Collaborative Consumption & Where the Market Is Heading Next

I spoke this past week at the LeWeb conference in London, which was a superbly well run event with a very quality production team. Kudos. The 20-minute video of my presentation is here if you're interested.

And it was convenient for me because we also held our annual London board meeting of DataSift, who helps companies processes and analyze large volumes of social plus enterprise data in realtime.

Final le web london (june 2013) from Mark Suster

The topic of the conference was "The Sharing Economy" and as I read many of the session title descriptions I realized that people would be talking more about "collaborative consumption" (think airbnb, taskrabbit, uber) than about why people are sharing more on Instragram & Snapchat.

You can of course view the presentation in SlideShare above or download it directly for free here.

Why is Collaborative Consumption Becoming a Hot Trend for Startup Companies?

As I outlined in my talk, I believe the greatest Internet companies created over the past 15 years have been "deflationary" meaning they are driving down the prices or goods & services. They are also driving down the margins they make and are offering products that are initially lower functionality than their competitors.

I described that phenomenon in this post.

Declining prices & margins in a small market is much less interesting. But as we now know 33% of the world's population is now connected to the Internet, the majority of traffic to the major Internet properties is now global and at Benedict Evans pointed out in his recent report, more than 70% of the world's literate population will have a smartphone within 4 years.

Prices down. Network Up. But what else?

The world still has economic challenges that often aren't perceived by many of us the tech world in our little cocoons of Silicon Valley, NYC or Los Angeles.

Example: More than 50% of all youth in Greece & Spain (34% in Italy) are unemployed and if you take "under-employment" it is even worse. I we know the if people miss getting on the career ladder for just 3 years it can affect the entire trajectory of their lifetime earning potential.

In the US that number is 17%, which is still too high.

Add unemployment to debt. Student debt alone in the US is now $1 trillion, which $100 billion being added / year.

These types of trends are unsustainable.

I believe that market conditions drive innovation as much as great entrepreneurs do. As they say, "necessity is the mother of all invention."

So those underemployed people who have part time jobs but need more wages will gladly take on 5 dogs / week in their house on DogVacy.

The person who is between gigs will gladly drive people on Lyft or offer out their spare bedroom on airbnb.

Consider the case of Tradesy founder Tracy DiNunzio who could only launch her startup by giving up her bedroom for a year and earning $28,000 that allowed her to not have a full time job that year.

If your closet is full of clothes and your credit card is full of debt - of course you're going to trade clothes with other people rather than only buying new stuff.

You can watch the 20-minute video of my talk if you want here.

What are the Types of Collaborative Consumption Companies?

I broke down the types of CC companies into 5 main buckets today to give a framework to think about your startup if you're entering this space:

1. Tapping into global markets - There are talented people in the world who can't earn a "global market rate" for their services but when you open them up to global demand - boom! An obvious example of this is oDesk. Another is DeviantART who are able to tap into hundreds of millions of people around the world who produce art and help them making a living. That's why dA has nearly 70 million monthly actives producing 2.5 billion page views making it the largest communities of artists in the world.

2. Empowering the under-employed - I spoke about this briefly already. When you have millions of unemployed youth plus millions more not earning a high-enough wage they are going to find ways to make extra money on the side by running tasks, sitting dogs or reselling their closets. Market meet reality.

One area I didn't talk about in the presentation that really interests me and seems underserved is helping to empower senior citizens. We know that this generation has retired without enough savings. We see our seniors increasingly at Walmart or Starbucks check-out lines. But who is going to put these people back to work part time in their homes and one their phones - tapping into beautiful brains that don't have the same physical abilities they once did?

3. Moving from hierarchic to flat structures - Some of the peer-to-peer markets are driven where a flat structure is better suited than a top-down model. Here I talked about Lending Club where I understand hedge fund managers are now deploying capital to lend directly against pools of borrowers.

But an equally obvious case is BitCoin where people who live in Iran, Syria or Libya may rather put their money into non-governmental units (even knowing the risks) than to trust their local governmental leaders to protect their assets from inflation or seizure.

4. Breaking down markets requiring physical barriers - I am also very interested in cases where people break down physical barriers that limit wages of instructions while costing too much to students. The obvious cases I mentioned are ones like Udacity but I believe this trend will encapsulate personal trainers, financial planners, depression or substance counsellors, etc. Anywhere where the service provider can earn more at a lower margin by proving more service to the masses.

5. Making existing markets more efficient - There are of course markets that have always existed - like the taxi or limo service markets - that are simply being made much more efficient through companies like Uber.

Will this Trend Last?

In my mind there is no doubt this a lifetime trend.

Venture capital will be easy and then hard. The press will romance the topic and then spurn it.

That always happens.

But the key drivers: un / under-employment, personal & governmental debt, globalization, resource scarcity, transparency & shifting demographics will mean collaborative networks will form throughout our life.

It is the antidote to top-down control.

I also spoke about the trend of open communications from radio to TV to telephony. I believe the natural success to that is Twitter more than any other technology of our generation. It is open and empowering. But with empowerment also comes awareness of what others have that you don't. Which leads to disenfranchisement. And rebellion.

Think Tunia, Egypt, Syria and now Turkey.

Transparency can breed discontent.

And the solutions to many of the worlds problems will come from the people as much as from governments.

Collaboration. We've only just begun.

How Will it Evolve?

I did spend some time in the presentation to how consumption networks will evolve. It was my sixth trend and one I really believe in. In a world where P2P networks threaten existing business value chains some companies and systems will disppear.

But there are always ones who adapt and thrive. And if you can create a company that can help existing players jujitsu their nimble startups you'll do well.

One such company is Deliv. They are taking the same approach as an Uber or Lyft (finding drivers who want to earn a bit more) and in stead of matching them up with consumers they match them up with local retailers to deliver goods to people's homes.

Think about it - most retailers can't compete with the scale and costs of Amazon.

But they do have a local physical location in your neighborhood.

And what if you could meet the holy grail of same-day delivery for the same cost as overnight on UPS.

That's what Deliv enables. Retailer wins. Driver earns extra income. Consumer gets same-day deliver.

Win.

I suspect you'll see many more companies helping business tap into consumption networks in the years ahead. Companies like this don't capture the sexy headlines in the same way as cars with pink mustaches on them. But they do tend to build large and profitable businesses.