The Dark Side to the Collaborative Economy

As part of my ongoing coverage of the Collaborative Economy (read all the posts) it’s important we explore all facets of this disruptive trend to corporations not just upsides, but the downsides.   I also see that marketplace friction is a sign of disruption as power changes hands, which should make the seasoned web strategist want to look closer.

If you’re from the sharing movement and are offended by this post, first, read my opposite of this post is the three drivers of the Collaborative Economy where we’ve documented over a dozen specific attributes that are driving this movement  While the recently published report on the Collaborative Economy lists out the key challenges continues to get traction, let’s focus in on a deeper level on what’s counter-acting this market and look  at both sides, objectively.

Index of Challenges: The Dark Side to the Collaborative Economy

- It’s against the law.  In some cities, it’s against the law to act like a business if you’re not one.  Amsterdam ruled that unlicensed hotels (houses) were not legal and we’ve seen similar rulings in cities like NY, Berkeley, and beyond.   It’s difficult to move forward, if sharing has been deemed a criminal behavior.

- New is better than used.No more unboxing videos, you’re getting hand me downs for the rest of your life, Jonny.   New products have their appeal, their shiny, unbroken, and void of someone else’s grimy fingerprints.  New cars, houses, clothes, and even baby toys have their value over sweaty, beaten, and ‘proven’ older products.   Or imagine an AirBnb vs hotels, who provides value added services of security, food, concierge, and of course, that coveted mini-bar.

- Sharing mindset challenges traditional values. Call it hippy dippy, call it radical liberalism, call it anti-consumerism, call it the anti-thesis of what a healthy society is built on.  Not only will society force those who don’t share to feel selfish, the very core values of some Western societies are rooted in a sign of success of owning a 3 bedroom house and white picket fence, reinforced by marketing to live the dream. This mindset of sharing with others challenges the very values and principles that many consumers and business owners have been taught to fight against.

- Traditional business models threatened as crowd becomes empowered over institutions. Without a doubt, existing corporations are being disrupted by this burgeoning trend that enables the crowd to be their own company –bypassing corporations.  Corporations are left with the burning question to keep them up at night: “What role do we play if people buy once and share many times with each other”?

- Governments balk in order to defend taxable revenues. Across the world, we’re seeing governments at local level and sometimes federal battle the sharing of homes, cars as it radically disrupts business models, taxable revenues, security, transient guests, and existing institutions. I assume most lobbyists are gearing up, funded by those corporate backers, in order to take these battles to court, and even next month in SF, new rulings will be unveiled.

- Service providers could be deemed a second rate marketplace.   Second rate hacks now posing as professionals?  Professionals at hotels, restaurants, service firms, staffing agencies and beyond will tell you their workforces are better than those found at on-demand marketplaces like oDesk or Taskrabbit.  They’ll claim their workforces are full time professionals, working full time, not stay at home part time workers.

- Concerns over public safety and quality control leave regulators reeling.Berkeley showed concerns that transient migrations of guests to neighborhoods could be a public safety hazard.  Furthermore, as startups like Feastley arise that enable anyone with a kitchen to act like a restaurant, concerns over food safety arise.  In a morbid case study, accidents (and deaths) in car sharing lead to great concerns over safety as unlicensed drivers act like taxi drivers, putting those around them at risk.

- Legal liability challenged as ownership and access models are diluted.Who’s liable if a car is shared, rented, or borrowed and then crashed by a stranger?   Those are the direct questions posed by insurance companies, the legal branch, and owners of  assets will face.  While websites like RelayRide offer insurance policies up to $1m for autos, will that cover a severe tragedy caused by users of this service?

- Lack of spending reduces overall market, impacting jobs and economy.Forget your silly startup, the bigger issue is that sharing reduces taxable revenues, jobs, consumption and economic injections from consumers spending widely.  If no one bought ever again, and instead just shared, fixed, and made their own products, the capitalism system as we know it could start to unravel.

- Lack of trust in two sided marketplaces leave owners at risk.  To quote contrition Milo Yiannopoulos who provided a compelling speech at LeWeb, he “Works hard for his nice stuff and doesn’t want strangers touching it” (paraphrased) strikes a chord with many. Furthermore, we’ve seen case studies of AirBnb properties being looted or damaged, or cars crashed that were part of the sharing economy –it’s hard to trust strangers, despite Facebook connect systems.

- Collaboration in an economy ripe during recession –but not during a bull market.Penny pinching is great during financial struggles, but during times of boom, this is an un wanted friction as I can buy new with wild abandon.   Economic disparity aside, the developed nations will discard the silly notion of sharing when instead they can own more at will.

- Oligarchy is reinforced, as owners rent to economic deprived.  The rich get richer as those who have the resources to build/fund startups or the resources that will be used in these marketplaces or used on demand will continue to generate money.  In fact, traditional corporations like car rental corporations have purchased car sharing startups in this space, securing their place in the market.    VCs and investors who already stem from the 1% seal their place in power positions by being owners of the movement.

- Excess VC funding inflates an artificial marketplace.   Those crafty VCs continue to inject funding into startup clones so their portfolio is also proven to have them covered in the car sharing market, hotel sharing market, services shared market and office sharing market.  This artificial injection casts traditional business model aside, as startups have one focus: market adoption –rather than business models that will sustain–as they prepare for IPO or M&A exit.

- Startup saturation in every category confuse the market.   With over 20 car sharing/renting/on demand car services available, how does one keep track of who does what?  Trying to invest in the right service leaves those who would consume confused, and creates marketplace churn.    With barriers to entry so low, what’s to stop this market from continual wasteful churn, as everyone tries to do the same thing?

- Socialistic values at odds with free market capitalism.  Boom. I swore to myself I wouldn’t bring it up in public, but it warrants a discussion.  The collaborative economy, like the internet and social media is a form of socialism where the crowd gains power over institutions.  History is rife with examples of variations of socialism being challenged, not working at all, or in a few cases, works just fine (see Northern Europe).  Everything I learned in business school didn’t prepare me for these radical models where corporations, and capitalism as we knew it, are upended by this radical change.

- Lack of standardized reputation systems.  Currently, the startups don’t share repuation systems, and are generally silo’d.  While over 50% have deployed Facebook connect, the ratings and review data of the individual goods being offered, or the owners, are not being shared in a consistent way.  Solutions like Trustcloud have emerged, but lack broad market adoption.  (edit: added this a few hours after I posted)

- A conduit for the underworld.  An emerging black-market  in every category unchecked by regulatory bodies. Need I say more?

A sign of market disruption is heat from friction, as power changes hands

Friction represents disruption, which gives us pause to look closer at market drivers and market resistors. This growing lists shows the challenges this market will have to contend with, take head on, and overcome in order to become a mainstay in society. Below, I’ve provided some additional resources that aided me in compiling this list, which I hope you add to, in the comments. This market will fight these challenges for years to come, we’re just at the very start of this new market.