University of Memphis

MKTG 7546 – Marketing in a Digital Environment

April 15th, 2014

Collaborative Commerce Trend Assessment

Jason Fairless

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Introduction

Over the past several years, the world of eCommerce has seen a boom of new business models designed to capitalize on developing trends in technology, the economy, and social networking. Forrester Research Inc. projects that online shoppers in the United States will spend roughly $327 billion in 2016 (an increase of 45% from the $226 billion spent in 2012), representing a 10.1% compound annual growth rate from 2012 to 2016. The number of U.S. consumers shopping online is expected to grow to 192 million shoppers by 2016 as well, representing a 15% increase from 2012’s total of 167 million. Lastly, Forrester predicts e-Commerce expenditures to rise by 44% to $1,738 per consumer over the same time period.

These growth trends can be partially attributed to the birth, development and continual

refinement of new online business models that capture the attention and wallets of consumers in innovative ways. Once an idea for a new eCommerce business model is hatched, it is relatively easy to get the idea out into the marketplace. Starting an eCommerce business requires low initial capital investments due to the ease of starting a website, as well as widespread access to social media channels for marketing and promotion. This leads to the constant entrance (and exit) of opportunistic businesses and entrepreneurs, which in turn forces fierce competition amongst rivals. High levels of competition and cultural shifts result in continual refinement and improvement of businesses in order to gain competitive advantages. Similar to Darwin’s theory of natural selection (although on a much more accelerated pace), over time this process results in the evolution of new eCommerce business models. Collaborative Commerce

Collaborative commerce is a business model built around the idea of “access over ownership”. As a result of the great recession that wrecked many a person’s financial stability and sent unemployment numbers skyrocketing, people all over the country began to watch their expenditures much more closely and trim all unnecessary costs out of their budget. Suddenly, people began to find it much more economical to share or borrow items when they were not being used. Such items included books, toys, cars, and even spare bedrooms. Sharing or renting these items out to other people allowed the owners of those items to generate new sources of revenue as a result. Also, the people that borrowed or rented the items from the owners found that this was a much more cost-effective way to use irregular items that they otherwise would have had to buy for a much steeper price. Out of this spirit, the collaborative commerce business model was born.

Collaborative commerce is built around the idea of “access over ownership”. It relies on

the ability to build a large membership base and establish an open forum that allows members to share and borrow items without the burden of ownership. There are businesses that own their entire inventory and rent it out to customers. Zipcar, Chegg, and Bixi are a few examples here. Additionally, there are businesses that serve only as a forum to facilitate the exchange of privately owned goods (think eBay). Gazelle, Swapstyle, and Airbnb are good examples of this.

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Two key pillars that allow collaborative commerce to flourish are the trust between strangers and the necessity of maintaining consumer confidence in the unknown. These two elements can be equated to the oil that lubricates an engine and keeps it running. Maintaining consumer trust and confidence is critical for this trend’s continued success.

Airbnb, which allows people to rent out unused rooms in their house to travelers, has

facilitated over 4 million transactions since its inception in 2008 (2.5 million of which came in 2012 alone)5. TaskRabbit, which offers a forum for people to sell their unused “time and talents” to others needing simple tasks done, allows independent task runners to generate an additional $15,000 per year in revenue for themselves simply by completing “tasks” posted on the website. Lending Club, which is a P2P money sharing site with low interest rates, is projected to lend over $3 billion in 20144. If that is not enough to convince you that the collaborative commerce trend is for real, this next statistic should: As of end-of-year 2012, collaborative commerce accounted for 12% of all eCommerce investments in the United States. As collaborative commerce moves forward, look for new niche businesses to narrow their focus by offering such things as sporting goods sharing, jewelry sharing, and high-end clothing sharing for special occasions. Additionally, new collaborative commerce search platforms will also begin to narrow their focus by connecting math, science, and English tutors; instructors for musical instruments; and sport-specific trainers

Trend Examples and Applications

Case 1: HipCloset

Collaborative commerce has expanded beyond our country’s borders and is currently impacting many other parts of the world. In South Africa, a new business called HipCloset has recently sprung into existence. After seeing thousands of people using their Facebook accounts to sell and trade clothes with their friends in Cape Town, co-founders Tyrone Rubin and David Franciscus were inspired to build a fully-devoted, independent platform that would enable people to buy, sell, and trade the clothes that were hanging up in their closets. In a recent interview, Rubin credits the boom in smartphone usage as one of the key reasons why he feels HipCloset has the potential to be a major success1.

I think this is a fantastic idea, in theory. Although South Africa has traditionally lagged behind other 1st- world countries in terms of politics and economic development, they have been largely successful at putting the past behind them and have developed into a generally well-respected and well-connected country. In fact, the reality that the economy in South Africa is not as strong as other countries’ may actually boost the chances that a company like HipCloset grows into a successful business. The collaborative commerce trend thrives in consumer segments with lower levels of disposable income. South Africa as a whole falls under this category, meaning they will be more likely to adopt a “share first” mentality over the traditional “buy first”, consumerism mentality that has dominated places like the United States.

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One major obstacle that Rubin and Franciscus will run into is convincing Facebook users (as well as other social media users) to move their clothes and communications to a new startup like HipCloset. Facebook offers consumers two major advantages over HipCloset: convenience and reach. People log on to Facebook for a multitude of reasons including chat, uploading pictures, updating statuses, viewing multimedia content, and generally staying in touch with friends. Thus, it is very easy and convenient for someone to post a personal ad for clothes. Additionally, Facebook currently boasts over 1 billion users. The potential reach of an ad on Facebook is thus exponentially higher than one would be on HipCloset, even if the ad is simply personal and not sponsored or broadcasted. Thus, it will be imperative that HipCloset offer something unique that Facebook cannot match. My recommendation would be to develop some sort of order fulfillment capability where HipCloset would offer free shipping and storage of clothes at a warehouse facility until the items were purchased. Once the order was placed, HipCloset would be responsible for packing and shipping the items to the end buyer. This would justify the fees that HipCloset will surely charge for each transaction and give users a reason to switch their clothing exchange activities over from Facebook.

Application 1: Special Occasion Exchanges

Clothing exchanges based on the collaborative consumption model are nothing new. Companies such as SwapStyle, Clothing Exchange, and Big Wardrobe are all players in this space. Based on the expected future trend of narrowing niches, however, one potential application would be to create clothing and accessory exchanges focused solely on special occasion events. Take prom, for example. A company that specializes in prom material redistribution for guys and girls could carve out a unique, viable niche in the market space. A prom-only focus would position the company to forge partnerships with school systems, providing a direct vehicle to market directly to the right consumer segment in a timely and effective matter. In order to remain viable, the company would have to take steps that provide value above and beyond what traditional social media forums (such as Facebook and Twitter) can offer. They could do this by offering coordination and aggregation of limo services, dinner reservations and discounts, and complimentary pick-up, cleaning, and redistribution of the prom dresses and tuxedos.

Another application from the HipCloset case is the ability of collaborative consumption to improve the standard of living in developing countries. By coordinating the re-use of durable goods, communities can more effectively build and maintain wealth while also fostering the sense of togetherness and dependability that is critical for a well-functioning society. Some challenges in creating a sustainable collaborative commerce business in a developing country include lack of infrastructure (internet, delivery services, etc.) and proper economic climate.

Case 2: TaskRabbit

Another great example of a company capitalizing on the collaborative commerce trend is the everyday-job connecting website, TaskRabbit. Founded by Leah Busque in 2008, TaskRabbit was one of the early pioneers of the collaborative economy. The company has been referred to as “an eBay for real-world labor”2 where people can post jobs (or “tasks”) along

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with a location and price which they are willing to pay to have someone complete it. These tasks are then bid upon by runners, with the lowest asking price typically receiving the right to do the job. These tasks can cover a wide range of activities, from picking up dog food to assembling furniture.

What’s made TaskRabbit so successful, in my opinion, is its purposeful move towards gamification over the past few years. TaskRabbit has turned the idea of running errands and performing tasks into a sort of competition, utilizing leaderboards and rankings to show who the top runners are in any particular geographic area or type of task. Users earn points by doing things like placing an accurate bid (15 points if you’re within 15% of the hidden asking prices), responding quickly to a posted task (15 points for bidding within the task’s first 30 minutes of being posted), and completing tasks in general. These points then allow the “rabbits” to level-up and become eligible for tangible rewards such as an official TaskRabbit t-shirt for jobs and business cards to hand to clients2.

From the runners’ side, TaskRabbit allows people who are currently unemployed to generate a meaningful income in hard times. It also keeps the power of time and commitment in their own hands since runners choose when and how often they want to complete tasks, and for how much. From the sender’s side, TaskRabbit enables busy people to accomplish more during their day and remove unnecessary hassles. It also allows people who lack particular skills to accomplish tasks that they would otherwise not be able to do by themselves. Lastly, due to the competitive nature of the site (thanks to leaderboards and bidding wars), TaskRabbit has effectively weeded out the bad runners while simultaneously grooming the good ones into an elite task force of job runners. Given the six years that TaskRabbit has been in business though, the fact that the site currently facilitates tasks in only 18 U.S. cities is a major disappointment. In order to ensure future success, TaskRabbit needs to move quickly to occupy all major metropolitan markets in the United States. Failure to act swiftly will allow profit-seeking entrepreneurs to copy the TaskRabbit business model, penetrate new markets, and build substantial barriers to future entry.

Application 2: Gamification Incorporation

Although the idea of gamification is not unique to any one industry, one thing that I’ve noticed in my research is that gamification is very much lacking in the collaborative commerce space. In fact, TaskRabbit is one of the only collaborative commerce companies that has adopted gamification to enrich the customer experience. Not only is it a great way to get the users to buy in and become involved, it also serves as a sort of switching cost. Once users start to build a reputation and receive awards for their actions, they will be much less likely to give up that status in order to leave for another similar website (all other things being equal). A room-sharing company like CouchSurfing or Airbnb could adopt a gamification strategy that ranks and rewards hosts for renting out a certain number of rooms or maintaining a certain approval rating. Similarly, a clothing-swap company such as HipCloset and SwapStyle could rank and reward sellers for reaching certain exchange milestones or offering a certain number of clothing items on the site. Small incentives like these can go a long way in distinguishing your business and drawing outside users away from their current habits.

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The Future of Collaborative Consumption

As part of this trend assessment, I was able to sit down with Dr. Brian Janz to get a marketing and technology expert’s view on the collaborative consumption trend in both current and future terms. Dr. Janz is a professor of Management Information Systems (MIS) at the University of Memphis and an Associate Director for the FedEx Center for Supply Chain Management in the FedEx Institute of Technology at the University of Memphis. For a complete biography, please see the link provided on the references page6. The following includes major takeaways from my recent conversation with Dr. Janz.

Marketing Landscape

Recent technological and social advancements have led to an idea of “future perfection” in the marketing world. The ultimate level of achievement is being able to provide your company’s products and/or services at any time of day, in any place, and in any way that the consumer wants it. According to Dr. Janz, if you can create an experience that helps achieve that kind of perfection (or some combination thereof), then you will be onto something big from a marketing perspective. Collaborative commerce is certainly taking users in that direction. Take TaskRabbit for example. This company allows people to post tasks at any time of day and receive immediate responses and bids from runners no matter if it’s at 12-midnight or 12-noon. TaskRabbit allows people to post and claim tasks from anywhere someone has access to the internet via personal computer, tablet, or smartphone. Lastly, TaskRabbit enables to people to post just about any kind of routine task and gives rabbits the freedom to complete those tasks in the best manner which they see fit for the job. Looking at the trend through this lens, one can see that collaborative commerce is indeed pushing marketing (and society in general) towards “future perfection”.

Consumer Segments and Specific Industries

Collaborative commerce as a large-scale eCommerce trend is relatively new, most of which was born as a result of the recession in the late 2000’s. One of the main demographic groups hit by the economy was the 18 to 35 year-old segment. These were people who were either in college and looking for jobs post-graduation or young professionals that were the first on the chopping block for businesses looking to scale back operations in the face of an economic downturn. This demographic segment was thus forced to find creative ways to cut excess costs and make the most of what was still held in their possession. Coupled with the natural innovative and creative tendencies of people in that age range, collaborative consumption was largely made by and for the 18-to-35 year-old consumer segment. Dr. Janz believes that the industries that will be impacted by collaborative commerce in the near future will be those associated most closely with this younger demographic (retail and gaming to name a couple). Similarly, he was also inclined to think that some of the older, more established demographic segments will have a much tougher time adopting models of collaborative commerce. Ultimately, this trend should be on every major industry’s radar due to its wide-ranging applications and growing popularity.

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Trend Change

While Dr. Janz agreed that collaborative commerce will remain relevant for years to come, he was also cautious about some of the hurdles that will present themselves in the future. Moving forward, it will be critical for companies who want to enter the space to be experts at understanding how to connect people. If a company can master this, it will be well on its way to sustainable success. This will continue to present an opportunity for startups to figure out new ways to collaborate that are easy to adopt and are intuitive in feel and use. Dr. Janz also envisioned a scenario where the market leaders will further separate themselves from the rest of the pack and, in order to maintain a competitive advantage, continue to innovate either internally or through strategic acquisitions. I see collaborative commerce sustaining its recent growth trend over the next 5 to 10 years and not reaching its full potential until midway through the next decade. Collaboration is becoming increasingly second nature to us, with new ways of collaborating being developed every year. Dr. Janz agreed with this thought, stating that he sees collaborative consumption being much more prevalent and widespread when looking 3 to 5 years in the future. As mentioned earlier in the analysis, look for collaborative commerce to trend towards increasingly narrow niche verticals (i.e. companies devoted to sporting goods sharing, musical instrument sharing, subject-specific tutors and sport-specific personal coaches).

Competitive Advantage

In order to maintain a competitive advantage, companies operating in the collaborative commerce space must remain committed to developing and refining the way in which they interact with customers and connect them with one another. In Dr. Janz’s eyes, the product or service being sold is secondary. More important is the collaborative experience that is facilitated by the business. Any company that loses focus of this hierarchy will be doomed to lose customers to competitors. This philosophy is one reason why TaskRabbit has been able to stay at the top of the industry. They have remained committed to improving the customer experience, thus keeping the end consumers engaged and loyal to the experience provided. Additionally, businesses operating in the collaborative commerce space will have to stay on top of future legislation and government policies if they are to remain viable and competitive. The collaborative commerce trend has gained an increasing amount of scrutiny in recent months from local, state, and national government entities. For example, local governments in California are starting to draft legislation that will require users of such room-sharing websites as Airbnb and CouchSurfing to be taxed as if they were a hotel (including both sales tax and tourism taxes). Thus, it will be in each company’s best interest to keep a constant pulse on the political/legal environment and take proactive steps to avoid any major impact and remain competitive in the future.

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References

1. Wallett, Lauren; “Collaborative Pioneer: Inside Interview with Tyrone Rubin, Co-Founder of

HipCloset”; http://www.collaborativeconsumption.com/2014/04/07/collaborative-pioneer-

inside-interview-with-tyrone-rubin-co-founder-of-hipcloset/; April 7, 2014.

2. Tsotsis, Alexia; “TaskRabbit Turns Grunt Work Into a Game”; Wired;

http://www.wired.com/2011/07/mf_taskrabbit/; July 15, 2011

3. Hughes, Shane; “The Unstoppable Rise of the Collaborative Economy”;

http://www.resilience.org/stories/2013-02-19/the-unstoppable-rise-of-the-collaborative-

economy; February 19, 2013

4. Blackstone, John; “Welcome to the New Economy Built on Sharing”, CBS News;

http://www.cbsnews.com/news/welcome-to-the-new-economy-built-on-sharing-24-03-2013/;

March 24, 2013

5. “The Rise of the Sharing Economy”; The Economist;

http://www.economist.com/news/leaders/21573104-internet-everything-hire-rise-sharing-

economy; March 9th, 2013

6. Interview with Dr. Brian Janz; Bio: http://www.memphis.edu/mis/profiles/bjanz.php; Conducted

by Jason Fairless on Thursday, April 10th, 2014.

Dr. Brian Janz – Biography

Dr. Janz is a Professor of MIS and is an Associate Director for the FedEx Center for Supply Chain Management in the FedEx Institute of Technology at the Fogelman College of Business & Economics at The University of Memphis. In addition, he is the co-founder of the University’s Center for Managing Emerging Technology, and recently served as the Director for the Fogelman College's Executive Education program.

Brian’s research has been published in book chapters as well as many academic and practitioner journals as including MIS Quarterly, Decision Science, Journal of MIS,Personnel Psychology, Journal of Database Management, Journal of Information Technology Management, Information and Management, Journal of Global IT Management, Cycle Time Research, Journal of Strategic Performance Measurement, and the Journal of Education for MIS. In addition, Dr. Janz serves on the editorial review boards of numerous journals.

Dr. Janz has over 30 years of experience in the information systems field working for The University of Minnesota, IBM, Honeywell, and General Motors, as well as consulting with several Fortune 500 companies and governmental agencies. Brian is sought out by these organizations to conduct consulting projects, educational and leadership programs, as well as to deliver keynote speeches.

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Brian did his bachelor’s work in electrical engineering at both the University of Wisconsin and the University of Minnesota. He earned an MBA in strategic management and a Ph.D. in MIS from the Carlson School of Management at the University of Minnesota.