Trend Assessment: Collaborative Consumption

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The Rise of Collaborative Consumption

If we look back over history, major crises in societies, mainly financial, have caused a paradigm shift and the start

of new innovation cycles (CNN.com). In addition, these crises tend to shock consumer behaviors and change the

quantity, the nature, and the process of what they’re consuming. For much of the twentieth century people became

hyper-consumers, or bought an excessive amount of goods or services (What’s Mine is Yours). These goods and services

were purchased for one’s pleasure, a fleeting satisfaction, which would quickly be replaced by wanting another good or

service; hence a vicious cycle of overconsumption. This continued until the financial crisis of 2008. Before this time, it is

argued that goods and services were bought on credit, communicated and sold through advertisers, and purchased for

individual ownership (Collaborative Consumption Groundswell Video). However, we’ll explore how this feeling of “me”

begins to shift to feeling of “we.”

This new mindset has changed into an emerging culture and economy where experiences are valued more than

goods, where usage trumps possessions, and as Kevin Kelly, the founder of Wired magazine, puts it, where "access is

better than ownership (Rachel Botsman: The Case for Collaborative Consumption).” Consumers now purchase or rent

items based on reputation, through a community, which allows shared access (Collaborative Consumption Groundswell

Video). This change will lead us into the twenty-first century defined by Collaborative Consumption. Collaborative

consumption describes the rapid explosion in traditional sharing, bartering, lending, trading, renting, gifting, and

swapping redefined through technology and peer communities (Rachel Botsman: The Case for Collaborative

Consumption). It is suggested that there are four main drivers, or groundswells, for this change in consumer behavior.

First, there is a renewed belief in the power of the community. Second, a torrent of peer-to-peer social networks and

real-time technology fundamentally changing the way consumers behave. Third, pressing unresolved environmental

concerns. Fourth and mentioned earlier, the global recession (Rachel Botsman: The Case for Collaborative

Consumption).

The impact and reach of this trend can be felt through the enormous marketplaces such as eBay and craigslist,

to emerging sectors such as social lending (Prosper) and carsharing (Whipcar). Collaborative Consumption is a cultural

and economic force disrupting outdated modes of business, reinventing public services, with the potential to transform

consumers’ lives (Wired.co.uk). Examples range enormously in scale, maturity, and purpose, and they share similar

underlying principles essential to making them work; critical mass, idling capacity, belief in the commons, and trust

between strangers (Rachel Botsman: The Case for Collaborative Consumption).

Collaborative Consumption can be divided into three systems: Product Service Systems, Redistribution Markets,

and Collaborative Lifestyles (Rachel Botsman: The Case for Collaborative Consumption). Product Service Systems allows

consumers to pay for the benefit of the product, the need the product fulfills, without fully owning it (Rachel Botsman:

The Case for Collaborative Consumption). An example of this would be bikesharing or carsharing. Redistribution Markets

provides a place for used or pre-owned goods to be redistributed from where they are not needed to somewhere or

someone who needs them (Rachel Botsman: The Case for Collaborative Consumption). An example of this would be

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Swaptree. Collaborative Lifestyles allows the sharing and exchange of resources and assets such as time, food, space,

skills, and money (Rachel Botsman: The Case for Collaborative Consumption). Examples of these systems would be

Airbnb, Couchsurfing and Landshare.

Embracing the Trend

Let us focus our attention on the Product Service Systems area. Below are two case studies of companies who

are changing their products or services to meet the new needs of their consumers. We’ll not only see if they were

successful, but formulate thought around future areas of opportunities this trend could have in other industries.

GM partners with RelayRides

Within the space of Collaborative Consumption, carsharing falls under the Product Service Systems area. The

evolution of sharing in this one area has gone from individual automobile ownership to a peer-to-peer marketplace for

automobile sharing (CNN.com). Although there are many hot start-ups under the Collaborative Consumption umbrella, I

was more interested in discovering how large companies were reacting to this trend.

My answer came in an article found on DailyTech.com, written in early October of 2011, proclaiming that

General Motors recently partnered with RelayRides to allow automobile owners to rent out their cars via OnStar. To

further understand, RelayRides is one of the first peer-to-peer marketplaces for vehicle sharing. Individuals who own a

Chevrolet, Buick, Cadillac, or GMC vehicle may place their car for rent on RelayRides’ online marketplace at any rate or

availability they choose (DailyTech.com). Renters then have the ability to choose a car from the marketplace through a

mobile application, reserve online, find the car through GPS, and unlock it through OnStar (DailyTech.com). "We're using

technology to make both our older and newest models carshare ready and available for those owners who choose to

participate in carsharing," said Stephen Girsky, GM vice chairman. "Our goal is to find ways to broaden our customer

reach, reduce traffic congestion in America's largest cities and address urban mobility concerns" (DailyTech.com).

It appears that GM understands the concept that cars alone are not what consumers seek, but instead the need

it fulfills, which is personal mobility services. I think GM has embraced the new “active” consumer and has designed

their products in light of this change in behavior. If we consider the four principals these systems need to work, idle

capacity (owners with cars), trust between strangers (RelayRides community, OnStar system), critical mass (large

number of car owners with these models), and belief in commons, GM has managed to address most of them by

partnering with RelayRides.

Being true to my marketing nature, I began to wonder how GM was communicating this externally. I found that

GM had plans to communicate this new offering, but I was disappointed to learn that they would be doing this through

events and demonstrations in California. Although the location may be driven by the availability of the service, I thought

they would have a plan or strategy around using social networks to disseminate the information and begin to build the

collaborative community. I believe this should be a fundamental portion to any company’s plan when entering this

industry.

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Chegg Offers Digital Textbooks and Online Tutoring

In the consumer goods industry, we’ll look at how Chegg is embracing the Collaborative Consumption trend and

the outcomes of their implementation. For some background, Chegg was founded in 2007 and has become the largest

textbook rental giant for college students. In fact, millions of students across 7,000 campuses are using Chegg for rentals

(TechCrunch.com).

This past August, 2011, TechCruch published the story about Chegg, the textbook rental mammoth, and how

they will be expanding their product and service offerings. First, they will be offering digital textbooks to their

community. Not only have they made this available through different platforms and devices, but they have been working

with many of the traditional textbook publishers to provide this type of offering. Second, Chegg has announced that they

acquired a company called Student of Fortune, a marketplace for students who need help on their homework or who

can offer others assistance (TechCrunch.com). Basically, the company is turning into a one-stop-shop for college

students to find educational resources and services, from textbooks to course advice, and note taking. As CEO, Dan

Rosensweig explains, “We want students to use Chegg 300 days of the year as opposed to before each semester”

(TechCrunch.com).

I believe that Chegg has the right idea in forming a community around their rental services and homework

tutorial sections. Their focus on college students and their changing needs is quite impressive and should help them stay

ahead of the competition in this space. In terms of trust and reputation, I wonder how Chegg will be addressing this. If

I’m going to pay to get help from a tutor, how will I know that this person has the level of expertise I’m looking for to

help me. Once this system is established and working within the Chegg community, I believe Chegg could be highly

successful.

I believe that the Product Service Systems area has an enormous amount of opportunity for many different

industries and not just business to consumer. One idea for an unrelated industry would be the Electric Power industry.

Imagine if consumers could donate or “rent” their unused electricity to individuals who need it, like neighbors.

Consumers would get a type of credit card that they could swipe upon entering their house. They could load this card up

with money and choose individuals around them who want to donate electricity. The same idea could be applied with

Internet service. If someone buys an Internet plan, but only uses it for a few hours a day, why not rent other time out to

a neighbor? If companies want the control, why not ask consumers if they’d like to opt into this plan for a reduction in

their monthly bills? Another example of this PSS application would be in the Music industry. A company like Spotify, acts

as a rental agent between musicians and their consumers. They understand that consumers now just want access to the

music and not what the music comes on, such as a CD. In addition, Spotify has created an extensive socially connected

platform for consumers to connect, recommend, and share music in a legal manor.

The Product Service Systems segment under Collaborative Consumption has an incredible amount of room to

grow. The amount of applications across industries, between segments, between businesses and consumers seems

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endless. As this trend continues to evolve and develop, consumers will see just how wide and varied the applications will

be.

Our Collaborative Future

Although Collaborative Consumption may seem like a primitive idea and it appears we may be going back to the

time of our grandparents, it has been revolutionized by technology in ways that are relevant for our current way of life.

As I sit here thinking of ways to “sell” this trend I can’t help but stop and continue backing up to see where my

collaborative efforts in writing this paper actually started. I did not physically go to a library to do research, I simply

opened my computer, went to Twitter, and started by “tweeting” to a fellow classmate for ideas that she could share.

She then sent a “tweet” back with several ideas, and the information consumption began. Once I chose a topic, I went to

Google to perform a more focused search which led to a multitude of articles, videos of presentations, powerpoint

decks, blogs and websites devoted to this topic, much of it readily available for downloading straight to my computer. I

believe that many consumers follow this similar process when looking for any variety of goods and services.

Consumer behavior is at the core for product development and marketing efforts of any company. In studying

this shift in behavior change, it makes sense for companies to revisit their value propositions to ensure they are offering

the correct “value” or “experience” the consumer desires from their products or services. As in the case of the

automobile industry, consumers are no longer looking for cars, but personal mobility. The customer need or desire of

personal mobility is being fulfilled through the Product Service Systems area. Again, this system allows consumers to pay

for the access of a product without actually owning it. Timothy Ericson, Founder and CEO of Zagster, a bikesharing

company, offers his view on the subject by stating, “Many people under the age of 35 are still living in major cities. They

don’t want to be burdened with all this “stuff.” It’s not only a major hassle to have a car or bike in a major city because

of theft, damage, space, etc., but it drains financial resources. Did you know that the typical American spends a fifth of

their salary on their car alone? That’s working one day a week to pay for the car that takes you to work.” Tim goes on to

state, “I believe we will begin to see big name products and services begin to adjust to this concept or trend. If large

companies do it right, there could be major opportunities, for example, secondary markets.”

The broad trend of Collaborative Consumption reaches most industries, most consumer segments, in one way or

another. As Rachel Botsman sees it, this is nothing less than a social revolution. “We are relearning how to create value

out of shared and open resources in ways that balance personal self-interest with the good of the larger community,”

she says. “For the first time in history, the age of networks and mobile devices has created the efficiency and social glue

to create innovative solutions, enabling the sharing and exchange of assets from cars, to bikes, to skills to spare space”

(Wired.co.uk).

Let’s bring focus back to the Product Service Systems area. If we look at the twenty-one industries labeled on

the Small Business Association government website, it would be easier to list the industries that would not be impacted

by this trend. Industries that are currently not impacted, but potentially left for opportunity, include Aerospace and

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Defense, Chemicals, Firearms and Explosives, Food and Beverages, Mining and Drilling, Nuclear Power, and

Pharmaceuticals and Biotechnology. In terms of consumer segments, Tim Ericson and I would agree that this trend is

currently appealing to, but not limited to, those segments who are concerned with money, concerned about the

environment, highly connected, in and around urban locations, typically under 35, and heavily integrated with their

social networks or community.

It is quite certain that this trend will change to include more industries and additional consumer segments as

innovations continue to develop in this space. Foundationally, the principal of trust between strangers, which is one of

the four principals that helps these systems work, may be the next sweet spot for opportunity. Ericson believes trust and

reputation of individuals and companies will be the big “win” for this space. “I think whoever figures out how to

successfully track/monitor/manage a system of trust will be the next “golden” company. I think it could be as big as

Paypal or potentially Facebook.” Rachel Botsman also states that trust and reputation, or as she has coined it

“reputation capital,” could be as valuable as currency (Rachel Botsman: The Case for Collaborative Consumption). “What

they’re trying to create is a new system of credit for online interactions. Easily put, trust verification is to collaborative

consumption websites as credit scores are to traditional banks and lenders” (BusinessInsider.com). Briefly,

entrepreneurs in the collaborative consumption industry are learning what matters most to consumers who might use

their sites. Initial research and experiences have found that identity and trust are the two main areas

(BusinessInsider.com). “The most important thing we can do for our users is make a really trustworthy experience for

them,” says John Zimmer, cofounder of ZimRide.com, a trip sharing website (BusinessInsider.com). If they figure out this

fundamental problem quickly, supporters believe that collaborative consumption could take its place alongside Henry

Ford’s assembly line as a major development in modern economic history and provide a substantial competitive

advantage over competitors in the industry (BusinessInsider.com). They may be able to create an entirely new system of

credit, one which takes more into account than the information in traditional credit scores (BusinessInsider.com).

In conclusion, yes, there are still areas that need to be developed, but Ericson could not have said it better by

stating, “I believe we are on the cusp of this innovative trend. It’ll be exciting to see the creative ideas that emerge in

this space and how large corporations react to it. However, I believe the “winner” will be a business who can successfully

identify and track an individual’s reputation or trustworthiness.” Or by the words of the two pioneers of this industry

Rachel Botsman and Roo Rogers “Collaborative consumption is not a niche trend, and it’s not a reactionary blip to the

recession. It’s a socioeconomic groundswell that will transform the way companies think about their value propositions

—and the way people fulfill their needs” (Rachel Botsman: The Case for Collaborative Consumption).

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Appendix A – Expert Interview Biography

Timothy Ericson

Timothy is a successful Boston-based entrepreneur with expertise in business and technology. He is the co-founder of

Zagster (formerly CityRyde), which he has built from a consulting business into a thriving software company and a fast-

rising name in the fields of bikesharing and sustainability. Zagster has grown continually thanks in part to the persistence

of Timothy and his team in concluding multiple successful rounds of angel investment. Timothy has represented Zagster

nationally in publications such as Entrepreneur Magazine, US News and World Report, and Fast Company. He has been

involved with several nonprofit organizations, including the Network for Teaching Entrepreneurship, and has guest

lectured on entrepreneurship and volunteered his time at several Philadelphia-area universities. Timothy is the founder

and chair of the monthly Entrepreneur Round Table at the Pyramid Club. He started his first company, Pointplex

Technology, in 2001, and has worked in IT for a variety of companies, from startups to Fortune 500 businesses. A native

of Fair Lawn, N.J., Timothy is a graduate of Drexel University with a degree in Business Administration and a

concentration in Legal Studies, and is the 2010 winner of Drexel’s Young Alumni Entrepreneur Award. His interests

include skiing, traveling, cooking, technology and, of course, cycling.

Timothy Ericson’s Bio

http://www.crunchbase.com/person/timothy-ericson

Zagster’s Company Website

http://zagster.com/

Appendix B – Interview Questions

Interview: Tim Ericson – Zagster, Founder and CEO

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The trend I’m looking into is “Collaborative Consumption.” Rachel Botsman and Roger Roo have been deemed the pioneers of this movement. They suggest there are 3 systems that work beneath this larger trend. They are Redistribution Markets (Tradepal), Collaborative Lifestyle (Airbnb, landshare), and Product Service System (car-sharing). *Redistribution markets – used or pre-owned item and move it from where it is not needed to where it is needed (swaptree.com), Collaborative lifestyle – sharing of resources like money, skills, time (landshare garden), Product Service System – you pay for the benefit of the product but not needing to own the item outright (high idling capacity products, power drill) Where do you believe your company fits in?

I believe our company fits into the Product Service System, since we are a bikesharing/renting company. Our company is called Zagster (formerly known as CityRyde). Zagster makes renting bicycles ridiculously easy, and affordable. The Zagster platform includes four simple components:

Bicycles - Five years industry experience has helped us find the perfect bike.

Locks - Speaks to software to enable users to lock/unlock via text messaging.

Software - Our management software makes running your program a breeze.

Maintenance - Sit back and let our nationwide staff take care of the fixes.

I believe that people who are under 35 don’t want the hassle of buying and maintaining a variety of products, especially large ticket items. Many of these individuals live in and around a city where larger items, such as cars, can be burdensome and cost a lot of money.

In your opinion, what sparked this change in consumer behavior?

Big names came into the space and started to build awareness of the trend. Also, as I mentioned earlier, people under 35 don’t want to deal with “stuff”, but we do want to borrow it or rent it from time to time. In addition, many individuals are staying around the urban areas for longer and not to mention urban areas are getting larger. With this in mind, why would anyone want a car while they live in a larger city? Too much hassle.

I think this is something many companies will need to pay attention to moving forward. Some major products would turn into services.

I think that this would have happened regardless of the financial crisis. Did you know that the typical American spends 1/5th of their salary on their car (work 1 day a week just to own their car).

Shift towards closed community (Zimride) – closed to colleges

*Luxury car share had a really bad experience

Closed communities a top priority

In your opinion, do you think this is a trend that companies should pay attention too or just a fad?

This is definitely not a fad. I think companies should pay attention to it. One reason is the cost reduction or saving in the change in consumption. This allows consumers to spend their income in different ways other than these idling products, which could mean cost savings for future big ticket purchases.

How could larger companies, say GE, benefit from this behavior change?

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I think this would be a great way for companies to get exposure and begin to build their brand reputation. Originally car industry refuted Zipcar, but when consumers moved out of the city they chose to buy the car they were used to renting through Zipcar.

Also, I think established companies should utilize some of these services (ex. Airbnb and let employees share them). Why not offer an incentive program to swap residences with employees while traveling? It could cut costs for companies and allow employees to make additional money.

Key factors in these new systems are trust and reputation. How did you build your trust and reputation among your consumers?

We are still in the very beginning stage of our company and working on getting our product accepted. Since we work in a business to business to consumer world we have to build trust and reputation with our partners first. We can do this in the traditional way, but this will change once we grow our communities. We plan to have our software connect through Facebook. I think whoever figures out how to successfully track/monitor/manage trust will be the winner. I believe Airbnb is successful because they integrate Facebook from the beginning.

Some level of protection with these closed communities. Smaller niches.

If you do, what are the processes you have in place to communicate and monitor trust to your community?

We have not been able to implement this yet because they do not have a large community. However, we will be implementing things like Facebook for people to login with.

What are your current marketing efforts like?

Have not done a whole lot of direct to consumer marketing.

B to B to C – apt complexes and colleges, time and effort to promote to their clients

At this time our social network is very limited. We have not been able to acquire someone to do this full-time for us but we will have a strategy around this in the near future. We believe this will be a strong channel for us in the future for community building and marketing efforts.

They are also working on a phone application that will allow users to control everything from their mobile device.

How this trend may or may not impact the business landscape (business landscape)?

I think it’ll impact current and future businesses. My company was started and built around this idea and there were many before and will continue to be after us. Again, I don’t believe this is a fad, especially due to the changing consumer. I also think that our social networks are going to be able to connect us in a more “official” way if you will. For instance, connecting to an application or company through your Facebook will more than just a login, but you’ll be able to see that this is a real person and begin to get a picture of who they are.

What specific industries and consumer segments may be impacted (consumer segments and specific industries)?

I really don’t think this is going to be a limited trend. The overall trend of Collaborative Consumption can really hit any segment in any part of the world. Our specific system alone has an incredible amount of variety and opportunity. I think this ties into appealing to a more knowledgeable and educated consumer.

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How the trend itself will change moving forward (trend change)?

The people who crack the reputation code/rating system will be the “game-changers” or “winners” of this trend. *We both believe that this will liken to a Facebook or Paypal usage, meaning it’ll become a universal system that everyone will use.

What will be needed to stay ahead of competitors (competitive advantage)?

For us we are looking into breaking into the market in a different way. For example, other bikesharing companies have gone directly to cities and tried to facilitate a large, burdensome program. We are working with more “intimate” communities, like housing, to begin to build our network. I think companies will need to keep abreast of this trend as it is evolving and developing so quickly. Once a rating/tracking system is in place for trust and reputation, successful companies will need to begin implementing and building their scores internally as well as promoting high scores within their consumer communities.

Reputation will be key for this trend and how companies will deal with problems. *We discussed how Airbnb had great reviews and ratings until there were 2 incidences where people vandalized, stole, etc., from their exchanges.

Additional Thoughts?

In the bikesharing area we face additional challenges with promoting the exercise aspect of it. In addition to providing an “accessible service” we need to promote the value of actual biking. It’s also a delicate balance between “green” initiatives and “hippie” initiatives. We want to appeal to the critical mass. Surprisingly, companies want their employees to be healthier and happier and have been more receptive to this idea and implementing it.

As much of this trend does with reducing costs, one surprising way is with reduction in pollution, like carbon. It’s easier to implement a bikesharing program on a company campus than to remove a smoke stack or change an entire production process. This is what I mean by how large the impact and scale of this trend could be, it’s not just about goods and services.

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