Collaborative consumption additional insights

Utility optimization

by Scotland Willis

Like the nature of recycling and the concept of cradle to cradle, collaborative consumption looks at the advent of social sharing networks commonly known as peer-to peer (P2P) networks; people buying, selling, borrowing, and renting from one another thereby avoiding a retailer- optimizing the usefulness of products and services among individuals. From Flicker to Facebook, from AirBnB to hundreds of peer-to-peer products and services; this newly defined (compliments of Ray Algar) phenomenon is growing in numerous directions.

Collaborative consumption represents a new element in the economy producing a new consumer base that would exist on a much smaller scale without internet technology- the true fabric of P2P networking. Communication via the internet allows billions of people across vastly different geographies (individuals and groups), the opportunity to connect around the utility of mutually beneficial goods and services. Put simply you have something with excess surplus and I can utilize that excess surplus which will provide additional (or secondary) benefit to the original owner and primary usefulness to me.

This P2P activity is producing new entrepreneurs and generating revenue in the billions of dollars representing an emerging economic powerhouse while serving other benefits as well. We are likely looking at the diminishing value of large spaces occupied by retailers who attempt to persuade people to consume new and "improved" products. Algar sums it up best when he makes the inquiry “What happens when pricing insight becomes accessible and consumers begin to share knowledge?" Essentially people are better informed about products and services, while gaining access to previously hard to complex or out of reach resources.

Algar opened the portal for Rachel Botsman and co-author Roo Rogers to expound on the concept in their book What's Mine is Yours. Botsman and Rogers do an excellent job exploring the connectivity and concepts therein, along with the economics and behavioral implications.

Here I simply add important-to-consider impact and implications of peer-to-peer (P2P). It is important to further expand on this emerging phenomenon by building on valuable concepts that enhance the explanation of the P2P consumerism. My guess is that collaborative consumption will continue to evolve; it is not likely to diminish as the economy rebounds-- I see it as an emerging trend that sets new precedence. Consumers and owners (not producers so not to confuse the concept with manufacturing) are identifying new approaches to usefulness for goods. Consider this one of many developments that lie ahead for collaborative consumption.

Collaborative consumption embodies only part of what P2P is becoming. There are a couple of elements that deserve to be addressed in the concept I call product utility optimization. I use this term because what people's actions are demonstrating is that they are attempting to find creative ways to further utilize products or services. From distributing workloads to distributing expenses; in some instances people are buying high ticket items, or perhaps making more efficient use of items they possess in communal ways. One might think of P2P as the great equalizer-- peer utilization.

Wikipedia provides hundreds of millions of people around the world with access to encyclopedic information at no charge, arguably the most efficient benefit possible, consumers in turn of this information, volunteer donations (at least that is the hope). In my opinion, the idea of collaborative consumption is more about optimization through networking services. Wikipedia achieves this somewhat altruistically, which leads to the social concept.

As found in Botsman and Rogers' research, there are thousands of opportunities entrepreneurs capitalizing on those opportunities that are creating this nurturing "groundswell" as they put it. Some of the more popular P2P include Freecycle, Landshare (in Europe), Netflix, Kazza- too many to mention. And while at one point, P2P was referred to predominantly in the technology circles such that Netscape created, it has grown into a much broader network where the landscape is accelerating the social fabric of P2P. Facebook and Twitter are an example of P2P news and information sharing, where messages can be transmitted around the world at near light speed. All of the aspects of P2P play a tremendously valuable role in society.

What is the social benefit? One perspective is that it allows people to be equally privileged- an online egalitarian society ; if you can afford it you can have it; if you have access to information or resources you can share it. No red tape and the all important “S” word simplicity!; perhaps in this case sharing. The appeal is a combination of both along with other factors.

With product utility optimization the initial consumer may be making their purchase because their consumer surplus consist of functionality towards their need and not necessarily price; the secondary consumer is more likely seeking as their primary benefit a combination of cost savings + social benefit. In their mind they are achieving or exceeding the value the initial purchaser received if the product enables them to achieve full utility of that resource for their needs.

In a second example we can consider an individual who owns a condo. Suppose they have an empty space and choose to make the space available on Airbnb (a P2P room and home sharing service that generates revenue for the owner). The peer utility allows the peer owner to be matched with the peer user optimizing the empty space. One generates revenue where there would have been none, the peer user benefits by utilizing a space at what is usually a much lower cost with much higher benefits than a comparative price they might have paid if choosing a traditional hotel.

Where does this lead us and what are other benefits? Referring back to the cradle to cradle concept; reduce, recycle, reuse, repair (4R's) and Botsman says redistribute. At this point the product is changing ownership. I believe redistribute is implicit in the reuse concept of the 3R's with the exception of when ownership is changing hands. Nonetheless, we use fewer resources when we reuse products and thereby reduce the taxation on the natural resources and the environment that results from traditional approaches in consumerism i.e, reducing hyper consumption.

From a social perspective we have large groups of people from all around the world that can participate in the free market concept without a middle man and as mentioned earlier. In large groups many people can gain leverage to negotiate the price of products ranging from oil to televisions. People also assemble around the notion of being able to utilize what they need most without assuming full responsibility for the expense i.e. Zip Car, kind of like a distributive welfare and accountability system. The key word is system. We are looking at an intricate network of multiple systems organized around the multiple needs of people, exponentiating the utility of a good or service.

These emerging industries are intricate systems of like minded people seeking take advantage of not just psychological surpluses in economic terms, but take advantage of the physical surplus that both the owner of an existing good and secondary consumer of that good acknowledge. This product serves two utilities because it may no longer be of any use to the one, but an amazon.com can optimize its utility without that product going to waste, to the other peer, it results in a secondary value system.

Google does this by enabling share ware and non-proprietary or open source software- efficiency yields a social efficiency that results in less restrictive environments. Less restrictive environments mean more people have access. People who embrace this system seem to pursue and desire the liberal (from a non-political perspective) informal attributes. With greater access to information they become resident experts which also requires an element of self confidence, something you don necessarily gain with retailers.

Trust is another concept that Botsman refers to as the cornerstone of collaborative consumption, and I agree. While I am not suggesting definitively, that trusting people flock to this environment, I am suggesting that the trust profile (in part) make up a segment of the value added in a P2P environment. Though I would argue that when someone developes a rating system that tracks trustability and applies it to the general online population, the system will lose much of the character it currently enjoys.

Mike Reynolds, founder of Earthship Biotecture demonstrates many of these social value systems mentioned in this article in his architectual Earthship project, where individuals commit to contribute to building a community with little financial output in exchange for 1) preserving natrual resources and helping to build homes. As in Earthship and other examples, people exchange and share resources with little more than a verbal agreement(ride sharing or swap tree), in all these examples trust is a paramount attribute. The risk is relatively small compared to the percieved value of being a merchant, executing a trade or share, and successfully feeling like a part of a community without boarder relative to judging your personal character.

Unrestricted resources enable people to connect at low to no cost products which fosters a greater social network, it is an enabler which also fosters resulting in a more egalitarian marketplace. Craigslist provides individuals with an endless resource to sell products or services, assemble around a common interest (e.g. ride sharing, match making etc). There are very few restrictions (which have also resulted in legislative pressures to modify certain policies), but in general Craigslist is tremendously successful as their model operate world wide at zero or very modest cost to P2P users. It is not unusual to find people gloating about how they found a car, lamp, plant, book or clothing on Craigs list free or inexpensively. These borderless communal opportunities connect people in expansive ways, which people embrace the service and one another . Many price prohibitive barriers have been removed thereby creating greater access to a wider community of people. People develop individual equity solely based on their results- a tremendous social value.

Peer to peer utility optimization, collaborative consumerism and whatever other language P2P networks might assume, it is anything but temporary. P2P is a new and component to our society that is likely to improve society, the market place, the environment, and multitude of areas the have and have yet to be explored. The trend of utility optimization is not new, some might recall a time when grand parents or earlier generations saved everything for another purpose; no this is simply a more innovative approach to allowing the world to look at yet another use for that galss jar.