Chris Russell Authors

Rachel Botsman on the Collaborative Economy

February 02, 2016

Rachel Botsman, co-author of What’s Mine is Yours, tell us where the collaborative economy is heading and why it requires a fundamental shift in understanding.

In the last year or so, the sharing economy has gone from being a niche idea most familiar to Silicon Valley insiders to one that has reshaped our lives—these days, you’d be hard pressed to find a city dweller who hasn’t at least taken an Uber or stayed in an Airbnb. But for all that expansion, the ideas underpinning it are not so well understood, a fact routinely demonstrated in the often fraught debates concerning what the sharing economy means for workers’ rights, traditional incumbents and the role of regulation.

Help is on hand, however. Since 2010, Rachel Botsman, co-author of What’s Mine is Yours: How Collaborative Consumption is Changing the Way We Live and recent winner of the 2015 Thinkers50 Breakthrough Idea Award, has been dedicated to exploring the intricacies of the sharing economy, or collaborative economy as it is also often called, and what it means for our lives and businesses. From her TED talks that have been viewed over 2 million times, to the MBA course she designed and taught at Oxford University’s Saïd Business School—the first ever on the collaborative economy—Botsman has been at the forefront of explaining the details and significance of this still nascent phenomenon.

In this interview, she shares her thoughts on where it’s heading next and how it retains its capacity for empowerment.

Q. There are a lot of different terms that exist in this space like the sharing economy, the collaborative economy, the gig economy, and so on, so to begin with can you delineate the differences between some of the terminology?

A. It’s really confusing because any idea that somehow uses the internet to match supply and demand is being thrown under the umbrella of these terms, and they do have distinct differences. So let’s just look at the main ones that are used.

On-demand is the easiest to distinguish and why it’s different. When I click an app on my phone through Washio, DeskBeer or Amazon Prime and something is delivered to my home or my office in under an hour, that is nothing to do with the collaborative or sharing economy, that is just technology creating a more efficient way to deliver goods and services. The reason why it gets confusing is because there is an on-demand component in many of these services, particularly Uber.

The sharing and the collaborative economy are closely related in that if you look at the structural shift that sits under these things, you move from a top-down, centralized institution to a network or a marketplace where people exchange goods and services directly with one another in ways that bypass traditional institutions. And in both of these systems one of the key ingredients is that they make different use of assets, so they unlock the wealth of assets in different ways.

For me though, the sharing economy has to really be about sharing, whether it’s the asset itself that is being shared or whether the behavior is sharing. So when an Airbnb host is home and they’re sharing their local knowledge, they’re sharing dinner, that I would call the sharing economy. When a property magnate owns various different assets and is just renting them out, that is not sharing. So that’s the thing that’s confusing—even one company you can throw under different labels.

The gig economy, which I think is a horrible term, and clearly invented by people who’ve never spoken to the people making money off these platforms, I think more applies to something like Amazon Mechanical Turk, even things like Instacart and Postmates, where you are basically breaking down a job into gigs that is very insecure and you have to work multiple gigs to earn an income. But I’ve spoken to a lot of the providers on these platforms, and that is not the way that they would describe their life or their work through these marketplaces.

Q. To what extent can the collaborative economy be applied to services?

A. Often people think of physical assets when we talk about assets and they forget about human potential, skills, energy and time, so I think it’s really interesting when you look at all the professional service marketplaces starting to appear where they’re taking the principle that really qualified people are largely underutilized in a big firm capacity and if they could work directly with clients through marketplaces, whether it’s Skillbridge, UpCounsel or HourlyNerd, you could create benefits both for those with these skills and also for the client directly buying these services. So that to me is really interesting because it kind of disrupts the whole notion of you never got fired for hiring McKinsey—maybe the future isn’t about hiring McKinsey.

Q. You’ve also talked about how the collaborative economy can be applied to production and distribution. How is that playing out?

A. It’s early stages. I think after consumer goods the next big area is capital or financial markets, so that’s everything from things like eToro, where you’re using the collaborative knowledge of networks to really transform trading, all the way through to peer-to-peer lending platforms such as loans from Lending Club. And then it’s starting to emerge in logistics and then all the way through to energy where people are saying maybe we can buy and sell energy off each other. Fon is a really good example of people sharing excess capacity in Wi-Fi plans. Financial services is more mature, but other areas, where these same principles apply to very different assets, are starting to emerge. And that also goes for the way these goods are actually made and got from the manufacturer to the end consumer, so that could be everything from do you actually need an in-house delivery service, or can you use a crowd-shipped model, all the way through to local manufacturing networks where you don’t have one big industrial plant, but instead these things are made by groups of individuals. So Local Motors is a really good example of that in the manufacturing of cars.

Q. Have you noticed any kind of differences in the way that the collaborative economy manifests itself in emerging markets?

A. I think what is interesting about China is in the last year it’s had the largest injection of [venture capital] funding in these ideas in the world. To answer your question, there are more similarities than differences, so in terms of the business model and the key principles that are being applied, it’s almost exactly the same. The interesting thing is the cultural adoption and there you do see differences. So the first thing I would say is in many emerging markets ownership is still an aspirational goal—I want to own my car, I want to own the luxury hand bag. It’s almost like emerging markets have to go through the same period of consumerism that we saw in the developed world to realize that you can get the same benefits through shared systems.

I think the second thing is, and I’ve studied this more in India than in China, is that peer trust has different cultural connotations. So for example I was interviewing passengers in India and it really struck me that they said they find it hilarious that in Europe Uber drivers would offer you sweets because you would never do that in India because one of the first things that you think is that this is a drug. So there is more authority and respect placed in institutional forms of trust and this idea of peer trust is more in its nascent stages.

Q. Do you see any difference in the collaborative economy entrepreneurs in emerging markets?

A. With the entrepreneurs I’ve met from around the world, there isn’t a distinction in terms of emerging markets/developed world. These entrepreneurs they all have a different lens in the way they see assets—they think often about asset-light structures. So, our company doesn’t need to own lots of resources, we can create these systems and structures that facilitate access to assets that already exist. The real distinction that applies across the world is the reason why they’re doing this. So for some of the entrepreneurs it’s sexy and disruptive and it’s all about immediacy and gratification and disrupting the old way of doing things, and there’s a real dichotomy between the entrepreneurs who are more socially and human driven. They see there is a deep need to inject humanness and transparency and direct connection back into the system.

Q. When it comes to regulation, how can government officials and policy makers at different levels be best brought up to speed on the collaborative economy so it can thrive but any kind of necessary safeguards can still remain in place?

A. It’s a really good question because I think the focus at the moment is around what are the laws and policies we need to change, versus how do we change the lens, the way regulators see the world, and that’s a really different way of approaching it. There are a number of regulators I talk to and you’re like, “Are you really immersed in using these systems, or are you observing them from a distance? Are you really asking yourself the question as to how well can these peer systems self-regulate themselves so that you understand the gaps and the holes as to where government regulation is really needed?” So the regulators that really get it, they say this isn’t just about changing the law, this is about a fundamental questioning of the role of regulation in society and that maybe these top-down, government-heavy regulations that we put in place for very good reason need to be completely rethought.

So the best way is actually to try and immerse them in this world and, say for those who are for example very focused on taxis, often they will get the big insights if they start interacting in financial peer-to-peer platforms or Airbnb or food or whatever it is that isn’t directly related to the piece that they’re being asked to regulate. The real shift that’s needed is not just about the regulations and the laws themselves, it’s a complete mindset shift that perhaps the world has changed and the roles of government regulation can look really different.

Q. You’ve said you feel there’s this shift in trust from top-down, centralized institutions towards trust between individuals. So how can those kinds of institutions manage that transition? How can they maintain a relevance in people’s lives?

A. Again, it’s a lens shift in the way they think about brands and the way they think about relationships with customers. So, if you talk to many corporations they will think of the brand as the company itself—that it sits in the walls of the institution and it’s something linear and they can control—and they will even talk about their people as human resources, as assets, as brand assets. But it’s a different way of thinking about it where your brand doesn’t come from the corporation, your brand is made up of all the individuals that make up that organization. So for example, if you take a bank, of course the brand Bank of America or Citibank is important, but in the future the brand of all your individual traders and bank managers is going to become more important to customers than Bank of America itself. So it’s recognizing that the brand is made up of millions of individual reputations and interactions.

The second thing I think is back to this notion of trust, it’s not that these traditional companies will all move to these peer-to-peer collaborative models, but the impact’s going to be on the expectation of service and personalization and transparency and humanness that we will expect from these more traditional service providers, because if you get such a detailed window into the product, the service or the person that you’re interacting with before you even make any kind of transaction, you’re going to expect that from more traditional brands.

Q. For those companies that are looking at their business model and questioning whether they need to move towards a more peer-to-peer basis, how can they begin to make that assessment?

A. I often say that there’s three questions that they can start to ask. So first of all is how does their company create value? And can they think differently about that? So the way they think of creating value from their assets, can they flip that on their head? Are there idle assets or breaks in their supply chain that they can apply these principles to think differently?

The second thing is how is value scaled? So the way many companies think about scaling their products and services is they get more and more asset heavy—we need more companies, we need more employees, we need more distribution channels—so applying this asset-light model, are there different ways that we can actually get our products and services to market and scale it in a different fashion.

And then the third question is how is value trusted? Will the way people make decisions around whether they should use that product or service and whether they should trust our brand and our company look the same in the future? For me, asking those questions is more powerful than looking at business model opportunities. So you’ll hear a lot of people say, “Oh, perhaps you could turn your product into a service.” Now, if companies do that that’s great, they’re going to come up with an innovative offering, but they’re not really shifting their mindset to start to operate in this age.

Q. To what extent do you think the collaborative economy could end up creating a new kind of centralized institution? Is there a risk that it’s simply replacing one with another?

A. I think [those concerns are] absolutely valid, and it’s an even bigger problem when you’re dealing with marketplaces because you have network effects at play. So I think Uber and Airbnb, they’re starting to become the new monopolies of the 21st century and it’s a big, big concern. I think two things are really important: one is, and this is where regulation plays a really important role around market competition, that we make sure Lyft, Sidecar and other entrants are there alongside Uber in every single market so that they don’t have a dominant hold.

I think the second thing that is further along is that we’re going to see a move to more and more decentralized structures. So, imagine the block chain applied to Uber where the taxi drivers, they don’t need any kind of centralized platform, they can just operate on a block chain exchanging value, and that’s where I think we’re heading to. With Uber, it would actually be how could Uber become redundant because people who want to drive and people who need lifts could create a whole network without anyone in the middle.

Q. In your Ted talks you spoke about how you feel the collaborative economy can be empowering. To what extent do you think the collaborative economy has delivered on that promise? Critics have tended to characterize things as workers becoming atomized and operating outside of the usual protections and regulations—what would your response be?

A. I get this question, I get the criticism, rather, on a daily basis and I think what’s interesting is that when these ideas felt small or niche, everyone said they were lovely and they were empowering and they totally believe everything I had to say, and then as they scaled and they’ve taken over or really disrupted different segments people just assume that they are all about profit and commercialization and there is nothing different going on. At the end of the day, yes, some entrepreneurs are making a lot of money off these systems but that doesn’t change the fact that it’s still empowers providers and customers in different ways. So even Uber, which is the most commercially aggressive, if you talk to most people they would say when they get in a car with an Uber driver they behave differently, they have different interactions, they ask them how they are because they know who they are, they know their face, they know a little bit about them and what’s interesting is how that information changes the interaction.

I also think when you remove Uber from the equation and you look at the plethora of companies operating in this space, the number one benefit is empowerment, whether that is hosts on Airbnb empowered to make money from their spaces all the way through to people say on TransferWise who are suddenly empowered to get much better rates on international conversion, completely bypassing the banks, and more than that understanding how the banks were screwing them in the first place. There is a profound shift in this interaction between the person buying those services and the person providing those services and in most instances they would describe that as empowering.

The thing I do agree with the critics about is that we have to prevent this becoming all about a new dynamic where the haves are on one side and the have-nots are on the other side and it just becomes a cheap labor pool. So I think it’s really interesting that there isn’t more focus on regulations and laws that really protect the providers. It’s not that providers want to be employees, that’s the wrong conversation, it’s that they want new forms of protection that are really apt for this relationship they have with these companies.

Q. In your conversations with providers do you still see a satisfaction with the opportunities that these different platforms are providing them?

A. One-hundred percent. Most people will say this was income or this was experiences or this was a form of flexibility and control that was previously unavailable to them. The reason why I hate this gig conversation is because many of the different people I’ve spoken to, whether it’s someone on TaskRabbit or it’s someone on Etsy or whatever it is, traditional jobs are not available to them—either they can’t get these jobs or they’re just not flexible to work with their lives.

So that’s why I think it’s really interesting that on many of these platforms stay-at-home parents are a massive category of supply. One of the big mistakes is when we look at these things and we talk about them in blanket terms without realizing that these individuals form into really unique groups and have different needs and motivations for doing this type of work.

Q. In the conversation about the collaborative economy there are names that keep recurring like Uber, Airbnb and TaskRabbit, but what are the most exciting start-ups you’ve encountered recently?

A. I think The Food Assembly which is coming out of France and just expanded across Europe is really interesting in terms of what they’re doing to connect food providers, farmers directly with customers—I think they’re going to be really big. Some of the platforms that are part of the enabling ecosystem I think are really interesting. So, the payment platforms like Stripe and the identity platforms, so companies like Onfido, where they are verifying that you are who you say you are. FiscalNote I think is a fascinating company enabling companies like Uber and Airbnb to look completely differently at the legal picture. Learning I think is another really big space—we’ve seen the MOOCs (massive open online courses), but the likes of Skillshare and Duolingo, they’re just starting to emerge.

Q. Is there anything else you would like to add?

A. We likely touched upon it, but what I wouldn’t do if I was a traditional incumbent or I was a traditional company, I wouldn’t try to fight this. [That] a number of [companies], and this is particularly rife in industries that are highly regulated or have been protected by regulation, [have] this belief that regulation is going to save them really frightens me. Because they’re so used to operating in a regulated environment it’s very hard for them to come up against the entrepreneurs that just have no fear of regulation or see ways around it that is just impossible to them. So I think this notion that let’s fight it with the law or regulation because that’s going to save us and that’s going to magically reverse the behaviors is just the worst strategy to take and it’s absolutely rife when you talk to many of the companies where they’re starting to feel the heat.

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