The Next New Economy. How a global phenomenon takes off in one city

[Jessica Conrad, March 2014] At half past three in the morning, Alec Johnson rolls out of bed, puts on his uniform, and walks a block to one of Nice Ride’s bike sharing stations in the Seward neighborhood of Minneapolis. He unlocks a neon green bike and pedals down the Midtown Greenway, a former railroad corridor that now features biking and walking paths, to his job as a bus driver for the Metro Transit system. After docking the bike at another Nice Ride station, he starts his first shift.
“I was never really that into biking,” admits the thirty-two-year-old Twin Cities native, “but I find Nice Ride appealing because I can ride somewhere, leave the bike, and plan an alternate way of getting home. It’s not uncommon for me to use Nice Ride a few times a day, mixed in with a bus ride or two.” Getting around is a juggling act for a one-car family with two kids in daycare, but Johnson credits the green bikes for making the daily grind that much easier. “Bike sharing has revolutionized my life. I don’t know how I lived without it.”

Alec is not alone. The bike share system sports 1,550 bikes in circulation at 170 stations across the Twin Cities, and people took 308,000 rides between April and November last year. “Nice Ride is growing much more quickly than I think any of us would have anticipated,” says Mitch Vars, the program’s I.T. director.
Nice Ride is just one example of a newfound interest in sharing that is fueling the emergence of the sharing economy.
The sharing economy leverages the power of online social networks and smartphones to provide a new way for old business models to thrive. No longer just the stuff of pioneer villages and hippie communes, everyday people are sharing, lending, trading, bartering, and swapping goods via peer-to-peer exchanges instead of owning them—and disrupting outdated patterns of consumer behavior at the same time, whether they know it or not.
It’s a cultural shift that builds trust between strangers. And it’s an economic revolution where access has become more important, and more fashionable, than ownership. The sharing phenomenon is turning the traditional business model on its head across sectors from transportation to hotels and tourism, and everything in between.

This ‘new old’ way of doing business allows us to live more efficiently by cutting out all the stuff we don’t need, or seldom use. Why own something that often sits idle when you can rent it for brief periods of time instead?

When the rental car company Avis Budget Group announced it would acquire the car-sharing service Zipcar for $500 million in January 2013, it became clear to many that the idea is not just a passing fad.

Big companies like Zipcar and Netflix are transforming industries, but on a smaller, yet no less forceful scale, the sharing economy is empowering a new class of micro-preneurs to create more wealth using assets they already own. In California, drivers can easily fill their cars with paying passengers through Lyft’s on-demand ridesharing app. An unused driveway or garage in the U.K. suddenly produces income via ParkatmyHouse. Homeowners bring in extra cash on Airbnb by allowing travelers to crash in bedrooms worldwide. And Lending Club’s peer-to-peer platform helps borrowers pay lower rates and investors receive better returns, a concept that earned the company a spot on Forbes’ list of “America’s Most Promising Companies” three years in a row.
In the past, a traditional sharing arrangement might only take place between friends or neighbors who already know one another. Today, these new sharing-based services formalize relatively safe and efficient exchanges between strangers, where online connectivity leads to enhanced offline interaction. As a result, the value of trust is skyrocketing.

In her recent TED Talk, Rachel Botsman, the social innovator and author who popularized the idea of collaborative consumption in her book What’s Mine is Yours: The Rise of Collaborative Consumption, suggests that trust is the currency of the sharing economy and that our online reputations will become a tool for measuring trustability.
But not all activity in the sharing economy depends on high-tech tools or online social networks. Neighborhood clothing swaps, land sharing, shared tool sheds, and coworking spaces are also experiencing a resurgence fueled by the triple drivers of a tough economy, a more ecologically minded population, and a desire for stronger community connections. Take CoCo, for example, a coworking community with three offices in the Twin Cities that offer a home to about 550 coworkers.

“When I first heard about coworking, I was instantly drawn to it,” says Don Ball, CoCo’s founding partner. “It was the cultural aspect that I found so appealing, the idea of a ‘mutual-aid’ society. Everybody was boosting each other’s projects, which was really unusual.”
Coworking is not the only form of space sharing on the rise. The Starling Project, founded by a group of graduate students, aims to match owners of partially vacant buildings with people looking for short-term nesting spaces.

It’s easy to think of something like the sharing economy as a flash in the pan or a niche that only services the well-to-do, but it’s proving to be capable of growing a community in a profound way while also creating wealth. Fast Company actually estimates that the industry is now worth $2 billion. In today’s scrappy, post-recession atmosphere, these projections signal that the capacity for this movement to generate new economic opportunities is only just beginning.

With the global population expected to reach nine billion by mid-century and our supply of natural resources decreasing, it seems more important now than ever to find new solutions for curbing the waste inherent in modern consumerism. When we commit to owning less, sharing more, and capitalizing on the unused capacity of goods already in circulation, it’s better for all of us, and for the planet.

For a product or service to function in the sharing economy, it must have various essential qualities: durability, adjustability, “share-ability,” and a classic design. Rental systems and redistribution markets both require products that are made to last, will fit a variety of users, and won’t go out of style.

Bike share bikes are a perfect example: sturdy and adjustable, they can fit all sorts of body types, and while they may not have the same trendy appeal as a custom fixie, their design surely goes a long way in keeping riders safe. Not only that, but at their core, bike share programs have been designed to keep a valuable resource from being underutilized. “Bike sharing has a pricing model to get people to keep the bike in their possession only when they’re riding it,” Mitch Vars of Nice Ride says. “We don’t want people to check out a bike, go to work, and leave the bike leaning against an office wall all day. We want the bikes to be available for other users anytime they’re not being ridden.”

Similarly, car-share services serve people who forgo car ownership; when a bus or bike ride doesn’t meet someone’s transit needs for the day, he or she can turn to car sharing.

A nationwide survey of 6,200 car-sharing members by the UC Berkeley Transportation Sustainability Research Center found that car sharing does decrease the number of privately owned cars: For every vehicle in a car-share fleet, between nine and thirteen private vehicles are taken off the street. The researchers also noted that 80 percent of this shift results from single-car households opting to go car-free.

Reducing the number of privately owned cars in cities is not only an environmental boon, but also offers significant advantages to local economies. A study by the National Building Museum found that reduction in car ownership by 15,000 cars could lead to a reinvestment of $127 million in the local economy. Without a car, the study suggests people tend to do business closer to home, proving that some benefits of sharing-based businesses extend beyond individual users themselves.

Clearly the sharing economy will provide new opportunities for cities, but whether they will be able to capitalize on those opportunities is a separate question. In some cases, outdated regulatory frameworks hold back innovation, and in others, new government policy may need to be developed.

The California Public Utilities Commission (CPUC), for example, collided with Lyft, the ride-sharing service, when it issued cease-and-desist letters and fines of $20,000 in November 2012, accusing the company of operating as an unlicensed “charter-party” carrier. Lyft argued that it is a social network where drivers and riders connect—not a taxi service. In January 2013, Lyft finally struck a deal with the CPUC, which agreed to lift the fines and allow the company to move forward with its expansion from San Francisco to L.A.

More recently, a consortium of cabbies and drivers sued the city of Chicago for allowing an “unlawful taxi caste system” to emerge, and the peer-to-peer car rental marketplace RelayRides had to suspend service in New York due to compliance issues with the state’s insurance law.

Airbnb has also been fighting for legality in major world cities, including San Francisco, New York, London, and Paris, where Airbnb hosts face possible violations for breaking rules related to illegal transient hotels.

Local sharing efforts are ramping up, and if cities want to remain relevant in the economy of the next century, investing in new business models and creating policy to support them is essential.
Still, some critics argue that the sharing economy is merely a trend for slow economic times. Others point out many possible pitfalls for new sharing-based businesses, including legality, safety, quality, value, and customer service. And of course the looming question is how these services can become more effective in reaching across lines of class and geography.

But whether the sharing economy is here to stay does not depend on the businesses alone. Political leaders have an opportunity to take their investment in the sharing economy a step further, supporting local efforts with policy and funding options that will build on the momentum we already have. Meanwhile, it’s encouraging to see entrepreneurs embrace the new model and drive innovation because they, like so many of us, believe that we can’t afford not to try.

Photo: Bike share programs such as Nice Ride in Minneapolis expand transportation options for anyone who can ride a bike. (Photo by Chris under a CC license.)

This story originally appeared in thirty two.

Article extracted  from the book: “Sharing revolution” The essential economics of the commons?. Jessica Conrad and On The Commons