Will the peer-to-peer market phenomenon survive?

Dogs in a car Puppy love: Sites like BorrowMyDoggy.com allow dog owners to lend their pets out to others

Not long ago it would have been tough to borrow a stranger's dog without getting arrested for dog-napping.

But not any more.

Peer-to-peer lending - where instead of buying products, you rent or share them - is taking off.

Technology of Business

It has been heralded as the "new industrial revolution", and a solution to the conundrum of a world with a growing population but rapidly diminishing resources.

This "collaborative economy" is estimated to be worth more than $26bn (£16.5bn).

It's all about matching what someone has - and is perhaps not using all the time - with someone who needs that good or service for a short period.

There are websites that let you rent or lend your things: power tools, your car, your spare bedroom, your nanny - and yes, even your dog (at BorrowMyDoggy.com).

Traffic nightmare

But turning a desire for helping people share into a successful business is another matter altogether, as Drummond Gilbert, founder of goCarShare, found out.

His service allows drivers to link up with passengers, with the latter paying a contribution to the trip.

"Initially we tried universities, going to fairs, using leaflets and posters," he says.

"We got 6,000 people across multiple universities signed up to a newsletter, but very few actual journeys."

He found the key was to tap into a sense of common purpose, and so he turned to the organisers of music festivals.

"They have nightmares with traffic - eight-hour traffic jams are bad for their reputation, if nothing else."

So music festivals as far afield as South Africa, Italy, Spain and the UK now promote the service for travel to and from the events out of a sense of mutual interest.

car Co-operative wheels: Dummond Gilbert's goCarShare allows drivers to find passengers needing a ride

This helped the company increase the size of its market, which is key if a new peer-to-peer firm is to thrive.

Leftovers

Casserole Club is another collaborative enterprise that is benefiting from other organisations championing its service.

It allows home cooks to deliver their extra food to needy people in their neighbourhood, having been paired by the club's website.

"People who want to cook are easy to reach, they love to cook and they want to be engaged in the community," says Ben Matthews from FutureGov, the technology firm that developed Casserole Club.

Start Quote

The collaborative economy has massive momentum”

End Quote David Naylor Field Fisher Waterhouse

"Older people are harder to reach as they are often not online and they have to feel comfortable with a stranger coming in."

The number of people offering to cook under the scheme currently outstrips demand by more than four-to-one.

To solve this FutureGov turned to local government institutions.

They not only fund the service, but also give the firm access to elderly or vulnerable people whom it would otherwise not be able to reach.

Baseball blues

Managing the issue of supply and demand is often the most challenging issue for peer-to-peer entrepreneurs.

Companies are effectively chasing two markets: the person with the product or service and the person who needs it.

Casserole Club The Casserole Club matches cooks and their extra food with people in need

"In a way you are running two businesses at once," says Alex Stephany, chief executive of ParkAtMyHouse.com.

"The biggest challenge for us is supply - it's really hard to find thousands of people who want to rent their driveway."

His firm came to life after its founder was trying to find a parking space ahead of a San Francisco Giants baseball game.

The frustrated traveller noticed a deserted driveway that he would happily have rented, solving one person's parking issues and making some money for the owner.

Mr Stephany speaks eloquently about the "cost of building new units of supply and demand" and other such business concepts that might prove a rude awakening for someone who "just wants to let people share stuff".

Vested interests

David Naylor is head of the advanced media and technology group at law firm Field Fisher Waterhouse, and has advised a number of peer-to-peer firms.

He says there are clearly sectors "ripe for disruption", then follows that up with the inevitable "but".

Five things to ask yourself before you start a peer-to-peer business

  • What is the realistic value and size of your target market?
  • What are your key revenue streams, and when is your business expected to become profitable?
  • What is your value proposition to end consumers, who are your competitors, and how will you differentiate yourself?
  • Have you got evidence that your service will be a success?
  • What is your plan to achieve growth over the next five years?

Source: Paresh Gandhi, Rockpool Digital

"At the same time you are competing against vested interests," he says.

"On top of that very often you are competing in a market where there are laws that underpin an established - and well-understood - order."

Where laws, health and safety concerns - and sometimes just plain ignorance - collide with a whole new way of doing things, there are going to be problems.

The poster child for successful collaborative businesses - room-sharing site Airbnb - found itself on the sharp end of this after a US judge ruled that one of its users broke an "illegal hotel" law in New York City.

The firm has vowed to help the landlord in question fight the decision.

Another firm, Relayrides, which allows users to rent out their cars, also fell foul of New York officials who said the service wasn't in line with state insurance rules.

The firm's chief executive replied philosophically on his website that "innovation, by its nature, does not always fit within existing structures".

Then of course there is the admin of dealing with unsatisfied customers, repairs for broken items and so on.

"As a user, I am willing to go through this and pay $75 fees when I'm making $1,000 on renting my apartment for the weekend on Airbnb," says Ryan Matzner, director of strategy at US app designer Fueled.

"But to go through a ton of work to make a few bucks renting my bike for the day? The sharing economy model is not one-size-fits-all."

Community spirit

But would-be collaborative entrepreneurs need not despair at the obstacles they could face.

Airbnb house Popular room sharing site Airbnb sees a variety of listings, including some very unusual locations

"The collaborative economy has massive momentum - come what may, it will be an exciting force going forward," David Naylor says.

Start Quote

On our website we have 150,000 parking space reviews - people will never engage in that way about a car park”

End Quote Alex Stephany ParkAtMyHouse.com

This is not least because venture capitalists, the crowdfunding community, and established companies like the look of peer-to-peer lending.

goCarShare is on its way to raising £50,000 in crowdfunding, while ParkAtMyHouse was approached by BMW with investment.

There is also a powerful driver to success in the online communities that collaborative businesses build.

Peer-to-peer businesses require their customers to display a level of trust in one another that they might normally shy away from.

As a result, users often show high levels of engagement in the services, in turn building trust in the service.

"The community is very important - it acts as an amplifier for what we're doing," says ParkAtMyHouse's Alex Stephany.

"On our website we have 150,000 parking space reviews - people will never engage in that way about a car park."

If you can make your market work there is money to be made.

For example, in 2012 three million people travelled to Airbnb locations and the firm opened 11 new offices.

But the one thing that perhaps trumps all the issues that peer-to-peer entrepreneurs face is the simple fact that the earth's population is growing and its resources are dropping.

That long-term trend plays right into the hands of those who want to help us share, rather than buy.

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