Do More, Own Less: A Grand Theory of the Sharing Economy

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Why sharing is the inevitable next stage of the information revolution -- and how it's going to change everything from entertainment to Walmart.

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When you start looking for them, "share platforms" are everywhere. Some of history's cleverest business minds understood the power of share platforms, from the aggressive titans who made fortunes building the nation's railroads to Conrad Hilton, who created the first premier brand of international hotels. Now a new era of sharing-based businesses is beginning - businesses as big as Netflix or Zipcar, and as small as a guy who rents Christmas trees.

Up to now, the information revolution has primarily swept through industries and services that are or can be digital - numbers, text, sound, images, and video. Related sectors, such as banking, publishing, music, photos, and movies, have undergone massive change. Now mobile networks are rapidly expanding that disruption to physical goods and venues, including hotels, cars, apparel, tools, and equipment.

The sharing economy is on fire, ignited by business savvy and mobile devices and fanned by post-Recession bargain hunters

That's possible because of our GPS-enabled mobile devices move in real space and time with us. The network can connect us to the things we want exactly when we want them. We can increasingly gain convenient access to these goods, greatly reducing the need to own them. Why buy, maintain, and store a table saw or a lawn mower or a car when they are easily and less expensively available to use when we want them?

Something else has changed, too. The credit and spending binge has left us with a different kind of hangover. We need a way to get the goods and services we actually want and need, but at less cost, both personal and environmental. Fortunately, we're quickly gaining more power to do so. A new model is starting to take root and grow, one in which consumers have more choices, more tools, more information, and more power to guide these choices. I call this emerging model "The Mesh."

mesh1.pngMESH, INC.

The competitive advantages the Mesh offers in today's information-soaked environment will pose a persistent and growing threat to traditional business models. For example, Blockbuster's Wayne Huizenga grew highly profitable enterprises by recognizing the advantages of share platforms. Whether he was dealing in Dumpsters or videos, his core strategy was to invest in products that customers could use over and over again.

But Netflix knew that Blockbuster's Achilles' heel was late fees. Blockbuster's revenue model depended on the fees, but customers hated them - its best customers were the most likely to be punished. Netflix realized that if it could create a profitable business model that didn't require late fees, it'd win. It introduced a subscription model that allowed customers to watch and return movies at their own pace.

What clinched Netflix's advantage, though, was that it functioned as an information business. Early on, Netflix began using a customer's prior selections and ratings to suggest other videos that might be of interest. As the service developed, the company added layers of information to inform a user's choices, such as reviews from people in the network whose profile of selections and ratings were similar. Recently, it sponsored a contest awarding a million dollars to anyone who could significantly improve the movie recommendation service.

Netflix's more robust and networked share platform gave it the power to collect and crunch consumer, usage, and product data to shape customized offers. And in a business blink of the eye, Netflix replaced Blockbuster as the dominant player in the category. In the future, the byword will be "convergence"--of TV, the Internet, and mobile devices. Netflix remains well positioned to compete in that arena as a sophisticated information company with a trusted brand.

WHAT WALMART COULD LEARN FROM NETFLIX

Walmart is the largest retailer in the world. The company sells many cheap, throwaway goods. Moving those goods across the globe and country burns energy. True, Walmart is taking steps, and setting a good example, to reduce its carbon footprint. But a bigger, Meshier opportunity lies before them and other big-box retailers.

Big-box retailers are poised to take advantage of a richer part of the value chain. They could move from being huge retailers to becoming huge product service and repair providers. Walmart and other big-boxers could become the center of gravity for the conservation of goods, employ people with actual know-how, and develop deeper, longer term, more profitable relationships with their customers.

Most of Walmart's business, of course, is selling stuff. It sells a customer the cheapest TV or toaster today, expecting her to come back in a few years to again buy the new model of cheap TV or toaster. But every part of the value chain--manufacturing the toaster in China, shipping it, warehousing it, stocking it, and disposing of it--involves considerable waste. Setting aside the inevitable costs of climate change, or any future carbon taxes, a considerable part of that waste is in fossil fuels that are becoming scarcer, more costly to extract, and higher in price. That's a significant risk to Walmart's current business model, one that company itself is beginning to recognize.

What if, instead, Walmart guaranteed a customer the best-priced TV and toaster way into the future? If the TV breaks in three years or five years, Walmart repairs it, or offers upgrades that are less expensive than buying a new one. At the end of its life, the company reclaims the old TV, upcycles the parts and materials, and offers the customer a discount on a new one.

Members of a "Walmart Share Club" could be given a special password to a daily online auction on used equipment certified to be in good working condition. The auction would include many items that other customers traded up--customers grateful for a way to deal with unused consumer electronic devices that they don't know what the hell to do with. REI, for example, has had success with offering a discount on new skis when people return their older ones. REI then refurbishes the old skis and offers them as rentals.

A shift toward access and service would deepen the big-box retailer's relationship to customers, and win their loyalty. A service focus would bring more rewarding, frequent, and lasting contact with grateful customers. It's fundamentally a different business model, with additional rich profit.

Excerpted from 
Lisa Gansky's The Mesh: Why the Future of Business Is Sharing (Portfolio/Penguin)

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Lisa Gansky has been a founder and CEO of multiple Internet companies, including GNN and Ofoto. She is the author of The Mesh: Why the Future of Business Is Sharing.

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