Also known as collaborative consumption, the “share economy” is a term that has become popular among media outlets and that seems to hold a lot of promise. Indeed, Time magazine named it one of the 10 ideas that would change the world in 2010. The idea has received so much hype that LeWeb, the biggest tech event in Europe, has chosen “Digital Hippies: Create a New Sharing Economy” as the topic for their next London edition of the event.
In a nutshell, this new paradigm of consumption allows individuals to rent out their personal property and/or living space, or even propose their services to a perfect stranger. Of course, this decision is not taken blindly, but with the help of different platforms that provide mechanisms to assert the identity and reliability of the other party to the transaction.
As for the economic impact of this new sharing economy, Bloomberg reported in 2010 of the hundreds of users who were able to dodge foreclosure on their homes thanks to the services of Airbnb. Indeed, Forbes estimates that the share economy will produce more than $3.5 billion in revenue this year, showing a growth of over 25%.
Airbnb, the star child of the share economy, offers an online platform that helps guests looking for unique accommodation within any given price range find the right host for them. According to the stats on its website, Airbnb has had over 10 million nights booked, with over 300,000 listings worldwide in over 33,000 cities, and in 192 countries. These numbers, plus the emergence of many other startups providing services in the same spirit, show a clear trend towards a new form of consumption.
Indeed, companies such as SnapGoods, which allows users to rent or borrow high-end household items from others in their area, could potentially disrupt the way we operate. No more need to buy a drill that will only be used for an average 15 minutes in its lifetime. Or, instead, you can make money off the one you already own. Either way, you save money while reducing your environmental footprint. What’s not to like?
Having studied law and economics, and as a lover of technology and its applications, I live in a constant conundrum. Much like a parent looking at his child riding a bike for the first time, excitement and apprehension rush in all at once. And while it is a lawyer’s job to foresee everything that could go wrong, it is not our job to be an obstacle but a tool for business and innovation.
So what are the risks?
In the case of operations such as renting out personal property, a few risks that immediately come to mind include liability in case of damage, which, in the case of an object, might be affected by its state at the time the contract took place. When we share everything, everything gets used more, and thus breaks more often. And remember the person renting the item is probably someone like you or me, who may not have kept such item in top condition before each rental as a professional would. Cars, bikes, and high-end house appliances, all need a certain level of maintenance in order to keep them safe and avoid property damage.
When it comes to peer-to-peer pet boarding, it becomes even more complex if trying to establish negligence, damage caused by a pre-existing condition that the owner might not have been aware of, or even old age.
Other risks, but now dealing with the renting of living space, include legal action by landlords against their tenants for breach of contract, which actually happened to a former Airbnb user who wrote an article about the experience on Fast Company. For most users, it would be due to a clause in the lease that expressly prohibits this kind of short-term rental, or a provision that forbids subletting in general. However, some countries have tight controls over short-term rentals, or laws against the use of residential rooms as transient hotels. In Amsterdam, for example, an individual may legally use their home as a B&B as long as it’s registered with the city and only 40% of the living area is used for these activities. In New York City, which also forbids these “illegal hotels”, the mayor’s office of special enforcement has received over 3,000 complaints and issued almost 6,000 violation notices since 2006. These rules vary from one jurisdiction to another, and many users ignore that by engaging in this activity they are actually breaking the law, while authorities are becoming increasingly aware of these violations.
But aside from regulations and getting in trouble with the authorities, which is no joke, most of the risks involved in peer-to-peer online transactions are more or less the same as the traditional ones, except that now we have many companies who act as the middle-man, making information available more efficiently and thus helping the consumer make better decisions.
The sharing economy and the fact that it is carried out mostly through online intermediaries raises all kinds of issues and complications. As this article points out, will insurance companies be so keen about their clients regularly renting out their homes/cars? This is no longer a hypothetical question, but one that needs to be clearly defined. Laws governing peer-to-peer car rental have already come to effect in certain states, and more legislation of this kind is surely to come.
From a startup point of view, and as a mere intermediary, there are naturally contract clauses that limit or exclude liability. In Europe, according to Directive 2000/31/EC that regulates electronic commerce, a service provider can benefit from the liability exemptions for “mere conduit” when “he is in no way involved with the information transmitted”. But, would Airbnb’s professional photography program that provides hosts with free high-resolution photos be considered as modifying the information? Also, while most companies would match the “mere conduit” description, nowadays startups are getting more involved. Such is the case of companies such as DogVacay, who claim that their pet-sitters are “hand approved to ensure quality and safety”, and RelayRides, who performs “strict renter screening” and background verifications.
Besides, in the end nobody wants to pay. Be it the user or the company, the activity needs to remain profitable for all parties involved. So the point is not to avoid liability at all cost, but to make the consumer feel safe to use the product/service and reduce these casualties to a minimum. This is why these companies rely on giving the user lots of information, thorough user reviews, a damn good insurance policy and ultimately trust. We trust that these companies have our best interest in mind, because otherwise they would disappear from the market.
After all, sharing is caring.
Airbnb is no stranger to the shortcomings of the share economy. Especially after being involved in a huge scandal in 2011 where a host’s property got trashed down, threatening its reputation and leading the company to ultimately extend the guarantee offered to hosts for up to $1 million in property damage in 2012.
Despite the exceptional nature of these occurrences, other companies have also understood that users need reassurance when making this kind of transactions with virtual strangers. RelayRides, understanding people’s apprehension towards renting their own car, offers up to $1 million liability insurance. DogVacay pledges “all reservations include complimentary insurance, 24/7 customer support, daily photo updates, and a 100% money back guarantee”. SnapGoods has similar protection included in its guarantee, also relying on a system of security deposits of up to $5,000, determined by the owner of the good in question. In case of disagreement with regards to a claim, however, the company has the last word on the matter, assuring that customer satisfaction will always be their priority.
Of course, I could not talk about every single company, and there are for sure many notable examples that I have not mentioned here. For a better understanding, you can check out this book and this brilliant TED talk by its author.
The main lesson to retain here is that, in this new form of collaborative consumption, reputation will be our most valuable asset. What these companies are doing is actually empowering ordinary people to become micro-entrepreneurs (micropreneurs), with the help of communities that help build trust between strangers. As studies like this one have shown, trust is a determinant factor in online transactions and a currency in many ways. Some companies have caught on, with websites such as TrustCloud helping users make their reputation portable from one platform to another and many other websites adding endorsement features. Organizations have also understood that they need to be trustworthy as well, developing strong cultures and core principles embedded in their company.
Ultimately, we must not look at the share economy as a necessary evil of the economic crisis, but as a form of consumption more efficient than ownership and an endless source of business opportunities.