While we have all recognized the phenomenal success of companies like Airbnb, it's clear that the next generation of sharing economy businesses are following a different approach.  Businesses in the sharing economy provide platforms that sell or rent unused product or service capacity.  They are some of the most successful startups, largely because they act as platforms between buyers and sellers, without the headache of inventory. We all know that the world's largest taxi firm (Uber) owns no cars, the largest provider of accommodation owns no property (Airbnb), and the world's largest retailer carries no stock (Alibaba).

Creating these platforms that connect buyers and sellers may have been enough to create success for these businesses in the past, but looking to the future, one can see that the business plans of the next generation of sharing economy businesses must involve a new approach. Given that investors are still eager to fund new sharing economy startups, if you are thinking about starting a business using sharing economy technology, it is important to understand the two main strategies for success in the next generation of such companies.

Saturation is particularly problematic for sharing economy platforms as supply is physically constrained, and yet the value of these networked sites increases the larger the supply, as customers have more to choose from and prices naturally decrease. There are a relatively limited number of potential drivers for Uber, empty apartments for Airbnb and unused clothes for Ebay, for instance.

Similarly, with an increasing number of platforms offering a similar product, consumers are looking to curated platforms that enable them to relate to a product, building a sense of community. 

Businesses in this space are countering these problems and creating opportunities by focusing on two simple things: 

  1. Focusing not only on buyers, but also on keeping suppliers happy. With an increasingly limited pool of suppliers, platforms should focus on creating loyal suppliers
  2. Curating. With increasingly discerning buyers, platforms must create a more personalized experience

These strategies are central to the business plans of small and larger startups. Lyft, for instance, has made the satisfaction of both ends of the platform a differentiator since inception, while Uber launched as "everyone's private driver," focusing on the rider's experience. From the onset, Lyft has invested in community building and engagement for drivers and riders, being the first to offer a variety of features like tipping, aimed at making drivers happy.

Even the result of a Google search of "Lyft community" versus "Uber community" leads to telling results about how these companies approach driver engagement. The latter reveals company guidelines regarding the treatment of riders, while the former reveals examples of drivers' community engagement. This focus on drivers' happiness and building engagement is likely responsible for its recent success; Lyft's valuation increased 46 percent to $11 billion in six months and is gaining on Uber.

A startup I advise also does this well. Domio, a company focused on upscale urban and vacation rentals, manages and rents luxury properties in seven U.S. markets, with a 400 percent projected revenue growth this year and a 20 percent higher occupancy rate than most hotels. As Domio's strategic advisor, I have learned that its growth is driven by providing services to both sides of its platform.

By signing multi-year leases with property owners, Domio takes control over both sourcing clients and property management. As opposed to listing on Airbnb, the risk inherent in unoccupied nights and property management shifts from owners to Domio. By providing this service, it secures properties in metropolitan areas with limited supply. Domio also curates; as opposed to larger accommodation platforms, each property is hand-picked and styled to maintain a level of quality and brand.

Poshmark is using a similar strategy to take over the peer-to-peer (and retail) mobile clothing marketplace. By integrating social media -- buyers can communicate directly with sellers, connect with friends, and share items- Poshmark engages buyers and sellers and serves as a user-curated platform, unlike any other sharing economy marketplace for clothes. This has built a strong community of over 3 million suppliers who sell over 25 million items at any time.

Buyers also spend an inordinate amount of time on the site (25 minutes per day), but 75 percent make repeat purchases. Poshmark also builds a seller community by sponsoring live events, helping them to optimize their closets, and streamlining fulfillment by allowing sellers to generate mailing labels, and track sold items.  This strategy seems to be working; Poshmark raised $87.5 million in funding in November according to TechCrunch, reaching a total of $160 million in funding in seven years.

Sharing economy businesses across many verticals are still growing exponentially, yet companies hoping to capture market share must use updated strategies beyond those employed by first generation companies. To carve out a niche or seize market share from big players, new companies must cultivate loyal user and seller cohorts by building engagement and community and curating current stock. 

Published on: Apr 3, 2018