fines and injunctions imposed for operating outside the usual taxi and limousine permitting processes. A car ride-sharing company that operates at San Francisco International Airport was sued in June, with city officials contending it should obtain the same licenses and pay the same fees as traditional rental car companies that operate there.
Still, the U.S. Conference of Mayors passed a resolution at its meeting in June in support of the sharing economy, citing economic and community benefits. It urged the creation of local task forces to review regulations that may hinder its participants.
Whether the lure of well-heeled investors will change the idealistic underpinnings of the movement remains to be seen. “Owners and investors, especially investors, drive the ship. They could focus on growth at the expense of the user experience,” Gorenflo says. That would be a mistake, he adds, because it’s that experience that has made collaborative consumption popular.
There is widespread agreement that the sharing economy is no fad. “Collaborative Consumption is not a niche trend, and it’s not a reactionary blip to the 2008 global financial crisis. It’s a growing movement with millions of people participating from all corners of the world,” write Rachel Botsman and Roo Rogers in their book, What's Mine Is Yours: The Rise of Collaborative Consumption.
Gorenflo agrees. “It offers so much value in good times or bad,” he says. “Overall, this is a winning trend for small businesses, local economies and individuals.”
Want to Launch a Sharing Startup?
You see an opportunity for a startup that can profit from the sharing economy. Now what?
Develop a business model that promotes trust—a critical component of the sharing economy. That may be via peer reviews and a community ratings system, requiring profiles for both parties.
“Check existing regulations, and design around them if there’s a possible conflict,” advises Neal Gorenflo, co-founder and publisher of the online magazine Shareable.net. “Make your service safer than what’s required of regulated services. If you face regulatory friction, this will help you.”
Don’t spend a bundle on your prototype before determining if there is demand. “Build a community around your service, listen to early adopters and spend lots of time with them,” Gorenflo suggests. “They will tell you what to do to be successful. A number of entrepreneurs have trialed their services without technology or used existing technology like Meetup or Facebook.”
Be flexible and able to adapt quickly. Airbnb’s founders initially placed a cap on the price of accommodations. When they experimented with lifting it, its lodging options expanded to include everything from luxury homes to penthouse apartments.
For more on the sharing economy, download the Guide to Sharing from The Center for a New American Dream at newdream.org/programs/collaborative-communities/community-action-kit/sharing. Books include What's Mine Is Yours: The Rise of Collaborative Consumption by Rachel Botsman and Roo Rogers; and The Mesh: Why the Future of Business Is Sharing by Lisa Gansky.