I wrote a piece a little while back about the benefits of access to things over ownership of things http://www.builtinchicago.org/blog/access-really-right-word-collaborative-consumption-pt-1. It mostly addressed the burdens that can be imposed by ownership of things and the relative benefits of being able to access “things as a service,” as it were. I’m going to dub a person who leverages access over ownership when it suits them a “modular consumer.” They get at what they need, when they need it, and not more. They don’t maintain a personal inventory of physical things that largely go un- or underutilized (think that Ab Roller that has been collecting dust since that brief sprint to get in shape 2 weeks before spring break in 2007). Like cloud processing or SaaS, their capacity is theoretically infinitely scalable, but not until they present the demand for it. Imagine the extreme example of a modular consumer as someone who has no permanent residence, lives out of an Airbnb rented room, gets all their clothes from Rent the Runway, cooks in a shared-use kitchen space, rides the train or uses RelayRides, etc. Pretty much every aspect of daily life can be gotten, achieved, or facilitated in some way, shape, or form through collaborative consumption.
But let’s take a look at the other side of these transactions; the side granting the access, or the actual owners of these things. Some of the aforementioned examples are B2C, but many (Airbnb, RelayRides) are P2P. Within the P2P markets, there is usually a financial incentive (rent) to motivate the supply-side of the market to make accessible an inventory of whatever (rooms, cars, etc.). More discussion about that topic (and another shameless self-promotion) here: http://www.builtinchicago.org/blog/what-capital-markets-already-know-about-collaborative-consumption. But will P2P markets persist as P2P, or will the “Ps” start to make a “B” out of simply owning and renting out their stuff?
As it stands right now, P2P offerings exist alongside B2C offerings in the marketplace in several areas.
B2C
P2P
Cars
Hertz, Zipcar
Lodging
Hotels
Stuff
Rent the Runway, Tie Society
But even with the relative nascence of the P2P platforms, there are already reports of people in the P2P space making businesses out of renting their assets. Searching for an Airbnb rental in Manhattan will yield almost as many “professionally” owned/managed listings as actual people renting out their spare rooms. And at least one guy in the Bay area figured the economics were worth buying a personal fleet of 3 BMWs for the express purpose of renting them out. How different, really, is that guy from Zipcar or iGo? From the buyers’ perspective, not very different at all. They get access to a fleet vehicle, by the hour/day/week, picked up/dropped off from a centrally-located downtown area, that can be reserved online. In fact, it’s arguably even better from the buyer’s perspective than renting from Zipcar or iGo because the P2P platforms include reviews of the car and owner, photos of the actual car, and flexibility to rent by the hour, which Hertz and its ilk don’t do. Conversely, the advantages of a car rental company would be a wider selection of vehicles and possibly a reward points program. Taken as a whole, however, the P2P platform offers even more variety than a car rental company.
So the transaction looks largely the same from the “buyer’s” perspective, but what about from the lessor’s perspective? That side of the transaction looks drastically different. An owner of a personal fleet of vehicles (very likely) didn’t incorporate, didn’t buy or lease a parking lot or garage, didn’t hire a legal team to draft a rental policy and liability waiver, etc. They didn’t take the steps that the other companies did that make it a “legitimate” business. But they didn’t have to. Because the platform did all those things, and they pay them a (substantial) cut of their rental revenue. The platform provides insurance for the duration of the rental, the online reservation mechanism, and sometimes even a lockbox to facilitate key exchanges without necessitating an in-person meet. The platform removes ALL of the overhead and fixed, up-front costs from the individual lessors. It costs literally $0 for a lessor to generate his first dollar of rental revenue.
Now, let’s extrapolate. If, as a lessor, you know you have a reliable platform through which you can rent and monetize your assets, why not just make a living out of owning stuff? As it turns out, this already exists. It’s called capitalism.
Capital: the uppermost member of a column or pilaster crowning the shaft and taking the weight of the entablature
Oh, whoops. I guess spell check doesn’t yet include context check. Although it’s always nice to work “crowning the shaft” into a blog post whenever possible. Thanks freedictionary!
Capital: a. Wealth in the form of money or property, used or accumulated in a business by a person, partnership, or corporation.
b. Material wealth used or available for use in the production of more wealth.
I like the “b” definition the best. “Material wealth used or available for use in the production of more wealth.” It is not a stretch, in fact, it is quite simple, to envision the cycle of capitalism in the P2P à B2C progression. P starts with financial capital (in the form of straight cash, homey), ideally accumulated in founding, growing, and selling a successful startup J. P then has any number of options of what to do with his/her capital, assuming he is indeed going to use it as capital and not spend (all of) it on Ferraris and yacht parties. Which, P, if you’re reading this, let me know next time you’re having a yacht party. I’d very much like to attend. I’ll bring most of a 6-pack of Heineken! So what can P do with his capital? He can loan out his capital: to a business or government by buying a bond; to another P using a P2P lending platform like Zopa. He can give it to a company by investing directly. Or he can change the form of his capital by converting it from a cash asset to a physical or productive asset. Basically, buying something that can produce cash or widgets. What are some traditional examples of productive assets? A factory. A coal mine. A gold claim. A laborer. A building. And now, thanks to the aforementioned P2P markets and platforms, we can add “stuff.”
A car is not traditionally viewed as a productive asset, but that’s because people haven’t traditionally rented out their cars. The same goes for a punch bowl, a ladder, a baseball mitt…you name it. But now that P CAN indeed generate cash from his stuff, the game is different. When every tangible thing can become a productive asset, everything is capital.
Now, who does this best cater to? Those who already have capital. They can now deploy their capital in whatever way proves most profitable. Be it loaning, investing, or buying and renting out various stuff. P with capital changes the form of that capital as appropriate and uses it to generate more capital, which she then deploys to get more productive assets, and so on, and so forth, creating a virtuous cycle for her. At some point, P effectively becomes a B. And given enough time and a few political connections, P becomes a 1%-er.
So given this very natural progression, at what point does P officially cross from being a P into a B? Is it when she derives 100% of income solely from rental revenue? Is it when she hires an assistant to manage all her stuff? I don’t know. I am partial to an 80+% of gross income definition, but that has some loopholes. How will taxation policy differ? Will the government ever figure out how to fairly treat such things? How does P cover her liability? What if the platform changes/ceases to exist?
This discussion breeds more questions than answers this early in its existence. Right now, we have: a capitalistic free market economy; we have greater capacity than ever to make almost any asset productive; and we have individuals and companies blurring the traditional lines of P2P and B2C. Were/are P2P markets an attempt to democratize seller/buyer dynamics? Can they endure as P2P, given the incentives and advantages of capital-holders enumerated above? I speculate that more and more people are going to trend towards become “modular consumers” and that the P2P supply will usually be able to dwarf the B2C supply, making that the dominant option. Agree? Disagree? Why? Whichever way it goes, I am personally very excited to see how things play out over the next several years.
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Gint Rudis is an entrepreneur and co-founder of Chicago-based Spare to Sharewww.sparetoshare.com a collaborative consumption platform that provides for sharing, renting, and selling of items and other goods with closed, known networks. Prior to entrepreneuring, Gint worked in finance and management consulting. Gint holds a BS in engineering from Vanderbilt University and regularly regrets having graduated in 4 years.
