A new type of growth is emerging | FT Alphaville

A new type of growth is emerging

Earlier in May FT Alphaville attended Ouisharefest in Paris, a conference dedicated to exploring and discussing the growth of the collaborative economy.

The timing of the event coincided with the ECB cutting its benchmark refinancing rate to an all-time low of 0.50 per cent to counter economic weakness which had in the central bank’s opinion spread to the eurozone’s “core economies”.

It was also the day that EBC president Mario Draghi said he was open to the idea of negative deposit rates.

The mood across the financial blogosphere and Twittersphere was understandably bleak that day.

And yet, sitting at the Ouisharefest in Paris, the atmosphere could not have been more different. In fact, the sense of optimism amongst the crowd was intoxicating. There was a distinct feeling that as the old economy lagged, this mysterious collaborative economy thing was booming like never before.

The sector itself captures everything from peer-2-peer lenders, equity and crowdfunding platforms to home-swapping, couch-surfing and room letting websites. There were car-sharing initiatives, as well as equipment-sharing, asset-sharing, time-sharing, skill-swapping and data-sharing initiatives. The “maker” movement was also well represented due to its close connection with the open source initative.

The common denominator here: the redistribution of inventory and capital to a wider user base, thanks to the wisdom of networked and engaged crowds. That is to say, putting to use what is already available and there for the taking.

The key differentiator, meanwhile, was how these companies actually monetise themselves. Some focus on membership fees or commissions from matched sales or transactions. Others fund themselves from advertising or from selling data. Others still see the websites as entry points for additional offerings like insurance. A few remain totally altruistic and non-profit focused, covering basic costs through donations.

Wikipedia, Facebook and LinkedIn are the more established names to have been born out of the movement. And it’s notable that it’s their dependence on the collaborative factor (especially in the case of the latter two) which poses difficulties when it comes to valuation, there being a clear trade-off between user numbers and explicit monetisation tactics (such as advertising and membership fees).

Yet this is also why competition from more targeted, personalised or themed alternatives is growing quickly.

Take Love Home Swap, a home exchange website, as an example. Debbie Wosskow, the site’s founder, told us that while home exchange itself is not new (“directory” home exchange has indeed existed for decades) what is new is the digital and networked approach to the idea of home swapping. Wosskow essentially took a tried and tested format, digitised it, and has quickly achieved impressive scale in double-quick time.

Building a recognisable brand around the platform, meanwhile, helped to inject a sense of reputation and professionalism to what is at its heart a trust-based process. In terms of growth, the site had 250 homes listed at its launch in 2011. It now has more than 40,000 and its reach is truly global.

And as Wosskow told us, the success isn’t solely connected to providing a low-cost alternative to hotel accomodation in times of austerity. In her opinion there is real demand from people who are bored with hotels and who want to experience a local way of life on their holidays instead:

It’s about people who want to live like a local — a one-off experience where you are immersed in a community and a life swap. People end up giving a lot of information about the life they lead. It isn’t just about money, it’s about the sort of vacation and holiday experience where you are immersing yourself in a new community.

It doesn’t feel like a fad. Most of the time I don’t describe this as collaborative business, but a marketplace. But I do think this is a perfect storm of the economy being tough, and people wanting to have their assets work for them. Something has changed.

This sort of story, however, is being repeated on many fronts.

Airbnb, a network launched in 2008 to facilitate the rental of spare rooms or flats to travellers, has experienced equally impressive growth rates on a global level. Here, for example, is an infographic from 2012:

Some have since estimated that Airbnb ended up renting as many as 12-15m room-nights in 2012, while the company itself announced that 3m unique guests used Airbnb in 2012.

Zipcar, the car-sharing network (which works a bit like Boris bikes do), became so popular it was acquired by Avis Budget in January 2013. Over the last year, its membership base grew by 12 per cent. Membership stood at 760,ooo at the time of the acquisition.

In the spirit of championing new collaborative businesses, the company published a very readable interactive report last month about the British start-up scene (the Smarter Business Blueprint) in which it found some notable collaborative trends:

Whilst 48% of start-ups currently share one or more physical assets – such as vehicles and offices – with other businesses, 31% are now also sharing elements of their workforce – choosing to access certain job functions ‘on demand’.

The move towards the sharing of costs is viewed as a long-term measure, rather than a reaction to the recession, according to 65% of survey respondents. In fact, half (50%) of business owners surveyed said that cost sharing with other businesses was part of their original business plan.

55% of start-ups said sharing resources – from desk space and IT systems, to transport and staff – as ‘essential’ to business survival

And then there are the funding-focused start-ups themselves, among them sites like Kickstarter and GoFundMe.

In July 2011, two years after its inception, Kickstarter announced it had successfully facilitated funding for 10,388 projects. Less than two years later, another 30,852 projects — nearly three times as many — had been added to its successfully funded list. Out of the 41,240 successful projects funded to date, 31 managed to raise over $1m.

Over at GoFundMe, which specialises in funding personal causes, it’s a similar story. The platform’s CEO Brad Damphousse told FT Alphaville that total donation volume has grown by 500 per cent in 2012, with the site experiencing an average monthly growth rate of 38 per cent during the first three months of 2013.

Collectively, over $67m has been raised on the platform to date, but Damphousse projects that more than $200m should be raised this year. The platform itself was launched in May 2010.

In terms of economic impact, these numbers are still small.

However, consolidate the countless peer-to-peer lending, timebank and equity-based funding initiatives springing up all over the place together, and add to that Google’s recent $125m minority investment in San-Francisco based Lending Club — which valued the company at $1.55bn – and you start to detect the makings of an entirely disintermediated alternative to traditional finance.

One, we should add, that has the potential to become as disruptive (and as badly understood) as shadow banking has been in the past.

In fact, an interesting point on this was made during the “Future of Banking” panel at the Ouisharefest, which featured representatives from KissKissBankBank, a reward-based crowdfunding venture run in association with La Banque Postale, Pret d’Union, a peer-2-peer lending venture with interest and Anaxago, an equity-based crowdfunding venture.

The point being: all peer-2-peer initiatives from lending, crowd funding to equity-based funding represent the private sector encroaching on the traditional business of banking intermediaries, in a way which very significantly reinstates a type of full-reserve banking back into the economy.

But we’ll have more on that theme in our follow-up post.

Related links:
ZipCar CEO Scott Griffith resigns, hours after Avis acquisition – CNN Money
Airbnb now disrupting San Francisco Housing Market – Wired
Peer-to-peer lending platforms look to rival traditional banks – FT
Beyond GDP and the rise of the non-monetised economy - FT Alphaville
Beyond happiness – FT Alphaville
Mismeasuring UK GDP – FT Alphaville
All eyes on the sharing economy - The Economist