Peer to Peer Markets

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Airbnb Logo
Services Provided Bed and breakfast services around the world
Initial Launch August 2008
Website airbnb.com

Contents

Airbnb Company Profile

Airbnb has been a very interesting company from the start up until now. They started with a very unconventional team of architects and grew a company in an industry where supply was dominated by the hotel industry.

Company Story

Airbnb is a privately held company with its business model built around its peers. It offers a platform to connect peers to each other for temporary residence. To exemplify, Ron is a travelling businessman who travels the world for work. He lives in New York, but is only home once a week. While he is away he rents out his downtown bachelor to tourists that visit the Big Apple. Due to the great location of his suite he is able to charge a great rate per day, but is still significantly less than neighbouring hotels while the quality being much higher than the hostels in the area. Airbnb successfully cultivates a win-win situation for both owner and visitor.

Airbnb began as a concept for ``air beds`` but has since moved into scalable venues such as castles, estates, cottages, and yachts. The idea of one paying for a hotel or hostel when they are travelling is challenged by an invasion of 2.1 registered users and 5 million bookings to date. The concept has proven its scalability with the growth factor of 1,000 new listings a day and an acceleration rate to three times that within a month. Bookings are increasing at a rate of 40% a month and growing exponentially as this platform expands to even more locations around the world. Now let`s compare this disruptive innovation to the current hotel industry to bring a little light into just how much of a impact this company is making. The largest hotel chain (Hilton) has 600,000 rooms worldwide and was founded in 1919 which is almost 100 years in the making. Airbnb has now 100,000 listings (excluding room count) which vary from establishments of all shapes and sizes and was founded in 2008. The company has grown so fast that within the last 4 months they opened 5 new offices in Europe due to demand because 75% of their travellers are international. To this date five million nights have been booked on this platform and is up 500% from last year`s statistics .


Here are some current Airbnb Stats: December 2012

Metrics at a glance

  • over 10 million nights booked
  • over 200,000 listings worldwide
  • over 26,000 cities
  • 192 countries
  • over 168 million Social Connections

Company Profile:

  • Established: August 2008
  • Headquarters: San Francisco
  • Our Offices: San Francisco, London, Paris, Barcelona, Sao Paulo, Copenhagen, Moscow, Hamburg, Berlin, Milan


  1. Infograph: Airbnb

Airbnb and Local Economies

Airbnb has had quite the impact both positively and negatively on the hotel industry as a force of its own.

For example, in San Francisco Airbnb guests contribute $56 million in economic activity between 2011 and 2012. One would be surprised to find that only a small portion of this money was in housing (12.7 Million) while the other 43.1 Million was put into local businesses. This has been a huge factor in the local tourism market.

On average though an Airbnb guest will stay an extra 2 days and spend which is only about $50 more than the average hotel guest. The majority of these people said they spent the money they saved into local businesses. Not only are these guests putting money into the local market, but also money into local homeowners and they in turn back into the local economy. These close ties have also contributed to a higher income per family and have raised the standard of living for many around the world.


This start-up has in essence created a new industry of its own. Peer to Peer

This model has been adopted by many companies across various industries and it only continues to grow.

Visit Research

Airbnb and the Hotel Industry

With the idea of renting or space in mind one cannot forget the largest and most powerful entities in this industry which are hotels. Airbnb hold many advantages over these giants. The main reason being the price: hotels often charge large premiums on their rooms because they hold a monopoly over people who are travelling. Majority of people are often at stuck at which hotel to choose to stay rather than looking elsewhere because there are no other options, but now there is a better and cheaper option; Airbnb.

Users are able to experience something special and unique as compared to just someplace where they spend the night and throw money into the pit with no real value gained. Airbnb offers people a guide to the city with hosts and real cultural experiences living in establishments of those around you. They offer you their expertise and knowledge of the area without hoping for a large tip or bias you with a local partnership with a restaurant to a hotel. Sometime you can take it even a step further by having hosts offer you their sporting goods or services from their local businesses to further supplement your travels. I have read many articles detailing the great hospitality of hosts and their willingness to go above and beyond to make their guests happy.

Lister`s are able to build a reputation for themselves on the web through social platforms and sometimes even create a name for themselves their own self-owned businesses or services. They are able to gain valuable skills such as photography, financial, planning and screening to ensure they have well equipped for any sale related endeavours. Likewise they get to meet great people from around the world who appreciate their culture and diversity and want to be at their home.

The innovative idea`s never stop at Airbnb with the move into prolonged living. The company is beginning to offer listings that are greater than 30 days which can be a disruptive force in the long term rental market. Many people are reluctant to sign leases for years so this is a great idea to test our spaces before committing to a contract.

Q&A Chesky

Innovation is Airbnb

The founders of Airbnb have always thought different at the core and sought to solve problems intuitively. In the early stages of the company when the team was not getting much business from New York, they flew out to listings posted by their users to see what problems they were facing. They found that many users were posting poor quality pictures from their phone cameras. They innovatively came up with a process to solve this problem. The team began to send emails to users teaching them of professional photography in order to create better brand for each user`s listings. By creating culture of assurance of quality with renters, users were able successfully create appealing listings. Posting Revenue in New York doubled by month`s end and in turn their problems were fixed in various other cities as well (Chesky). Airbnb now offers professional freelance photography out of a team of 2,000 that have travelled to over 13,000 listings in across six continents. This innovative approach has increased the looks and desirability of numerous listings. It has in turn increased sales, created portfolio material for photographers and taught its users about physical marketing.

Airbnb strive to always understand its users and what makes them successful because with the user’s success comes the company’s success. The team has created replicas of four of the most successful listings in the head office to study and use as conference rooms. Furthermore, Gebbia converted his apartment into a live model where he has begun the next phase of the company by aligning themselves with local businesses to expand their products and services to their consumers. The company’s commitment to personally try new ideas and ensure that their customers always understand what success factors are. The depth into which this company cares about its users is astounding which you will never see a competitive hotel chain do unless you are paying them how much money again? Not only that, but Airbnb has expanded from just creating a platform for people to rent their homes out. It is not just about the space, but about connecting people and now connecting business; a true peer to peer model.

The Peer to Peer Market

With the technological advancements of our age, we have been given various tools at our disposal to gain information more quickly and accurately. We are past the times of arguments and debate and into the age of `Googling` our inquires. Along with this trend we are also given a wide array of options to buy our goods and services. We have the privilege to see what is out there and pick the best without being limited by geographical reach. Most crucial of all, we have been interconnected through the internet with the ability to access the far reaches of the world. Without any of these characteristics the motion of innovation for this particular company would not be possible.

An ever-growing new market where mediation has been passed on to new hands and where barriers between consumers are beginning to break down to the core.

The Evolution of Peer to Peer

The Beginning of General Online Marketplaces


Peer-to-Peer online markets began in the mid-nineties as a way for consumers to sell goods and services to fellow consumers through Internet platforms. When they emerged, they were general markets where a wide variety of goods and services were sold, and there was not really any specialization. In these mass online peer-to-peer markets, two major players began to appear in the mid-nineties. These two major players, eBay and Craigslist, attracted the majority of the peer-to-peer market and offered an extremely diverse set of products and services. Craigslist was started in 1995 by Craig Newmark[1]. At that time he had recently moved to San Francisco and was looking for ways to make new friends and establish a network among the software developer community. Craigslist therefore began as a way for people to stay up to date on local events and activities, mostly concerning software and Internet developers.


As the Craigslist network began to grow, users of the newsletter began to demand a web interface in order to easily allow them to post their own material and also peruse a variety of categories easily. Thus, it was transformed into an online marketplace, consisting of buy & sell as well as coordination of activities.


It was not long before Craigslist became incorporated as a for-profit company in 1999. At that point they began charging people for posting job postings in major cities such as New York and LA. Other than that, Craigslist remains free for the majority of users. As one of the earliest peer-to-peer platforms, Craigslist remains a self-regulated body. It is a very open system, where anyone is allowed to post and anyone can respond to posts. However, if someone posts false, misleading, or offensive content, they are likely to be flagged by fellow Craigslist users[2]. This serves as a warning to other users and to some degree protect them from potentially harmful situations. Since money is exchanged between peers directly, and not through Craigslist, there is always the potential for foul play or varying levels of theft. The general policy for all Craigslist users is therefore ‘buyer-beware’.


The other major player to emerge early on in the peer-to-peer industry was eBay, which also began in California in 1995. Similar to Craigslist, anyone is allowed to buy or sell online, however, eBay increases the transparency of these transactions by allowing buyers to rate sellers based on a variety of different aspects[3]. In addition, money is exchanged through PayPal which allows for reduced monetary risk for both buyers and sellers[4], and prevents people from needing to exchange money in person. This reduces personal risk when dealing with unknown buyers and sellers.

The Trend Towards Specialized Peer to Peer Marketplaces


Peer-to-peer online marketplaces are currently moving away from generalized markets, towards more specialized functions and regulated services. This means that instead of offering a broad range of products and services through a self-regulated platform, peer-to-peer markets are offering one type of product or service, and the monetary risk and regulatory responsibility is being assumed by the company that offers the platform.

Getaround Peer to Peer Car Rental


Some significant examples of this are companies such as airbnb.com, homeaway.com, and 9flats.com; all of which offer a platform in which peers can exchange information about travel accommodations within their own homes. However, it’s not just travel websites that are trending towards peer-to-peer facilitation. A wide variety of specialized interactions are being made possible through peer-to-peer online platforms. For example, a new company called getaround.com allows people to rent their own cars out to their peers[1].

Peer to Peer Currency


Recently, people have also been experimenting with peer-to-peer online currency. In 2009, a digital peer-to-peer currency called Bitcoin was created. This currency has no central issuer or authority and is completed regulated by the peer-to-peer network[2]. This currency can be exchanged for real-world currency at any time and currently over 1000 merchants accept Bitcoin. The main appeal of Bitcoin is that it allows users to exchange money anonymously online. However, there have been many cases of hacking, so this currency is currently in beta phase right now, and is not highly recommended.

Peer to Peer Word

Peer to peer markets can describe many forms of transactions, exchange and participation, but can generally fall into three main categories.

Peer-to-Peer lending

Peer-to-peer lending is the practice of lending money directly to peers, who may be previously unrelated, through an online platform and without the use of a traditional financial institution. With peer-to-peer lending, the investor can choose what loans they want to fund, and often contribute a only a small amount to the total loan. Loans are often funded by hundreds of different individual investors. The lending platforms may present information that includes the borrowers profile, borrowing history, credit risk, and reason for the loan. [3]

Market Example

Kiva is a notable example of peer-to-peer lending, and is an online platform that connects lenders to individuals in developing counties. The company’s mission is to "To connect people through lending to alleviate poverty”. According to Kiva over $378 million in loans have been issues with a repayment rate of 99%. [4]

CrowdFunding

Crowfunding is the act of funding a project or venture through raising small amounts of money from a large number of people. Crowdfunding today, refers to the use of an open online platform to fund projects such as company start-ups, political campaigns, movie production, software development or even fund the building of a prototype for an invention[5].

Market Example

Probably the most well-known example of crowdfunding is the website KickStarter, where over $719 million has been raised and 78,340 projects funded, since 2008.[6]. Some of recent success stories include the Pebble Watch and Ouya game console. The Ouya was an outstanding example that demonstrates the power of Crowdfunding. The project was able to reach their funding target of $950,000 within only 8 hours.

CrowdSourcing

Crowdsourcing refers to a form of distributed problem solving and production, where an online group of unknown people referred to as the ‘crowd’, contribute their own knowledge and expertise [7]. Each individual in the group may be participating in their spare time, volunteering, or working as part of a business. This differs from the more traditional model of utilizing a specialized resource or functional unit. As an example, think of a firm asking its own marketing department to provide a report on the estimated demand for a clothing line vs. the company asking its own customers to vote on what designs they would most like to buy.

Market Example

Threadlessis a clothing company that launched a very successful p2p crowdsourcing model, where users submit their own designs to the company, and where user voting determines what designs are produced.

General Issues with P2P Markets

There are many inherent risks associated with consumer to consumer transactions, but one sticks out above all of the rest; trust. It is extremely difficult to truly verify one’s identity in person, let alone over the internet. Trust is extremely an extremely important part of any transaction, because the parties will have the good faith required to complete the transaction in an honest fashion. If parties do not have the good faith required, the transactional process breaks down. The parties will be unwilling to conduct business due to fear of being scammed.
Complementing this issue nicely is the worry of what happens if things go awry. In the typical business to consumer (B2C) transaction, the parties create binding contract. In addition to this, the parties have a much better sense of who they are dealing with. In a binding contract both parties must uphold all of their obligations, or risk facing legal action in extreme situations. The peer to peer market does not have this same binding contract as it is a gray area in the eyes of the law. They likely have a name, and some form of identification. On the internet, all that is used to identify someone is an arbitrary username in most cases.

Airbnb Safety

Issue Mitigation at Airbnb

Airbnb recognizes the risks associated with peer to peer markets and does what it can to reduce or eliminate them.

$1,000,000 Host Guarantee


Firstly, Airbnb has a $1,000,000 host Guarantee[1]. Airbnb will insure your home for damages caused by guests totaling up to one million dollars. Sadly, there are several restrictions on this policy, namely that it does not cover personal liabilities or valuables. In this case that a guest injures them self while staying at a host, the host can and likely will be held liable for any damages caused. Furthermore, this guarantee is only available in certain countries. The guarantee mainly extends to more developed countries such as Canada and the United States.

Security Deposits and Rental Agreements

Many users of Airbnb also use security deposits and rental agreements. These documents are extremely useful if the host is in the situation where they do not have any insurance, and are not covered by Airbnb's Host Guarantee. They also allow the host to help protect their assets due to the legal nature of the deposits and agreements.

Reputation and Verification

As mentioned before, trust is extremely important, but hard to build, in the peer to peer market. This is where the reputation and verification system[2] that Airbnb has created serves its purpose. This system allows users to verify their phone number, Facebook, Twitter, and LinkedIn. Due to privacy issues, none of these verifications are mandatory. However, hosts may set their required verification level, and if you do not meet that level, you will not be able to stay at their unit. In addition to the verification system, Airbnb has an honest review policy. Guests and hosts will be able to review each other on their entire interaction. The company’s policy is to not remove any review unless it is proven to be false or vulgar. [3]


Regional Legal Issues

In any peer to peer market, there are certain legal obligations. In the case of Airbnb, some regions require that any income from hosting a bed and breakfast inside your home must be declared on your income tax, and tax collected from guests accordingly. The legislation for Canada [4] states that if you generate more than $30,000 in revenue a year, you must register your bed and breakfast with the Government of Canada, and collect tax accordingly. This issue can be translated to peer to peer markets in general. Take eBay for example. eBay power sellers could potentially earn enough revenue to live off of, and they were not required to declare their income. Recently, the American Government has been tracking power sellers to ensure that their income is reported appropriately.


Future Direction of Peer to Peer

Overall, the evolution of peer-to-peer marketplaces is heading towards highly specialized applications (as opposed to the general marketplaces that we see in eBay and Craigslist), and the power is shifting away from large corporations and into the hands of consumers themselves. It is easier than ever for entrepreneurs to get their business started without need large amounts of funding from a small number of investors. This means that entrepreneurs are younger than ever when they begin their business since the resources they need are right at their fingertips and it doesn’t take a huge investment to create a peer-to-peer application.

Zaarly

Introduction to Zaarly

Zaarly is a platform that connects buyers and sellers through a proximity-based, real-time market place. The company was founded in 2011, and within one month of launch Zaarly had exceeded $1 million in transactions.[1]

The power of Zaarly, is that it is a buyer-powered market place that allows users to broadcast to their local community what they are looking for, when they want it, and the price they are willing to pay.

Disintermediation and Mass collaboration

Four principles for the open world

The internet has enabled wide scale collaboration, information sharing and exchange. Don Tapscott notes, that the internet drops the cost of collaboration and exchange. As a result, it is now possible for large amounts of people to become involved in an open and transparent environment. New models of exchange are emerging that can leverage the creative and knowledge power of the crowd. Businesses and organizations are experiencing a shift in power away from the traditional model, where large corporations had acted as the centers of control and production, pushing out content, products and services to the market.

According to Don Tapscott, there are four key principles for this new open world:

  1. Transparency: That it is no longer just about providing good products, but developing core values for the organization to run by. Within the video Four Principles for The Open World, Don refers to organizations as "getting naked", and without demonstrating a core set up values they will be unable to build trust and development relationships, which is a critical part of peer production.
  2. Collaboration: That the traditional boundaries between organizations are becoming blurred. Social networking is connecting people and organizations together, and increasingly the best creativity, knowledge and innovation are being found external to the organization.
  3. Sharing: That organizations need to open up and share assets and intellectual property. Within this new model, companies that cling to the notion of restricting intellectual property will find themselves unable to survive. Don, refers to the current state of the music as an example of not adapting to the idea of sharing.
  4. Empowerment: Through the use of peer networks and social networking the skillsets for knowledge, creativity and intelligence are becoming distributed. Through social networking tools, the internet has become a giant computational machine, where any one has the power to participate and share in.

Other Examples

Peer production is a powerful and disruptive force, and some examples of companies that have started to adapt to this new model include:

  • The Doritos brand using crowdsourcing to create their annual Super Bowl commercial.[1]
  • The mining company Goldcorp published all their geological data onto the web, and created the "Gold Corp Challenge"[2]
  • Pharmaceutical companies have started to open research and crowdsource drug development, through platforms such as InnoCentive.

References

  1. Crash the Super Bowl.
  2. Mass Collaboration: the "Goldcorp Challenge" .


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