The sharing economy is a rent-extraction business of the highest order!

Is there a fundamental conflict at the heart of an industry that preaches collaboration but, due to being radically commercialised by venture capital money from Silicon Valley, also needs to profiteer from the goodwill of others if it’s to remain viable?

Excerpted from Izabella Kaminska:

In Paris this week, at the Ouishare Fest, the great and the good from Europe’s sharing economy have been delving deep into what it means to be running a collaborative business model within a capitalist framework. Are the two even compatible? Or is there a fundamental conflict at the heart of an industry that preaches collaboration but, due to being radically commercialised by venture capital money from Silicon Valley, also needs to profiteer from the goodwill of others if it’s to remain viable?

For the most part it’s a hypocrisy the community is trying to address. The $1bn elephant in the room — the fact some aspects of the sharing economy are becoming the very thing they set out not to be — has basically become too enormous to ignore.

It all comes down to how these web 3.0 businesses are structured. Most models focus either on leveraging networks of existing resources, capital and volunteers then charging rents for platform use or on forging platform monopolies that lock-in users so that their data can then be monetised.

For now, the uncomfortable truth is that the sharing economy is a rent-extraction business of the highest middle-man order.

The other (increasingly less) secret dirty truth, as Jeremiah Owyang, industry analyst at Crowd Companies noted in his speech at the festival on Wednesday, is that for the most part the sharing economy is owned by Silicon Valley’s 1 per cent.

While it’s definitely no secret that venture capital has been flooding into the sector, the numbers as Owyang puts it, already far outweigh the sums that flowed into the web 2.0 social media boom at this stage.

Owyang’s analysis calculates that $12.7bn has now been invested in 232 sharing economy start-ups, over the course of 653 funding events, with an average value of $10m per event. Average funding per start-up is estimated to be $54.75m. He adds that most of the money has been raised in the last year or two meaning we’re only at the beginning of what is usually a five year cycle — at the end of which VCs will want their money back.

The big unicorns in this space, car-riding apps Uber and Lyft, and room-renting site AirBnB, skew the data a lot, but even when these are removed we’re left with an average total funding of $35.9m.

Accordingly, Owyang says, if these companies are to save face, they should follow public listing strategies like those deployed by the online craft platform Etsy, which also happens to be a B corporation. Etsy offered its providers and partners with an early opportunity to buy up to five per cent of discounted stock.

As Owyang has observed in blog posts:

This was a smart move for the company, as it fosters one of the highest form of loyalty with its community: shared destiny. As Etsy performs well in the market, creators who purchased the shares benefit as well. Those creatives have already seen a 39% increase in the value of those shares since the IPO.”

But Owyang is also optimistic that capitalism will find a solution to much of the dichotomy at the heart of the space. With time, he notes, competition will force companies to improve on worker and user rights. And it’s unclear for how long being an asset-light operation will remain an advantage, especially if and when incumbents step up their game.

The view from Indy Johar, social venture specialist and founder of Project00, however, was more nuanced. Many of these companies, Johar notes, are entirely new species of corporations. If not for their intrinsic monopolistic nature and ability to”lock-in” users, many might have no value at all.

In fact, sky-high valuations are also the result of expectations that at least a number of these companies will achieve monopoly status.

In Johar’s opinion all of this creates a risk of digital serfdom in the longer run for society. If we must have these platforms he wonders whether we’d all be better off if they were classified as international institutions of the NGO variety?

Digital platforms are often described as digital real-estate, hence why what’s happening now can be equated to the discovery of a new and highly luscious frontier. But Silicon Valley’s attempt to occupy this territory, and to apply its values and standards, also represents a new type of manifest destiny.

In classic Wild West terms, claims for territorial subsets are being delineated with visual markers on a first come first get basis. Rents flow to the pioneers who can police and protect those territories (defend social claims, legal claims, competitor claims) most ruthlessly.

But is this really a sustainable and constructive approach to divvying up fresh territory?

Many of the participants at the Ouishare Fest are concerned what’s really happening is that we’re blindly and voluntarily subscribing to a new type of digital feudalism. And while this concern isn’t necessarily a new idea, what is interesting are the discussions about how to resolve the problems.

Amongst those solutions is the idea that people should take charge of their own digital footprint and online reputation. Platforms should not, in other words, make it impossible for you to leave their territory because upping and leaving means letting go of your digital reputation, verification and earned social rights.

Fully portable digital credentials and passports in some sense are seen as the solution. How else can you take your reputation and your accumulated credit with you to another territory or platform without having to start again? How can you ensure freedom and preserve your reputation if every time you change your mind about where you want to engage in bartering or sharing online you’re going to have to start with a zero reputation score?

If all of the above sounds like a frightfully medieval problem for society, that’s probably because it really is an uncanny echo of that era in history. The only real difference now is the digital form of the landscape. The nature of the lords taking tribute payments remain the same.”

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