Of late, collaborative consumption peer-to-peer (P2P) models are exploding. This has been an area that I have been investing my time and cash into recently. Such models are much more capital-efficient than their business-to-consumer (B2C) counterparts because these don't require any capital investment in order to acquire assets. They instead rely upon a community to supply them, usually in exchange for a transaction's revenue share.

Peer-to-peer car sharing allows vehicles owners to rent their own automobiles. A company based in San Francisco, GetAround, operates a marketplace for peer-to-peer car sharing for a fraction of the price of ZipCar. Vehicle owners utilize the income from rentals in order to cover maintenance costs and auto payments. A peer-to-peer system is a lot more efficient--fewer vehicles on the road which are utilized more often. Almost everyone benefits.

P2P models, however, are more complicated than business-to-consumer. P2P markets are two sided exchanges and will require close management of demand and supply growth. When a market grows and strangers start to transact, removing transaction friction by building up quality and trust metrics is crucial. Similarly, ensuring regular transaction experiences is important to building leads and brand to word-of-mouth marketing. Finally, every exchange has to determine if they should guarantee customer satisfaction. As a guarantee increases liability of fraudulent returns, the promise will increase a consumer's propensity to purchase.

As in most online interactions and transactions, anonymity becomes the biggest threat to trust. In a collaborative consumption environment however, the burden of creating that trust isn't clear. The peer-to-peer model is based on individuals taking control without outside regulation and is predicated on the notion that the individual has sole authority and responsibility. However, a dichotomy exists because the individual cannot sufficiently determine the trustworthiness of an identity without the help of technology often tied to the larger organization facilitating the transaction. So how does a trusted P2P environment exist without taking the power of the individual away?

Trulioo, a startup that provides global identity verification, has helped various P2P marketplaces create a framework of trust online--a crucial component for building a truly collaborative consumption community. "When you are inviting a perfect stranger to stay in your home--whether it be from across the globe or across the street--trust empowers people to transact with one another, " said Stephen Ufford, founder of Trulioo. "And having a verified identity helps peel back the first layer of trust between strangers. It's a no-brainer. Wouldn't you be more trusting with someone with a verified identity (versus unverified) to borrow your car?"

A pioneer in peer-to-peer exchanges, ThredUp has constructed a community of mothers who exchange kids' clothing. Clothing purchasers rate the styles and quality of the clothing and the information feeds a seller's reputation and informs future buyers. ThredUp will guarantee satisfaction to reduce initial purchaser fear. With close management, ThredUp has successfully expanded their peer-to-peer marketplace.

Technology includes the key enabler for the resource allocation optimization. Markets attract consumers and build up communities utilizing the Internet. Social networks, public and proprietary, underpin trust amongst users. With Facebook, it is simple for a host to vet a possible apartment guest's identity, especially if they have a few friends in common. However, if you don't have a few friends in common, companies like Trulioo can help verify identities by cross-referencing multiple trusted data sources, including watch lists to identify high-risk individuals.

One main challenge while beginning a P2P marketplace includes delivering initial market liquidity via brand building and customer education. The majority of successful markets have sought to replicate offline behaviors on the Internet. Peer-to-peer exchanges will lend themselves to interpersonal reactions that are very close. As a consequence, these markets resonate with consumers for emotional reasons. Just ask the moms on ThredUp who usually wrap their donations inside tissue paper prior to sending the clothing on to the next mother. Or those brides who work with stay-at-home mothers on customized wedding invitations on Minted.

Why should you pay for two Tuscan hotel rooms within your family's vacation when you could just as easily rent an apartment from someone in your area on 9Flats or Airbnb for less? Why purchase a college physics textbook just to sell it a couple of months later when it's possible to rent a book for one semester? Why choose up a dull economy vehicle at the airport when it's possible to rent a red Tesla situated only 2 blocks from your hotel in San Francisco? It's the power of this model.

As applied to the proper marketplace, collaborative consumption markets effect dramatic changes. To this day, the majority of successful efforts have included goods which may be mailed (DVDs, clothes), time and cost sharing of high priced goods (books, apartments, and cars), services (commodity labor, graphic design), and digital currency (lending).

Collaborative consumption markets, with time, will continually expand in these segments, which will open the doors to a truly global economy. Because most of these services dramatically decrease marketplace size, the most successful markets must pursue multibillion-dollar marketplaces to generate tens of millions in yearly transactional revenue. Services such as global identity verification, transaction insurance, international shipping, as well as paid-promotion for suppliers will present higher, additional margin lines of revenue. Startups like Shyp, where packaging and shipping is done anywhere in the world at a low cost, are driving collaborative consumption globally.

"Before shipping a high-value item to someone in another hemisphere, eCommerce sites and online retailers want bank-grade ID authentication to verify identities and addresses," said Ufford. "This will ensure customer satisfaction because delivery is completed timely and businesses can avoid the unexpected return of a package due to an incorrect address."

The revenue models for P2P exchanges should not be a concern. More interesting is going to be the manufacturers' and incumbent retailers' response to successful peer-to-peer markets. I would not be surprised to find car dealers providing their cars for rental upon collaborative consumption markets. Or hotel chains acquiring apartments in order to rent them on peer-to-peer exchanges.

The eventual beneficiaries of this additional selection and competition will be the shopper and the environment. Optimizing our resources is going to change the method in which we live. In 1900, 41 percent of the natural resources that entered the United States economy were recycled. These days, that number is 13 percent. In the meantime, the population in the U.S. has increased 357 percent. We simply can't continue on that path.

One way to go back to a sustainable way of life includes maximizing asset use via collaborative consumption markets. By offering economic incentives in order to maximize efficiency, binding big communities to shared causes, as well as reducing total consumption, collaborative consumption is going to become a keystone of a sustainable society in America.

Published on: Nov 18, 2014