Chapter 11 Notes Flashcards
What are some firms categorized as part of the “sharing economy” or participating in “collaborative consumption.”
Goods:
- pre-owned: eBay, craigslist (peer-to-peer supplied), thredUP (firm-owned inventory)
- loaner products: Zilok (p2p), Rent the Runway, Chegg (firm-owned)
- custom products: Etsy, CustomMade
Services:
- professional services: Upwork crowdSpring
- personal services: Angie’s List, Handy, TaskRabbit
- Delivery: DoorDash, Grubhub, Instacart, Postmates, Drizly
Transportation:
- Transportation services: Uber, Lyft, Didi
- loaner vehicles: Turo (p2p), Zipcar (firm-owned)
Places to Stay:
- Office spaces: LiquidSpace, ShareDesk
- Places to stay: Airbnb, HomeAway, Couchsurfing
Money and finance:
- money lending: LendingClub, Kiva, Prosper
- crowdfunding: Kickstarter, GoFundMe, Indiegogo
In essence, citizen suppliers offer services and renting out their own goods, while other firms are taking possession of inventory to organize resale or rental markets.
How did a sharing economy come about and what was technology’s role in making it beneficial?
Technology, new way of connecting with consumers; attraction towards private individuals (including “citizen supplier”) to meet demand. Allows firms to pool resources, products, and services in ways that create new markets and market opportunities by lowering costs, efficiently matching supply and demand, more efficient resource use and providing a level of reach and services unreached before.
What factors contributed to the rise of the sharing economy?
Recession meant stagnant wages and interest in low-cost alternatives. Encouraged offering services for hire or propery for rent. Apps, social media, and tech collect and share ratings, ensure payment, and offer convenience when scheduling to allay fears. Environmental concerns and proliferation of smartphones are other factors.
What influences success in marketplaces that support collaborative consumption?
Head start to create mass of buyers that attract sellers and vice versa. Gain scale, brand, network effects, and financial resources.
Two-sided network effects: firms must offer value to both buyers and suppliers.
Marketplaces allow suppliers to leverage underutilized assets. Technology allows for peer-to-peer supply without need for inventory–citizen suppliers already paid for the assets they use to earn money. Firms save costs associated with conventional transactions by eliminating storefront, capital investment, utilities, and maintenance.
Some firms own the inventory to ensure quality and gain more control over customer experience–Rent the Runway oversees inventory, packs product, cleans garments, retires worn-out product, etc. thredUP began as peer-to-peer, but has evolved into a store that curates and warehouses inventory, provides high-quality photogtaphy for items on sale, and attentively packages goods for delivery. Doing so allows used-clothing purchase experience to compete against new item retail while saving customers money.
Why are highly fragmented markets good for electronic marketplaces?
Lots of suppliers = customer search costs are high (requires more time and effort to decide on a product/service). Ratings help in making better, less-riskier choices. When more buyers turn to a market, suppliers need to meet them and can do so at a lower cost using those markets. Etsy, for instance, takes the place of conventional ads, marketing, and storefront.
Marketplaces extend value chain by getting between suppliers and customers. Adds both value for both parties. Suppliers gain reach and encourage discovery with lower marketing costs, makes use of otherwise underutilized assets. Consumers see lower seach costs. Both sides benefit from scheduling, payment, reputation management, etc. So, a longer value chain can be more efficient and draw more buyers in.
Give examples to show how extending a company’s value chain can be beneficial?
Drizly is an alcohol delivery app that connects those looking to get alcohol delivered with an existing network of drivers working for independent liquor stores. Drizly brings small, independent suppliers together with their market-making app to create what looks like a unified national brand, which brings in new customers who seek the convenience of adult beverage delivery.
With ClassPass, customers pay monthly fee and can choose and schedule different fitness classes from a host of over 30,000 wellness facilities. Customers get choice (instead of having to settle with one memberhsip) while providers bring in new customents and get a cut of ClassPass revenue while helping keep classes and facilities full.
How does social media play a part in the growth of sharing economy marketplaces?
Virality and word of mouth sharing accelerate growth. Firms can turn customers into brand ambassadors to lower advertising and customer acquisition costs. Social media also helps build trust and reputation to rid customers of the fear of trusting a new service.
Nearly half participants in the sharing economony learned through word of mouth.
Give an example of how social media ‘s virality helped a sharing economy marketplace.
Uber leverages its virality. They regularly offer discounts for sharing coupons to attract friends as new riders. They serve as a trust-conveying social proof (the positive influence created when someone finds out that others are doing something) endorsement from an acquaintance. What helps fuel this virality is a satisfied customer base. If customers are satisfied, they recommend the service.
Give an example of how social media builds trust for consumers in the sharing economy marketplaces.
Drivers and riders link Lyft to their Facebook accounts. Profile photos show who you are meeting. Both drivers and passengares rate each other to inform others’ on whether or not to accept the ride as a driver or a rider. Payment is guaranteed and secured through the app. Technology is used to offer a level of security that isn’t attainable in conventional taxi services.
What are the disadvantages of online ratings?
Some highly rated TaskRabbit suppliers responded to a large volume of service requests by farming out work to subcontractors.
Crowdsourced ratings can reflect a crowd’s bias and reinforce discrimination. With Uber, for ex., riders can deny certain drivers based on their race, gender, age, etc. For AirBnb, white property owners can list their rentals for much more than black property owners. Drivers can even deny rides to minority neighborhoods, so many firms don’t share the destination until the ride is accepted.
What is an example of why not everything has a potential for a market?
Building a business on neighborhood rentals posed a lot of problems. It was difficult to maintain liquidity (a liquid market is an efficient market with enough transaction volume to attract a reliable supply of goods at fair, market-rate prices). It required a lot of providers and consumers who only show up if there is a strong value proposition with clear convenience and price advantages. Power drills are not expensive, know where to buy it and can even be delivered, saves time for last-minute needs if have on-hand. Is that pain enough to instead track an available product, meet a stranger, and have to return it? Not really. Plus, does renting something from someone down the street seem stingy since you typically just lend items within a neighborhood. The initial idea may have sounded promising, but an idea is not enough to build a good business–product-market fit is critical.
What are some safety issues with the sharing economy?
Will firms take responsibility for “sharing economy” incidents?
Insurers are more reluctant to cover individuals or assers that are being used ccommercially. Some firms offer their own coverage and protection guarantees. Some governments explored additional insurance regulation for the sharing economy.
Local firms and governments benefit from the taxes and fees paid by traditional industries. Because rivals in the sharing economy are not subject to the fees and taxes at the same rate, groups can lobby for more regulation.
Neighborhood associations fear their homes are next to properties that bring a large group of unknown non-neighbors into their communities.
Tenants worry that Airbnb encourages buying apartments as investment properties, contributing to a lack of affordable housing. Therefore, cities ask for Airbnb to voluntarily place limits.
A problem for sharing economy firms is are their workers independent contractors or employees? If classified improperly, employees may not receive important workplace protections (minimum wage, overtime, unemployment, workers’ comp) and government receives lower tax revenues. Reclassifying means more costs due to raised wages, workers’ comp, and health care contributions.
Not all authorities are opposed to ride-sharing services. Some deem it safe and want to work with Uber to improve trasportation for people with disabilities, saving potential costs for the state, as well as to develop city planning goals. Other states have passed legislation in support of ride-sharing services, but require some regulation to ensure public safety.
Give an example of how sharing economies threaten traditional industries.
In NYC, companies need a medallion, an operating privilege that can cost over $1 million for a single vehicle. Those who have made than investment aren’t fond of new competitors, especially if their expenses aren’t as high. Cab drivers protested in major European cities to protest ride-sharing services. The same is true for Airbnb. Large cities tax and regulate hotels, so Airbnb offered to pay $21 million in annual taxes to NYC. Hotel unions fear the growth of non-union jobs.
How is WePay winning big?
WePay is a firm that stepped up to offer simple payment solutions that target the challenges of buyer/seller platform operators.
1. fraud-fighting tech analyzes social profiiles after accounts are linked to check legitimacy
2. transaction history
3. machine learning to continually update fraud models to adapt to new patterns it uncovers, spotting fraud more efficiently
Makes adding payment capabilities easy. Started off as a group payments tool but turned to servicing businesses. This pivot proved successful. Acquired by JP Morgan Chase in a multi-million dollar deal.
How have larger firms responded to the rise in the sharing economy?
Larger firms invest, partner with, and experiment on their own, realizing the power and importance of the market.
Give examples of how large firms are investing in, parternering with, and building their own collaborative consumption efforts.
Overview:
Google and Conde Nest have taken an investment stake in collaborative consumption startups.
Ikea, Walgreens, IBM, and W Hotel have enhanced customer offerings by partnering with sharing economy pioneers.
Firms as diverse as auto manufacturers and Amazon are plotting independent collaborative consumption efforts as well.
- Google parent, Alphabet and Toyota invested in Uber
- Alphabet and General Motors invested in Lyft
- Volkswagen invested in Gett
- Apple invested in Didi Chuxing
- Conde Nast invested in Rent the Runway
- Walgreen and TaskRabbit partnership (drugstore deliveries)
- IBM worked with Deliv (for same day deliveries)
- Avis acquired Zipcar
- Hotel in NYC partnered with Deske Near Me (for business travelers)
- Marriott partnership with London-based Hostmaker
- Ikea acquired TaskRabbit
- Mercedes Benz invested in car2go
