The Collaborative Economy is NOT Big.

PART 1. Introduction, Platforms.

This is the first section of a case study about the collaborative economy. The rest is coming soon!

The collaborative economy is a broad term that describes a lot of different but related behaviors. Another popular phrase is the sharing economy. I’ll use them interchangeably in this case study. There’s a lot argument about what’s sharing and what isn’t. But taking these terms literally is a mistake. The rate of innovation in this space is outpacing our ability to reach a consensus about terms.

The sharing economy phrase was first used in the open source community in the early 2000’s. Not everything covered by this term is sharing as we were taught in kindergarten. But it does include activities like disintermediation, on-demand services, peer-to-peer networks, and access or rental of goods instead of ownership. The markets are multi-sided. Like Uber with two groups of customers, riders and drivers. But what they all have in common is that trust, production, consumption, and finance are shifted from a centralized institution to decentralized networks and communities.

Sharing information facilitates the renting of excess capacity. This democratizes access to goods, tools, information, capital, and the means of production.

Platforms.

Platforms are where this information is shared. Every single successful implementation of a collaborative economy business or initiative happens on a platform. According to Rachel Botsman, an expert on the collaborative economy, a platform is “the network, marketplace or other digitally-enabled mechanism used to facilitate an exchange.” Sangeet Paul Choudary describes it saying “The platform business model enables interactions between producers and consumers of value.”

The platform owner manages engagement with interaction architecture and the terms and conditions. The goal is to advance organizational objectives, which are always liquidity and the network effect.

This is not a comprehensive list of collaborative economy businesses or business types. It’s an analysis of the breadth and scope of the collaborative economy using the most important examples.

Any startup that’s looking to create massive value in a relatively short amount of time has to create a platform. If they do they will find themselves in an extremely lucrative and defensible position. Think Uber, Airbnb and Amazon. Amazon is a partial sharing economy business because they have a peer to peer marketplace. Non-platform startups or non-liquid platforms that compete against a platform that’s achieved liquidity tend to not stand a chance. Think Nokia, Blackberry, Windows phone and Amazon Fire.

When a platform gains liquidity — enough supply and demand — it’s a formidable force. For Uber more drivers means more people can catch a ride when they need one, which makes more riders join the platform and more drivers join because they’re more likely to get fares. This is a virtuous cycle.

Last year Uber crossed the $50-billion-dollar valuation in five years. That’s two years faster than the previous record holder, Facebook, which is also a liquid platform. Massive value at a breakneck pace is what a well-structured platform delivers.

Collaborative Economy Platforms are a Blessing of Unicorns.

A group of unicorns is a blessing. And as of the beginning of this year there were 176 platform companies worldwide worth a total value that exceeds $4.3 trillion. Many of the biggest success stories of the internet of the past decade or so have been collaborative economy platforms. These include…

Uber, currently valued at $62.5 billion.

Didi Chuxing $28 billion.

Air BnB is at $25.5 billion.

WeWork $16 Billion.

Lufax 18.5 Billion

China Internet Plus Holding $18 Billion

Flipkart is worth $15 Billion.

DJI Innovations $10 Billion.

Spotify $8.53 Billion

Lyft is valued at $5.5 Billion.

Ola Cab $5 Billion..

Instacart is worth $2 Billion

Prosper peer-to-peer lending is worth $1.9 billion

Trademe is worth $1.9 Billion.

Etsy 1.1 Billion.

Transferwise $1.1 Billion.

Funding Circle $1.1Billion.

LendingClub despite their problems is still well north of a billion-dollar valuation.

Public Company Platforms:

Apple $597 Billion

Alphabet $515 Billion

Amazon $356 Billion

Netflix is at $42.4 billion.

Ebay is valued at $35.5 billion

And there are many others that are close to billion dollar valuations like Freelancer and Quora. This is an extra-ordinary amount of billion dollar companies that are all collaborative economy platforms. There’s something going on here. Almost every single major b2c startup success of the last decade has been part of the sharing economy or has significant sharing economy features.

Seventy percent of all startups on CBI Insights 2015 list of Unicorns were platform companies.

Now I’m sure some would argue that companies like Alphabet and Apple predate the sharing economy, and don’t count. But what makes a company part of the sharing economy is not just peer to peer rentals, like Uber and Airbnb. Any company that has an API is partially part of the sharing economy because developers are matched with consumers. This is true even if the core service is not part of the sharing economy.

Companies like Google and Apple have powerful collaborative platforms through their developer networks. In its most basic form you have app developers leveraging the API to create apps that the eco-system owner would not have made on their own. And then there are the app users, who get a wide choice of useful apps created by the developers. And finally you have partner apps that are made by other businesses that the eco-system owner has a relationship with. For example all of the merchants that can accept Apple Pay.

Apple is not creating all of these apps, instead they are managing the interactions between the developers, the consumers, and the platform owner. We can say that they own a collaborative economy platform, whereas TaskRabbit is a collaborative economy platform.

Many of the startups and tech firms that are going to be mentioned here are usually not listed as collaborative economy businesses. Some companies like Airbnb are entirely a sharing economy platform while Alphabet has collaborative economy aspects.