It was 2 am in San Francisco. Leather-jacketed hipsters were crowding into the taco joints and I could hear drum rolls coming from a bar somewhere down the dirty boulevard. And a car with a fluffy pink moustache was headed straight for me.
The car pulled up. I walked round to the driver’s side and he lowered his window. He had the same dark, gelled hair and nervous smile as his photo. There was no question that it was him.
“Alex?” he said.
I nodded and we bumped fists. Then I got into the front seat.
Four minutes earlier, I had taken out my iPhone and opened an app called Lyft, one of the US’s fastest growing tech startups. On the screen was a map of the Mission District, car icons dotted around the gridironed streets. I pressed the green button, big enough for fingers far drunker than mine, and the app had showed me a thumbnail photo of my driver, Eddie. Before I knew it, a car icon was edging across the screen of my iPhone as the real thing sped towards me through the dark streets.
Lyft is a peer-to-peer taxi service. It provides software that lets people register as taxi drivers and — once “background checked and personality screened” by the startup — operate a taxi business from their smartphone. It also doles out giant pink moustaches for their drivers to attach to their cars. Lyft’s army of drivers includes retirees, PhD students, and actors. As for the people running this strange new breed of taxi company? Forget dead-eyed men behind safety glass. Think Stanford-educated “data scientists” scribbling algorithms on whiteboards (with the occasional break for ping pong).
Lyft is just one of a new wave of companies powering the so-called “sharing economy.” This is an economy built on people sharing assets, often ones that they already own. The sharing unlocks value in the downtime of those assets. Lyft taps into the downtime of two types of assets: cars that, on average, sit and rust for 23 hours a day,1 and their owners’ spare time. This economy is not only empowering people to share their cars with strangers. Today, people are sharing everything from their hard-earned cash and expensive apartments to their beloved pooches. It is an economy that is already estimated to be worth over $15 billion a year.2 And it’s growing like wildfire.
Of course, there is nothing new about renting belongings or sharing assets. Every city dweller is used to communal parks, gyms, and public transit. What is new, however, is the application of technology to many old as well as new forms of shared consumption. The Internet and smartphones are fueling the growth of huge and liquid online marketplaces where these shared assets and their owners live. Through these online marketplaces and the energies of millions of everyday entrepreneurs, entire sectors are being opened up to the sharing treatment.
The business I run, JustPark, allows property owners to share their parking spaces. Before the Internet, the odd person would stand in their driveway holding a sign if they happened to have a desirable parking spot near a sports ground. But to have over a million people globally parking in other people’s driveways would have been unthinkable a decade ago. The 1960s saw the birth of the timeshare when it made sense to share expensive and infrequently used assets like holiday homes. Now we can monetise things as inexpensive as the drills and hammers used to build them.
Eddie passed me his iPod and said, “You choose.”
He was an off-duty paramedic, driving for Lyft to make some extra cash. He seemed to be enjoying the novelty of driving people who were not likely to do him the discourtesy of dying in the back. As for me, I was struck by the bizarre sensation that the stranger taking me home actually cared about me — even a tiny little bit.
“Are you British?” asked Eddie. “I’m from London,” I told him.
“Awesome!” he said. “I’m going this year for the first time. Any recommendations?”
“What kind of stuff are you into? Do you like the theatre? Museums? There are literally hundreds of galleries. And ...” Off I went, well aware that my advice would be inferior to what he could find on websites like TripAdvisor and Yelp and that he would probably go to them anyway and, besides, who was I to compare with the collective wisdom of online communities millions strong.
We pulled up outside Cara’s apartment. I knew Cara little better than Eddie. I was staying in her duplex in San Francisco’s trendy SoMa neighborhood, blocks of former factories and sweatshops that are now turning out startups. I had rented Cara’s place through the hip poster child of the sharing economy, Airbnb. In choosing to spend my holiday in someone else’s home, I was not alone. Over 17 million travellers have already used Airbnb to book stays in strangers’ spare rooms and appartments. Founded in only 2008, the startup is valued at over $10 billion.
So it was that instead of picking up my key from a hotel night porter, I delved into my pocket for Cara’s spare keys and unlocked her front door. I collapsed onto her sofa, wondering if JustPark could ever reach the same kind of scale as Airbnb. Would we get 10 million users? 100 million? It made my head spin. Could a business, our business, one owning nothing more than laptops, whiteboards, and a remote control monster truck, also be worth billions? Could we create as much value? That morning, Cara had told me how her Airbnb income had supported her when her working hours were cut, and had given her the economic freedom to write a book. “I feel so utterly grateful,” she had said.
As these companies have gained traction, so the money has come pouring in. Lyft was only founded in 2012 but, in the rich soil of Silicon Valley, has already raised $330 million of venture capital and is valued at over a billion dollars. A billion dollar pink moustache. Really? The skeptical Englishman in me cannot be silenced. What if Lyft is as full of hot air as its logo’s green balloon? But that is small fry. Another San Francisco taxi startup, the better-known Uber, has raised venture capital at a valuation of $40 billion. Weeks after one of its fundraisings, James Surowiecki, author of The Wisdom of Crowds wrote, “The flood of new money into all these new businesses feels like a mini-bubble in the making.”
My brother Paul, a fund manager in the City of London, would say so. He has invested in far less valuable companies that are highly profitable or have decades of cutting-edge R&D. Consider one of the sharing economy’s success stories, Chegg, a textbook resale marketplace. Had you delved into its listing prospectus, you would have found warnings of the weak economic fundamentals that characterise many sharing economy marketplaces. “We have a history of losses,” read the prospectus ($170.4 million to be precise) “and we may not achieve or sustain profitability in the future ...” Chegg floated in 2013 at a valuation of over a billion dollars. Its shares currently trade at half their initial public offering (IPO) price. Zipcar, the sharing economy’s largest ever acquisition at $500 million, was bought by Avis Budget for less than half of its IPO price after it too never turned a profit.
Those are the sharing economy’s success stories. Many a sharing economy company has fallen by the wayside altogether. Loosecubes was a marketplace for shared office space backed by the mighty Accel Partners venture capital firm. It folded in 2012. A year later, WhipCar, a UK car-sharing service, followed suit. It plastered posters all over the London Underground but failed to grow revenue. There is logic in these business models but are they ahead of their time? Generally, we don’t like strangers driving our cars or sleeping in our beds. We exhibit to varying degrees what I call the “Goldilocks Complex”: an instinctive displeasure at the thought of strangers eating our metaphorical porridge, sleeping in our literal beds, or using our belongings. It is in the interests of almost every company to preserve the Goldilocks Complex. Between them, they spend around half a trillion dollars each year on marketing to get us to buy, not share.
Surely, too, the excitement about sharing economy businesses is artificially high in the echo chamber of Silicon Valley. As Marcus Wohlsen writes in Wired, “Digital utopianism runs through Silicon Valley like water down the Mississippi. But the rhetoric reaches even higher levels than usual when the tech cognoscenti start talking about ‘the sharing economy’.” British author Carole Cadwalladr writes in The Guardian, “In San Francisco – where Airbnb is one of the sun kings of the startup scene ... the ’sharing economy’ has the kind of resonance that ‘free cake’ or ‘hot sex’ has for the rest of us.”
I was bedding down in the epicenter of this new world where thousands of evangelical sharers believe that this new economy will add value in the world beyond the one of fund managers and stock exchanges. For them, sharing can turn cities of individuals into networks of communities. It can reduce our destructive and unsustainable consumption of natural resources. It can cull the materialism and greed that brought us to the verge of global financial catastrophe. For them, the sharing economy is nothing short of social, environmental, and economic salvation.
Back in 2011, I did not join JustPark, then a tiny three-person startup, because it was part of the sharing economy. I joined because I thought that we could solve a big problem : parking in major cities. Three years later, I found myself at the start of a different journey: to find out if the sharing economy was all it was cracked up to be. During that journey, I watched zealots and cynics banging their drums every passing day on blogs and Twitter, and in half the world’s newspapers. In The Business of Sharing, I want to let readers decide for themselves whether the sharing economy is real-world substance or media hype: hot stuff or hot air.
Today, the sharing economy may have San Francisco as its beating heart but it has become a global movement. In writing this book, I talked to entrepreneurs from the Philippines to Belgium, venture capitalists from Silicon Valley to Israel, and politicians from London to Seoul. But above all, I met the customers of the many businesses that crowd beneath the umbrella of the sharing economy: people inviting strangers into their kitchen for dinner in Barcelona and crowdfunding farms in Bulgaria. Some were daring and brave, and others were on the wacky side of visionary. But most of them, I suspect, were not so very different from you.
The next morning, I was due to meet one of the architects of this new movement. I decided to give myself an extra 15 minutes in bed. I could always take a Lyft.
This article was taken from the book "The Business of Sharing".