Monetization Nirvana and the Sharing Economy: Profitability That Makes Our World Better
By Philipp Stauffer, co-founder and CEO of Onor
Palo Alto, March 2015 — Three years ago, it was hard to find real-life examples of “Monetization Nirvana” — a state in which one company creates so much value that businesses and consumers are both willing to pay for it. LinkedIn, which made over $2.2 billion in 2014 selling premium services to consumers, and marketing and talent solutions to businesses, was once one of the few tech companies to reach Monetization Nirvana. Fast-forward to the present, and the sharing economy is cranking out these Buddha-like businesses. Uber, Lyft, Pley, Airbnb, BlaBlaCar, RelayRides, LendingClub, SocietyOne, BoxBee and their peers are on the verge of mastering B2C and B2B monetization — or at least they have a massive opportunity to do so.
The key is that these businesses take an underutilized asset, break it down into its smallest marketable components (e.g. a room or an air-mattress within a room; a car and driver), and then reassemble them into a two or more sided marketplace that creates value for businesses and consumers. By reaching Monetization Nirvana this way, businesses have the potential to eliminate inefficiency, pollution and socioeconomic disadvantages on a scale we haven’t fully recognized. By blending this notion of Monetization Nirvana with sharing economy principles, you have an opportunity to improve startup odds, become wildly profitable and simultaneously make the world a better place.
To visualize this process, consider any house. The owners can rent it when they’re on vacation, but finding renters could be costly, and most people can’t afford to rent the whole house. So what if you break apart ownership? A timeshare arrangement creates smaller components to lower entry costs and increase utilization. However, the so-called ‘owners’ have little control over the shared homes — and the management company makes all the money. So, take a step back to regular ownership, instead drill down to the individual rooms of all homes, then drill deeper to places people actually sleep (the air mattress), reassemble them into a marketplace of rentable spaces and you get Airbnb.
Uber and Lyft, similarly, break down a transportation service into its smallest possible component — a driver and car — and reassemble them into a competitive transportation market. The sharing economy has done same with skilled labor, renewable energy, parking spots, storage, office space, delivery, dining and so much more. It’s all about finding ways to monetize what already own. Further, there are an increasing number of start-ups catering to participants of these marketplaces further eliminating barriers to entry. Breeze, a company providing Toyota Prius cars in a rental model to Uber and Lyft, is an example of a derivative on the sharing economy model.
Upping the Ante on Monetization
Businesses that transcend to Monetization Nirvana generate revenue from business and consumers simultaneously. Think about Airbnb from the owner’s perspective: it delivers top percentile ROI and full outcome accountability. You couldn’t easily monetize a room without Airbnb, and the company only takes its 3 percent host fee and 6 to 12 percent guest service fee if someone books your space. On the consumer side, Airbnb is a remarkable value proposition. You can get a better price, often nicer accommodations, more amenities (e.g. stocked kitchen), and more choice over location than any hotel chain can offer.
To understand this third dimension, consider Uber, Lyft and RelayRides, the peer-to-peer car rental service. Producing one new car can create as much or more pollution than driving that car for several years, as The Guardian calculated. With personal cars, taxis and rental cars all on the road, we’re maxing out the environmental costs of car production. By using Uber, Lyft and RelayRides, you enable one personal car to cover all three categories, so you eliminate waste.
Normally, unless you can buy a taxi and pay for training and permits, you’re priced out of that career. If you can’t afford of fleet of cars, there’s no way you can open your own rental service either. With the sharing economy services, the only entry costs are a vehicle and smartphone.
So, Uber, Lyft, LiquidSpace, Fiverr, JustPark, Task Rabbit and others are not just (potential) monetization magicians — they’re also reducing environmental impact by making more efficient use of existing assets, and they’re breaking down barriers to entrepreneurship and commerce by minimizing the costs of entry. Their social impact records are by no means perfect — it’s easy to play devil’s advocate or question their ethics in some cases. However, these companies offer a preview of what sharing economy companies could accomplish at mass scale.
The New Guide to Monetization Nirvana
The sharing economy calls for startups to grow more sustainably, both in terms of revenue and social impact. The old ‘users first, monetization later’ model is at best misguided, and at worst, disastrous. I believe it’s a big contributor to the high startup failure rates. In many cases, sharing economy services have to monetize from day one otherwise they can’t grow a user or business base. They need to build monetization into their product with discipline and the mindset of experimentation. Consider using some key principles of sharing economy monetization no matter what type of startup you create:
1. Make Monetization a Part of Your Culture
Give your monetization model the same energy and passion as product design, engineering, marketing, etc. Bagging millions in venture capital without any concept of how to generate revenue is like taking steroids and then trying out for the Olympics, particularly in the sharing economy. Force your company to think multi-dimensionally about how to generate value for businesses, consumers and society in parallel. Run quantitative experiments early in the process and expand on monetization models that work and add value for all stakeholders.
2. Build a Positive Social Impact into Your Business Model
The sharing economy proves that social impact does not need to limit your monetization potential, nor does it need to increase your prices. Airbnb, Lyft, Uber, etc. are less expensive and more environmentally friendly than their conventional counterparts. From a marketing standpoint, a social good component will make you stand out above competitors if it’s done genuinely and transparently. As Nielsen found last year, 55 percent of global online consumers say they are willing to “pay more for products and services provided by companies that are committed to positive social and environmental impact.” A company with lowers prices and social impact are going to have a rock star brand. Research such as Edelman’s Good Purpose Study shows that consumers increasingly expect brands to link profit and impact together in a genuine and effective way. Movement leaders such as Patagonia are increasingly joined by Toms, Warby Parker, The Honest Company, and others who build the “doing good” mission deeply into their DNA.
3. Monetization Should Improve the User Experience
In the sharing economy, the more ROI businesses can achieve, the better the user experience becomes. On Uber or Lyft, more drivers mean quicker pickups, more geographic reach and more vehicle options. By comparison, think about how Facebook monetized its service. Brands, accustomed reaching their customers with each post, saw organic reach plunge towards zero as Facebook pushed them into more of the same advertising. Users, not used to seeing the ads, started finding promoted posts in their feeds instead of the news they wanted. Tinder just made the same mistake — when they launched TinderPlus, they placed new limits on ‘right swipes’ (‘likes’ on their dating app). It’s monetization at the expense of user experience.
The sharing economy model can create impactful companies that transcend to Monetization Nirvana. This method of breaking down and reassembling assets has now been replicated many times. The Sharing Economy has been rapidly growing for the past 5 years, increasing from a mere dozen companies to thousands of companies worldwide. So what comes next? The sharing economy will continue to reshape the value chain across the creation, production, distribution, trade and consumption of goods and services. Keep an eye on underutilized resources. We have barely scratched the surface of what’s possible.