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When Collaborative Consumption Fails

The business model known as collaborative consumption — where buyers and sellers trade without intermediaries through an online community marketplaces — has been a homerun for Ebay and Craigslist.

But a new breed of start-ups like AirBNB, which apply the same model to service industies, where responses times are critical, and relationships matter, may not  fare so well.

Here are three examples where service oriented community network business models fall short:

1. When Buyers Need Protection – The more important relationships are to successful transactions, the more risky peer-to-peer transactions are.  When there is very little promise of future revenues, sellers are much less motivated to perform. If I chose to purchase raw materials from a vendor based soley on price, and the quality is inferior or they can’t deliver on schedule, that could shut my plant down. And time is money, so I need a relationship with someone who can fix problems quickly. And the same is true in most service industries, which is why they may ultimately fail at collaborative consumption.  Take AirBNB for example. Their listing hosts can evict guests without cause, and there’s virtually nothing meaningful the service can do about it. On the other hand, if guests back out of a booking, they could wind forfeiting half the booking fee.

2. When Buyers Need Support – Recurring revenue is what motivates sellers to remedy problems.  In the case of a community networks like AirBNB, where the likelihood of repeat business between the same buyer and seller is much lower than it would be for a hotel chain, motivating the seller with the threat of a bad review is defeated by the seller’s ability to slam the buyer with an equally bad rating. And AirBNB does not serve as an arbiter of truth. Given the size of the network and the number of transactions, how could they? Service oriented collaborative consumption business models don’t scale well.

3. When Response Times are Critical – If you’re unhappy with a purchase on Ebay, you can file a dispute on your own time, from the comfort of your home. But if you’re locked out of an apartment you rented from AirBNB, your ride doesn’t show or your task doesn’t get done, you could be looking at 5 hours in dark hallway, a missed flight or no dry cleaning.  Mishaps are often nobody’s fault.  But when they happen, they do need to be resolved, and that’s what service industries are about. Connecting buyers and sellers to trade services without protecting either side with adequate support is critical.  But the expense of providing that support for a community network just may not be scalable for these nascent companies.  Adding standards and verification could be the answer. The question is can these companies afford it without sacrificing their profitability?

Social media business models are not one-size fits all.  Just because collaborative consumption works for some online marketplaces does not mean it works for all, and services may be too economically challenging for these start-ups to delivery.

The jury is out on whether or not service oriented collaborative consumption businesses like AirBNB, Uber and TaskRabbit will be able to adequately satisfy those customers in an environment where response times and relationships are important.

This post is based on an experience I had renting an apartment through AirBNB.  If you’d like to hear a podcast discussion about what happened, click here.


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