Supply Chain Frontiers issue #53
In October 2007, Brian Chesky, a recent college grad, gave up his job hunt in Los Angeles to stay with a friend in San Francisco.[i] Unemployed, Chesky couldn't help his friend pay the rent — until the roommates came up with an idea.
A large conference for industrial designers had come to San Francisco and overwhelmed the local hotel market. Many hotels were sold out; the few rooms that remained were being offered at exorbitant prices. With the addition of inflatable mattresses and a meal of eggs and bacon, the two turned their apartment into a bed and breakfast at $80 dollars a night. They called the service "Airbed and Breakfast" and made enough money to pay their rent.
In doing so, they came up with the idea for AirBnB, an online hub for home sharing that has since grown into a multi-million dollar company.
But this is more than a story about two resourceful entrepreneurs. The AirBnB concept represents a major shift in consumer buying patterns.
At the start of the economic downturn in 2007, individuals strapped for cash turned to alternative methods of fulfilling their needs without making purchasing new products. Some people bought used items from outlets such as eBay or Craigslist. Others developed mechanisms for bartering and sharing goods and services. The creators of AirBnB did not only encourage sharing (as Craigslist does) but transformed the act of renting out a home into a viable business opportunity. [ii]
These forms of sharing are becoming more prevalent as consumers' willingness to pay steep prices for hotels, cars, and other products declines. The demand for pooled goods is being met by individuals eager to make money from the products they own as well as companies that broker the transactions or supply assets.
There are now many examples of these offerings including car sharing enterprises (Zipcar, RelayRides), alternative taxi services (Lyft, Sidecar, and Uber), Bike sharing (Hubway, Zagster), services to complete random tasks (Taskrabbit), and household goods sharing (Snapgoods).
Zipcar was the first car sharing service and provides a model for similar options. In 1999, Ante Danielson and Robin Chase of Cambridge, Massachusetts, developed the idea of renting cars for short time slots and positioning them in convenient spaces around the city. [iii] The plan circumvented the growing expense of renting a car at a daily rate or owning a vehicle outright. In 2000, the business took off in Boston and Cambridge, and by 2002 had expanded with the opening of offices in Washington, D.C. and New York.[iv] In 2009, Zipcar became the world’s largest car-sharing service. Some two years later, the enterprise boasted 767,000 members, 700 employees, and 11,000 cars available for rent in the U.S., Canada, and Europe.[v]
A 2013 survey conducted by KRC Research and commissioned by Zipcar explained why the company was able to grow so quickly. In addition to balking at the high cost of car ownership, millenials (people in the 18-34 age group) said environmental concerns reduced their desire to own a car.[vi]
While the driving force behind enterprises such as Zipcar and AirBnB is commercial, the sharing phenomenon that underpins their business models is rooted in changing attitudes towards consumerism.
How might these changes impact traditional businesses?
Renting accommodation in an existing house reduces demand for hotel rooms. Instead of everyone owning a lawn mower, one owner profits from its purchase and others rent the asset, lessening the need to manufacture more units. As these examples show, an important consequence of the sharing trend is that it yields significant environmental benefits because fewer assets have to be constructed or manufactured. Some companies have embraced this idea. For example, online apparel retailer Patagonia has a strong commitment to environmental sustainability, and encourages customers to buy its used products and even works with eBay to market the items. In addition to achieving environmental gains, Patagonia's strategy bolsters its brand by conveying the message that the company's apparel is long-lasting and creates both residual value and a market for used product.
These are specific examples, but it doesn’t take much imagination to envisage the broader consequences of this attitudinal shift.
How will your organization fare in this emerging business landscape?
This article was written by Professor Yossi Sheffi, Director, MIT Center for Transportation and Logistics, and first appeared as a Linkedin Influencer blog post.
[i] The New York Times (2013). Welcome to the “Sharing Economy”. Retrieved from: http://www.nytimes.com/2013/07/21/opinion/sunday/friedman-welcome-to-the-sharing-economy.html?pagewanted=all&_r=0
[ii] Fortune (2012). Airbnb: More than a Place to Crash. Retrieved from: http://tech.fortune.cnn.com/2012/05/03/airbnb-apartments-social-media/
[iii] Entrepreneur (2012). Zipcar: Tow Moms, a Business Idea and $68 in the Bank. Retrieved from: http://www.entrepreneur.com/article/223692
[iv] Entrepreneur (2012). Zipcar Timeline: From Business Idea to IPO for $500 Million Buyout. Retrieved from: http://www.entrepreneur.com/blog/225399
[v] ibid
[vi] Auto Rental News (2013). Zipcar survey reveals car ownership trends of millennial generation. Retrieved from: http://www.autorentalnews.com/news/story/2013/03/zipcar-survey-reveals-car-ownership-trends-of-millennial-generation.aspx