Take a Seat with Rising Stars of the Sharing Economy
For something dubbed "the sharing economy," there's no better place to discuss it than over a meal. One served family-style, naturally.
At an intimate dinner party, Maria Bartiromo gives a "Seat at the Table" to the rising stars of collaborative consumption—a new breed of technology companies that offer consumers easy access to almost any product or experience—without having to own it. From vacation properties and private chefs to designer clothes and flashy cars, the young entrepreneurs behind Airbnb, Kitchit, Rent the Runway, Uber, and Getaround aim to bring the world to you.
Companies that provide access over ownership could generate $3.5 billion in 2013. Consumer engagement in rent/lease/borrow business models is attracting attention from both venture capitalists and technology industry veterans.
First course: Disruption Comes to Dinner
Sitting down for this four course meal prepared by Chef Dan Kluger through private chef on-demand site Kitchit "are some of the most inspiring entrepreneurs I've ever met," said Co-Founder and Co-CEO of Sherpa Foundry Shervin Pishevar.
"The deepest thing," said Pishevar "is that these guys and gals are basically going after a business philosophy. This is a movement. "Combined with the growth rates of many of these companies—most founded within just the last five years—the prolific Silicon Valley investor says this trend is the most exciting of his career.
Pishevar invested $26 million in Uber, which reported growing more than 20 percent month over month in 2012. The geo-tracking app makes private cars and drivers available at any time to registered users at the touch of a finger. The company's CEO and founder, Travis Kalanick, said the straightforward consumer experience of pushing a button so "a Mercedes pulls up" provides better ways for urban dwellers to navigate transportation. Uber currently operates in 21 cities globally.
Peer-to-peer marketplaces like lodging rental site Airbnb and local car-sharing site Getaround offer individuals the chance to make money on their excess capacity of spare rooms and parked cars. Getaround's co-founder Jessica Scorpio said some users renting out their cars when not in use can earn upwards of $10,000 a year.
Airbnb's CEO and co-founder Brian Chesky describes the rising attraction of disownership as a win-win for both buyers and sellers. In the post-war economy of the late 20th century, "everything was standardized. Things were made in a factory," said Chesky. "In this new economy, every single thing is different" and power shifts to whoever can provide experiences and services, whether that's an innovative start-up or a hospitable individual willing to rent out a sofa bed to an out-of-town guest.
(Read More: Why Netflix, IBM Diverge on Disruption)
"In many ways, I think the American dream is changing," said Chesky. Home ownership isn't necessarily at the top of the list anymore. "I remember one time somebody told me they liked to travel (because it made life seem longer). … I want to have all these incredibly rich memories in my life. And I don't need to have stuff to be able to do those things."
His co-founder and Rhode Island School of Design classmate, Joe Gebbia, agrees that access to rich experiences make consumers more likely to click to buy on a temporary basis. "Whether it's a dress or a home or even a personal experience in your kitchen from a chef. It's about personal, authentic experiences," said Gebbia, Airbnb's chief product designer.
A recent study conducted by Harris Interactive and Sunrun, a company that rents solar panels, found that 52 percent of Americans have chosen to rent, borrow or lease items rather than purchase outright in the past two years.
"Consumption has changed," said Jennifer Hyman, co-founder and CEO of Rent the Runway. The fashion site has attracted more than 3 million people, mostly women under age 35, who take advantage of discounted rental prices to access designer clothes for a few days' wear at a time.
"When I get a bonus at work, I take a vacation. I create a memory for myself. I have an experience in my life," Hyman said. She said she and other young entrepreneurs share a desire to provide customers with "Cinderella moments," a favorite phrase of the fashion site, since most young women use it to find the perfect dress for special events.
As consumer patterns change, established veterans in technology and e-commerce are taking notice of what an instinct to share means for existing businesses and for the economy at large.
"Often times, these businesses and entrepreneurs are portrayed as disrupters," said John Donahoe, eBay's CEO since 2008. "In many ways, you're empowering individual consumers to get what they want. And you're empowering human beings to be able to create jobs."
Jeff Jordan is general partner at Andreessen Horowitz, the California venture capital firm best known for early investments in Skype, Facebook and Twitter. When identifying potential investor value in a growing sharing economy company, Jordan's key metric is the rate of early adoption.
"One of the characteristics of these new models is the engagements can be extraordinarily high," said Jordan, referring particularly to Airbnb's quick rise to brand name recognition and repeat user rates, "where people just say, 'This is how I now travel.'"
"When the entrepreneur has captured that lightning in the bottle, it's a pretty easy decision."
Second Course: What’s Mine Is Yours Is Ours
Lightning in a bottle may make investing feel easier, but sometimes a gamble is based on excitement about the potential of an idea whose time had come. Pishevar was so enthusiastic about investing in Uber and its possible growth in cab-starved San Francisco that he had the company's logo shaved into his hair. More than once.
No matter the phrasing—sharing economy, connected economy, collaborative consumption—20- and 30-something entrepreneurs expanding consumers' access and experienced veterans agree that offering a new path to consumer purchases means lasting or possibly revolutionary change to the way we experience commerce, increasing the importance of both trust in transactions and easy technology.
(Read More: Recipe for Disruption: Lazy Incumbents)
"This generation is building sustainable companies that we expect to be around for 100 years," said Dan Rosensweig, CEO of textbook-rental marketplace Chegg, with a long career in Silicon Valley. "It is something that's touching not just young people's lives. It's touching, you know, grandparents," said Donahoe.
But the road to consumer adoption across broad demographics isn't always smooth. Jordan, an early staffer at eBay, remembers when "the thought of sending money to a stranger hoping they would send you the product was considered unusual." Getting past not just potential customer reluctance, but outright fear from more traditionally minded existing business could prevent some entrepreneurs from getting the public buy-in that attracts necessary capital.
Rent the Runway's Hyman recalls the initial roadblocks she encountered selling her concept of renting current season clothing inventory, when she was neither a fashion designer nor connected to one. "The day after I had the idea for Rent the Runway I called the top designer in the U.S," she said. "She literally told me that not only was this never going to happen, but that I was going to ruin her business, destroy her brand and she'd make sure every designer out there never rented their apparel."
Hyman, who demurs when asked to name the designer; took another tack on the phone and probed her with questions about the business and its ability to reach a younger generation of women shoppers, accustomed to the ease of mobile and e-commerce, and with smaller incomes than older consumers. Figuring out that a rental model could introduce potentially expensive brands to younger women at an accessible price was a lightbulb moment. Not only would the prices attract a larger number of women, but the access to designer fashion could engender brand loyalty among some women years or even decades before their incomes caught up with the retail prices.
Hyman is enthusiastic about how this business model could be empowering to her users. "You would never think about buying a car unless you took it on a test drive," she said. "Well, why do we think about buying a $3,000 dress unless we take it for a test drive?"
Third Course: Hot Tech and Great Companies
The rise of tactile experiences enabled by simple applications on smartphones has allowed a broad spectrum of consumers to test new experiences and new products in a low-risk way. And the buzz is exciting.
"Silicon Valley has produced 90 percent of the most successful start-up technologies, in the last 40, 50 years" said Donahoe. Yet, "you can count on one hand, the number of scale sustaining companies Silicon Valley's produced," he said. In other words, building success takes years of hard work and a commitment to their individual companies that goes beyond buzz. "You can be hot for five or 10 years, but you can't be hot for 20," he said.
Airbnb is one of the hottest names in the sharing economy, now operating in 192 countries and garnering lots of attention for reporting that more than 4 million people who have booked through the site since its founding in 2008—3 million in 2012 alone.
Andreessen Horowitz and firm general partner Jordan helped Airbnb raise $112 million in Series B funding in 2011. He said the start-up has the potential to become not just a lasting company, but iconic. "I graphed EBay's revenue growth against Airbnb's revenue growth over the first three years," he said. "They were virtually identical."
Airbnb's co-founders pride themselves on balancing a winning transaction business with a well-designed consumer experience, whether on-line or mobile. "Every single company at this table produces a product or a service that is consumable by every single American," said Gebbia. "And in order for it to be consumable by them, it needs to be simple, easy to understand—intuitive."
(Read More: Disruptors Can Delay the Apple Way)
Chesky recalls his early months in Silicon Valley when he and his co-founder's design degrees were considered less important than the typical start-up skill set of knowing coding language. But they believe focus on intuitive design that reaches ease-hungry consumers with smartphones in hand sets them well on the way toward what Shervin Pishevar calls "the algorithm of the heart."
"You're designing products for human experiences and for deeper meaning," Pishevar said, "getting the design to be so simple that a push of a button can get you, magically, a car in minutes. And when that happens, we forget that the technology even exists."
One technology that Pishevar is forgetting more and more is his laptop, preferring mobile devices and quipping that his neglected laptop "is like a rotary phone at this point."
Dessert: Money Makers
But, as consumers became more aware of the diversity of access available in this new economic model, does every successful young entrepreneur see the dollar signs and dream of an initial public offering?
"I actually don't think about it all right now," said Hyman. She maintains that a business that aims to democratize luxury like Rent the Runway still has a long way to go before even considering listing publicly.
Uber's Kalanick plans for expanding the power of the urban logistics fabric that allows the company to get private cars to potential riders in minutes to take on stalwarts like Fed Ex and UPS. "We deliver packages in five minutes," he said. "Once you're delivering town cars in five minutes, there's a whole lot of other packages that you can deliver in five minutes." It's certainly faster than overnight, and Kalanick believes Uber's driver network has laid the groundwork for considerably more innovation designed to make life easier.
"There's something about this generation of entrepreneurs," said Chesky. "So many of them are more mission driven; you ask what their goal is and they don't talk about an IPO. "
(Read More: What Dooms Innovation to the Graveyard?)
Donahoe thinks the development of a shadow economy based on sharing and access encourages greater connection. "Technology is actually enabling tighter, more personalized human connection. Person-to-person connection, not company-to-person," he said.
"We grew up in a world where a Russian was someone we never met as a kid, … or feared. And what these companies and technology's now doing, is enabling our kids and our kids' kids ... to connect as human to human. ... It's making the world smaller in a really healthy way."
This story was updated to reflect that Shervin Pishevar is Co-Founder and Co-CEO of Sherpa Foundry.