Despite the relative novelty of the phrase "sharing economy," the concept behind it has existed far longer than the term itself. In a sharing economy, a single commodity is used by multiple individuals, rather than being privately owned by a single entity or person. Rental agencies for things like cars, apartments and tuxedos have been a part of the American sharing economy for decades. It's a win-win for all parties involved: The consumer gets access to a high-value item at a fraction of the retail cost, while the business is able to offer sustainable inventory items over and over again.
More recently, a new category of the sharing economy emerged: Consumers began selling a wide variety of personal items to one another through third-party online platforms like eBay and Craigslist. A few years ago, specialty peer-to-peer (P2P) marketplaces for certain types of items, such as clothing and home goods, began popping up, creating what one company in this industry is calling the "intimate economy."
"What we've seen over the past three to four years is that people have expressed a willingness to participate in each other's lives," said Ross Resnick, founder of home-goods and décor marketplace Fleapop. "We're using one another's resources, and the stigmas associated with used items have fallen by the wayside. Now, there's this intimacy of sharing [personal items] with one another."[How to Sell on Third-Party Marketplaces]
The definition of ownership among consumers has shifted from a "mine-versus-yours" attitude to the idea that "what was once mine can now be ours," said Resnick.
"People can own the same item in this ephemeral way," he told Business News Daily. "They have photos of it and remember it, but someone else owns it now."
An easier way to buy and sell
Many marketplace businesses were started to provide an easier alternative to traditional avenues of P2P selling, such as garage sales. Fleapop, which launched in June 2013, describes itself as an online flea market focused on one-of-a-kind, high-quality inventory like home décor items and upcycled furniture. HipSwap, founded in 2011, allows people to buy and sell clothing, bags and accessories in three simple steps.
"My business partner and I were frustrated with the number of steps required to sell an item on Craigslist and eBay," said HipSwap co-founder and CEO Rob Kramer. "[We thought], in an age where everyone has a camera smartphone, what if we could make an app that only took three steps to get that unwanted item out of your closet or garage and on the market? Shoot it. Price it. Title it. HipSwap is like having a marketplace in your pocket."
Other businesses in the market were launched to solve a connection problem between potential buyers and sellers. Dopios, an Athens, Greece-based community marketplace, matches travelers with locals around the world to provide them with an authentic, tailored travel experience.
"We came up with the concept of Dopios in 2012, while we were living in San Francisco," said CEO and co-founder Alexandros Trimis. "We had been hosting friends from Europe and showing them the side of the city that tourists don't see. What mattered wasn't the famous sightseeing to-dos, but the local experiences with everyday people. We realized that there should be a better connection between the two sides: the locals who want to share their city secrets and the travelers who are striving for some authenticity and personalized pampering."
Every business has to work at building up consumer trust. But in an industry where companies serve as liaisons between strangers and exchange goods for money, it's of utmost importance to assure customers that their information is secure and the transactions are legitimate. Many intimate-economy businesses have integrated recognized payment systems like PayPal into their platforms and offer buyer protection through user rating systems and return policies. Great customer service is also helpful in building trust among current and potential consumers.
"The most important thing of all is the word of mouth that goes on after a customer buys an experience," Trimis said. "The more reviews and comments that come from the users, the more secure everybody feels. Dopios tries to keep a well-informed FAQ and provide a good experience that always supports the overall feeling of trust. [We do] Skype calls with users, local meetups, a check of social accounts, etc."
Kramer said customer service is important to HipSwap as well. "We spend a lot of time speaking with customers," he said. "We published our office phone number [on HipSwap's website]. We personally answer all of the calls, so every time a seller or buyer had a question, problem or concern, we're there to help."
Airbnb, a company that allows users to rent out their homes to travelers, also places a high premium on the comfort and trust of its customers.
"We take the trust and safety of both the hosts and guests very seriously," said a spokesperson for Airbnb. "We provide detailed profiles of all hosts, authentic reviews from past users, 24-hour customer service and a one million-dollar host guarantee for loss or damage caused by a guest."
Finding a balance
Marketplace businesses face many of the same challenges as other startups, such as attracting and retaining customers. But they also need to please two sets of customers with very different needs.
"The ability to keep a balanced marketplace where both sides are satisfied is important," Trimis told Business News Daily. "You have to get creative and think of unique ways to attract both buyers and sellers. It's very easy for both sides to lose interest after a period of inactivity."
Regulation policies must also be balanced. Resnick said FleaPop takes a top-down and bottom-up approach to this issue. "We regulate as much as possible [by] monitoring every purchase, seller and shop, but there has to be some self-regulation to let users rate sellers," he said.
The future of the sharing economy
Could marketplace businesses like these be the next big business trend? The rapid growth of this industry could very well be an indicator of its future success.
"The sharing economy has impacted society by changing the way people consume goods, educate and employ them and create enterprises," said Airbnb's spokesperson. "With our own growth, we feel this space will only continue to grow."
Although Trimis said the industry has seen some ups and downs, and the business model doesn't make financial sense for every sector, finding the right market can prove to be a great opportunity.
"The higher the price of the sold items and the higher the frequency of transactions, the larger the potential is for the mediator," he said.
Originally published on Business News Daily, Feb. 2, 2014. Updated Feb. 4, 2014.