Collaborative Consumption - A new business paradigm?

What is collaborative consumption? In a word, collaborative consumption is sharing.  Sharing but not in the traditional sandbox sense. Collaborative consumption is the redistribution of used goods from where they are idle to where they are usable.  Collaborative consumption is taking once product driven markets such as selling automobiles and turning them into car rental services. Collaborative consumption is renting out unused and idle space, tools, and equipment so they can be commercialized. It is Peer-to-Peer (P2P), trust and reputation based, fueled and made possible by technology and the power of networks. Collaborative consumption is rapidly becoming the new paradigm of consumption and forever changing the landscape of marketing, sales, and product development.

Human needs have evolved over the course of time and exploded rapidly due to the industrial age and mass production. Goods that satisfy needs could be had for relatively cheap, and all of it wrapped neatly in colorful plastic packaging and cardboard.  All of this at the expense of the environment and what is left of the natural world.

In 2008 the great recession occurred. Consumers now faced with lowered spending power and lowered confidence in the marketplace, began looking elsewhere from traditional consumer outlets to peer-to-peer networks and friends to fulfill their needs.

Technology and particularly the Internet have fueled this throwback to traditional, pre-monetary modes of exchange: barter, swapping, lending, and gifting. The ability of social networking platforms to connect and build trust between strangers is staggering. The groundwork laid by Facebook and Ebay, among others, has allowed consumers to become accustomed to the idea of communicating with strangers or casual acquaintances on a daily basis. Collaborative consumption that leverages this built-in network of communication is only the logical next step. First, people communicated with words over networks on the Internet. Now they are exchanging their unwanted items for wanted items, all without explicit payment for the items.  A perfect example of this phenomenon is Swap.com (Formerly SwapTree). The site utilizes technology and algorithms pioneered by Facebook.

Swap.com was created to match people’s swappable items with others. For example User A has a Star Wars DVD that he wants to swap. He posts the DVD on Swap.com and the site automatically matches that item with other items that other users are willing to swap for the wanted Star Wars DVD. User B has a Family Guy DVD that he would like to swap for the Star Wars DVD. User A just so happens to be looking for that Family Guy DVD. Swap.com connects the two swappers and an exchange is made.

In the new paradigm Users A and B can log onto Swap.com and both come away with a “new to them” DVD and have their needs met without creating more garbage floating in The Great Pacific Garbage Patch. If User A then wants to watch his new Family Guy DVD in the next town, he can drive out in a Zipcar and stay in someone’s spare apartment bedroom via Airbnb. This and other examples we will present are just the tip of the iceberg when it comes to what collaborative consumption can do. But perhaps the most important thing about collaborative consumption is what it can save.

Instead of new raw materials and added pollution and increased entropy in the universe needed to create new consumer products, existing copies of the same can be meaningfully swapped in a virtual marketplace that connects users from all over the globe in order to fulfill their needs. The impact on manufacturing and product design is immense. In the hyper-consumption model knowing that consumer goods would be thrown away after use led to the practice of planned obsolescence. Now that manufacturers realize that their goods will be swapped and traded after the first user perhaps we will see a return to seeing products built to last.

Collaborative consumption is returning us to how exchange was practiced before money. We are going back to basics: barter, trading, swapping, lending, renting, and a trust based economy. Access is better than ownership. Reputation is more vital than credit score. The new idea behind this way of thinking and behavior is the assumption that the primacy of experience trumps having more stuff.

Or in other words, “I just want to watch the funny cartoon on the DVD, not own it.” What a novel idea. 

For More Information on Collaborative Consumption,

What's Mine Is Yours: The Rise of Collaborative Consumption

The Music Industry Post File Sharing

U.S. Copyright law as it pertains to artistic works if very clear on what is and what is not copyright infringement. After sifting through the many pages of the US Copyright Act of 1976, the latest iteration of copyright law we can distill one central tenant behind the letter of the law: Anything that "displaces" a sale of copyrighted material or could potentially do so is illegal.

Prior to the Internet "bootlegging" and copyright infringement could only be done on a small scale. Old school copyright infringement in the days of LPs consisted of making a negative mold of the record and then pouring molten wax into the mold until it set. Once completed you had an illegal bootleg copy of the LP. After the Internet, P2P networks like Kazaa and Limewire made it easy to download many full albums and .mp3s of your favorite music for free.

This practice unfortunately signalled the downward spiral of music industry revenues from then on. Instead of paying upwards of $18.99 for a 12 track CD (plus tax), anyone with an Internet connection could download that same CD for practically nothing.

So who does this practice of illegal downloading hurt the most? Is it the artist or the record labels? The answer is complicated, to say the least. If you are a big name artist illegal downloads will hurt your bottom line, but then again, most of the money that big artists make is in touring, radio royalties, merchandise, and synchronization royalties such as getting their songs in commercials and tv shows.

If you are a major record label the practice of illegal downloading seriously changes your business model. Prior to filesharing record labels were willing to keep artists who needed development and took time to produce albums. After filesharing the record labels knew that they needed to make money even more so they ended up dropping lesser known and developing artists in order to focus their resources on the few but popular artists. The end result is homogeneity in the music you hear coming out of your radio and from the major labels.

The music industry needs a new business model that is able to monetize the practice of getting music from the Internet. It is naive to think that consumers who are now used to getting music for free will go back to paying for it. Possible solutions would be ad-based Internet radio such as Pandora or Last.FM.

The essential question is are you hurting your beloved music artists by downloading their songs for free? Yes and no. Artists usually only get $0.09 per song on an album sold anyway. The rest of the money that you pay for that CD goes to the record label. So the primary loser in this scenario is the recording industry. However, having more of the artists' music out there and being played increases the artist's popularity, and thus increases their ticket sales at live shows.

In my opinion, I don't see filesharing or illegal downloading of copyrighted material to stop. The music industry needs to figure out a way to monetize the act of getting music on the Internet. Possible solutions are ad-based Internet radio and merchandising.