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(2013-03-03) Sharing Economy

Erin Griffith on the Sharing Economy Framing. Sharing is by definition free — how can it have its own economy if there’s money involved? Sharing for money is called renting. And in the case of Etsy or even old-school “sharing economy” marketplace eBay, there’s no sharing happening at all — it’s just straight-up commerce. I suppose the Renting Economy or the Selling Economy doesn’t sound as promising and magical to the media. It’s not quite “change the world” enough for the high-minded Valley elite, either... Further, they are all Venture Backed. These startups are creating a shadow economy, driven by first-time “entrepreneurs,” a bold choice of name for the many freelancers hawking their homes, cars, time, and expertise to strangers for extra cash. Some of them cobble together a solid living across several of the sites, operating as perma-lancers with no need for a corporate nine to five job. Justin Johnson of Late Labs recently pointed to several examples of the reasonable Middle Class salaries one could make from several of these services. I Commented (Mar05) on Johnson's piece to question the numbers, I think there's major BullShit here.

Perhaps Silicon Valley has taken an idea that is good — not revolutionary, but exciting and good nonetheless — and done what it does best — overhyped the hell out of it. After all, the sharing economy has been around since long before Forbes gave it a magazine cover. But it wasn’t as exciting to write about then, because the original sharing economy didn’t care so much about money. Free services like Craigs List, Couch Surfing, and loosely organized groups from skillshares to carpools have always existed on a smaller scale. Why did they only explode when the idea of money was introduced?

The oldest use of the term "Sharing Economy" I found online was a Jun'2005 article in Business Week driven by a Mar'2005 essay by Yochai Benkler called "SharingNicely" which didn't include the "Sharing Economy" phrase itself.

The term "Collaborative Consumption" was coined by Marcus Felson and Joe L. Spaeth in their paper “Community Structure and Collaborative Consumption: A routine activity approach" published in 1978 in the American Behavioral Scientist.[4] The paper dealt with Car Sharing.

Mar07: I snarked Smells like the Sharing Economy bubble is driven by the slow liquidation of overconsumed assets by the Downwardly Mobile.

Mar08: The Economist has a piece on Collaborative Consumption as the Sharing Economy. Such peer-to-peer (P2P) rental schemes provide handy extra income for owners and can be less costly and more convenient for borrowers. Occasional renting is cheaper than buying something outright or renting from a traditional provider such as a hotel or car-rental firm... It is surely no coincidence that many peer-to-peer rental firms were founded between 2008 and 2010, in the aftermath of the global financial crisis (Credit Crisis 2008). Some see Sharing, with its mantra that “access trumps ownership”, as a post-crisis antidote to materialism and overconsumption. (AirBnb, Uber)

Mar27: Nithin Coca thinks Couch Surfing has gone downhill since converting to a For Profit last year. I think the blame lies in an organization that has decided to focus on growth over building a community. Commenters note that the site tried to get official 503c Non-Profit status but failed: there was missing money, undemocratic leadership, and non-existent accounting. So they choose an easy path. Had they run the site with integrity from the beginning, non-profit status would have been easily achievable. Had Casey Fenton not run it as his personal fiefdom, it wouldn't have had to be sold to investors. Here's a post from 2007.

Apr03: Venkatesh Rao thinks this so-called Sharing Economy is really an Un-Sustainable Locust Economy. Re/highlighted at (2013-04-03) Rao The Locust Economy.

  • “Wow, locusts are basically zombie grasshoppers!”... And the more I thought about it, the more I also realized that I was a locust. Maybe 1/8 locust as a Consumer, and probably 1/2 locust as an economic producer. If you’ve ever participated in the “sharing economy” in any way, not just the worst-case act of offering or using a GroupOn deal, you’re a locust too... The identification of mindless consumerism with zombie behavior is very tempting... But locusts bring a whole new level of detail, real-world precedent and seriousness to this class of metaphors. Because unlike fictional zombies, locusts aren’t the dumb instruments of a witch doctor or a mutant virus. They are actually smart and self-interested automatons, which makes them more scary... Whatever the biological details, the key point is that locusts devastate their foraging base. Locust swarms don’t create new value. At a systemic level, the most charitable thing that can be said about them is that they efficiently strip mine value... Locust economies are built around 3-way markets: a Swarming platform “organizer” player who efficiently disseminates information about transient, local resource surpluses (Slack), a locust species in dormant grasshopper mode, and a base for predation that exhibits a Scarcity-Abundance cycle...
  • Unfortunately, within the human world, it seems that the prey base is usually some sort of small business (SMB) sector (either independent or franchisee chains). I will call this the Jeffersonian Middle Class, as in economic actors driven by the producerist values espoused by Thomas Jefferson (basically “small, local and independent”). The war between the 1% and 99% seems to play out with the 1% and the 90% collaborating to prey on the 9% in the middle — the Jeffersonian middle class. This is a very different class than the Pay Check (DayJob) middle class, which has a superficially similar financial life. But during hard times, the paycheck middle class turns into the locust class in both production and consumption behaviors. 2011-12-09-RaoActingDeadMiddleClassScriptsTradingUp
  • Once locusts acquire an informed kind of market mobility through better discovery mechanisms, they can range over a much larger area of wheat fields or restaurants. You can continuously derive savings at the expense of other economic actors (wheat farmers or restaurant owners).
  • So the Abundance here is an illusion created on top of local scarcity via cheap discovery of transient local surpluses, artificially created by small Jeffersonian middle class actors hopelessly looking for Leverage, and co-opted by swarming-Platform owners.
  • Whether it is underutilized (Slack) inventory of living space, coupons, parked cars or anything else, for most of the people, most of the time, if you have enough of the market navigation information, and are willing to travel a little further than you normally do, you can always find a deal.
  • The catch is of course, that for platform organizers to be profitable, they have to aggregate such slightly evil locust instincts and create locust swarms. (Critical Mass)
  • So the system can only create transient locust swarms out of individual slightly evil intentions. A locust market is one which looks more information-efficient than grasshopper markets, but really just has a pattern of information flow that favors different actors. I suspect it is possible to design an incentive scheme that would actually be sustainable, but still offer customers some opportunity for consistent savings through nomadic swarming. Some sort of hybrid locust-grasshopper economy. But I’ll leave that question aside for now.
  • I’ve been thinking a lot lately about Marc Andreessen’s famous line, “SoftwareIsEatingTheWorld.” The specific choice of the word “eating” is revealing... What’s really going on is that software-enabled human locust swarms are eating everything they can access. Which generally means small business (SmallCo) front-end layers wrapped around larger platforms. The locust swarms cannot actually take on true Big Industry (BigCo) unaided... Those who believe that the Internet-enabled economy (Network Economy) is going to replace “hierarchies with networks” everywhere (whatever that mathematically nonsensical phrase is supposed to mean) are perversely choosing to ignore the reality of what is happening. It isn’t the 1% fat cats who are becoming victims of the new economy. It is the little capitalist in the middle. The brave little Jeffersonian middle class capitalist who could. The long tail and the big head together are killing the middle everywhere... Hotels, taxis, education, music, publishing, restaurants. The list of locust-devastated/soon-to-be-devastated industries is growing longer every day... The smart Big Money is moving rapidly into Swarming infrastructure... The smart Little Money is moving into locust makeovers. People with little capital are figuring out how to arm themselves to be better locusts.
  • The Jeffersonian middle is the place where decency, goodness, hard work, an admirable work ethic, modest and non-predatory entrepreneurial ambitions and mainstream culture live. This is not the regular middle class but the Jeffersonian middle class that idealistically seeks an autonomous, meaningful existence... These are the Clueless (Gervais Principle) of the economy... It is also the class that foolishly believes in Resilience without mobility at a small scale. Unless your idea of small-scale resilience is totally isolated communes behind an economic firewall that seals out the global economy (I have yet to see a working example of that ideal), you are coupled to the larger economy and vulnerable to bigger actors — Hamiltonian swarming-platform actors who believe in growing as big as they can, as fast as they can... Being in the locust swarm full-time or part-time, sucks. But it is often the only way to make ends meet in the long tail... But being in the Jeffersonian middle is probably the worst position to be in. Jeffersonian middle class dreams are not resilient even in grasshopper economies... If you’re in the middle, you’re probably screwed no matter what the economic conditions are. Since industrialization began, there has rarely been a period where small business has been good business. If you’re not willing and able to grow big, your fate is to get eaten alive by either locusts (or directly by bigger organisms) or go out of business... The resilience of the Jeffersonian middle class is a myth based on continuous churn. To take Coffee Shop-s as an example, an unending supply of idealistic wannabe cafe owners enters the sector every year, operates at a loss for a few years, and exits. StarBucks has the scale to be profitable and resilient. Locust coffee drinkers happily drink the excellent, loss-making coffee from small, local Jeffersonian coffee shops and callously retreat to Starbucks or DIY homebrew if the prices go up.
  • Being a locust, and allying with the Big Guys to prey on the Medium-Sized Guys is no picnic either. Ultimately, it is a pact with the devil. Locusts are created out of a downwardly mobile paycheck middle class via dynamics I’ve written about before. 2011-12-09-RaoActingDeadMiddleClassScriptsTradingUp Becoming a locust is smarter than staying trapped in either a doomed paycheck lifestyle or a faux-resilient Jeffersonian middle class. But only by a whisker.
  • When software eats everything by turning inefficient grasshopper consumers into efficiently swarming locust consumers, we pay for small new income streams and cheap deals by way of increased economic coordination costs and shadow labor. In other words, in a locust economy, you cannot just decide to go somewhere and get in your car to drive there. You have to coordinate with other potential users of that shared resource.

My summary/conclusions

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