The Zero Marginal Cost Society: The Internet of Things, the Collaborative Commons, and the Eclipse of Capitalism (36 page)

Like other shareable brokers, Airbnb gets only a small cut from the renter and owner for bringing them together. It can charge such low fees because it has very low fixed costs and each additional rental brokered approaches near zero marginal cost. Like all the new sharable sites, the lateral scaling potential on the Internet is so dramatic that start-ups like Airbnb can take off, catch up to, and even surpass the older, global hotel chains in just a few short years.

Airbnb is a private firm operating in a shared Internet Commons. Couchsurfing, Airbnb’s major competition, is of a different mold. It started as a nonprofit organization and remained so until 2011. During that time, it picked up 5.5 million members in 97,000 cities in 207 countries.
35
(Although it switched nominally to a profit-making operation in 2012, it continues as a free service, but users can pay a one-time $25 membership fee if they so choose.)
36
Its members provide free lodging to each other.

Couchsurfing also differentiates itself from its more commercial competitor, Airbnb, by viewing its mission more broadly as social rather than commercial in nature. Members are encouraged to socialize with each other during their stays and develop bonds of friendship that continue after their visits. The goal is to help “couchsurfers share their lives with the people they encounter, fostering cultural exchange and mutual respect.”
37
More than 99 percent of the members say they have had positive experiences couch surfing.
38
Members report more than 19.1 million friendships arising from their visits. Members also participate in more than 40,000 different couch-sharing interest groups.
39

Toy rentals have also enjoyed success as sharable items. Baby Plays, Rent That Toy!, and Spark Box Toys are typical. For a small subscription of between $25 and $60 per month, the services ship between four and ten toys each month to the member’s home. The toys are sanitized after each shipment to assure that they meet appropriate health safeguards. Any parent knows that children generally tire of new toys quite quickly, after which they remain in a toy chest, closet, or box in the attic, sometimes for years, gathering dust. With sharable toys, toddlers come to learn early on that a toy is not a possession to own, but rather a short-term experience to enjoy, changing the very way they think about the physical things they use.

Even clothes, the most personal of all physical items, are metamorphosing from a possession to a service. Ties, of all things, are now being rented. Tie Society, a start-up in Washington, D.C., stocks more than 300 designer ties—each of which, if bought, would cost an arm and a leg. For a monthly fee of $11, subscribers receive a box of sanitized ties to use, and they can change their tie selection monthly.
40

For women there’s Rent The Runway, I-Ella, MakeupAlley, Avelle, and scores of other sites that connect providers and users across the retail-fashion industry. Women who have purchased designer dresses, handbags, and jewelry connect with users who rent the apparel and accessories for a fraction of their retail purchase price.

While rentables are booming, so too are redistribution networks. It’s not surprising that a younger generation that grew up recycling plastics, glass, and paper would turn next to recycling the items they own. The notion of optimizing the lifecycle of items in order to reduce the need to produce more partially used goods has become second nature to young people for whom sustainability is the new frugality.

The Freecycle Network (TFN) was an early Commons leader in shareable recyclables. The nonprofit organization, with 9 million members in 85 countries, is organized into 5,000 local groups whose members post unwanted items that are available for free to other members in the community. The founders of TFN boast that their recyclable Commons model is “changing the world one gift at a time.”
41

ThredUP is another popular redistribution organization. The online consignment shop, which has 400,000 members, started by recycling toddlers’ and children’s clothes and has recently moved into women’s apparel.
42
ThredUp points out that the average child outgrows more than 1,360 articles of clothing by age 17.
43
When children outgrow their clothes, their parents fill a ThredUP bag and put it on the front porch. ThredUP then retrieves it and pays for the shipping. Every time ThredUP finds another home for the clothing item, the provider receives a credit in the
ThredUP store that can be used to obtain “new” old clothes for their growing youngster. The sharable consignment boutique sells used clothes for up to a 75 percent discount, allowing the items to be handed around (rather than down) and enjoy multiple lives. ThredUP owes its success to the Web’s ability to bring together hundreds of thousands of providers and users in a distributed, laterally scaled network. Its members can browse over thousands of items on the website racks, finding just the right match for their children. ThredUP draws approximately 385,000 visits a month and sold over 350,000 items in 2012, and orders are growing by a whopping 51 percent a month.
44

Who could be opposed to the idea of collaborative consumption and a sharing economy? These new economic models seem so benign. Sharing represents the best part of human nature. Reducing addictive consumption,
optimizing frugality, and fostering a more sustainable way of life is not only laudable, but essential if we are to ensure our survival.

But even here, there are winners and losers. The still-dominant capitalist system believes it can find value in the collaborative economy by leveraging aspects of the sharing culture toward new revenue-generating streams. Still, whatever profit it can squeeze out of the growing networked Commons will pale in comparison to the ground it loses.

Although hotels will continue to book, they are already seeing their markets decline as millions of young people migrate to Airbnb and Couchsurfing. How does a huge hotel chain, with its high fixed costs, compete with literally millions of privately owned spaces that can be shared at low and even near zero marginal costs?

Retailers of all kinds, already on the ropes with disappearing profit margins, are going to be equally disadvantaged by a sharable economy where clothes, appliances, toys, tools, and thousands of other items are continually in use through rental and redistribution networks. Extending the lifecycle of stuff by passing it on from user to user significantly cuts into new sales.

The retailers’ dilemma struck me when I heard about a new sharable site called Yerdle that came online in 2012. The founders are veterans of the sustainability movement with close ties to the business community: Adam Werbach was formerly president of the Sierra Club, and Andy Ruben was formerly the chief sustainability officer at Walmart. Yerdle matches up Facebook friends who have unused items they’d like to either give away or sell. Besides clothes, Yerdle members can exchange just about anything: cell phones, computers, sports equipment, kitchen appliances, pet accessories . . . you name it.

For now, Yerdle communities are locally based. Facebook friends can come together and create a sharable space if they have at least 50 items to share. Some networks have several thousand items inventoried, providing a one-stop shopping experience for things a “friend” might want to share. Yerdle doesn’t charge for each sharing transaction, but friends usually have to cover the shipping expenses. As Yerdle grows, it will allow its local networks to expand geographically, so items can be sold to strangers as well as to friends. Yerdle plans on taking a small transaction fee to cover its operational costs.

The Yerdle plan, like so many others, helps advance the idea of a circular economy in which everything is recycled and reused and nothing is sent to the landfill before its time. The sustainable business logic makes perfect sense, but gets muddled when the founders try to make the case for the retailer’s buy-in. Werbach says that “if you can borrow that chain saw from the person next door, the retailer’s job is to help you with what you’re trying to do, not just sell you another chain saw.”
45
Maybe . . . but likely?

Werbach and Ruben tout the idea that “sharing is more fun than shopping,” which an increasing number of people seem to agree with. But Walmart? Doubtful! Still, determined to find at least a niche commercial opportunity for the big-box chain stores that might draw them in, Werbach and Ruben propose some scenarios in which they might benefit from a movement hinged on sharing rather than shopping. If, for example, a Yerdle member wanted to go camping for the first time but didn’t want to lay out $500 or more for expensive equipment before he knew whether he would even enjoy the experience, he might start by using camping equipment made available on Yerdle. If commercial retailers were sponsors or friends on Yerdle, the smitten camper might trade up along the line, for the latest camping paraphernalia, bringing him or her into the bosom of commerce. Again, this is the hope of so many of the young social entrepreneurs who walk the line between capitalist markets and the social Commons. The central question is: Where does one’s loyalty lie? Is the near zero marginal cost Commons seen mainly as a new commercial opportunity for the market to exploit, as Chris Anderson and others have argued, or is it an end unto itself—a new economic paradigm—with spillover applications that can draw some market engagement? I have no doubt that most social entrepreneurs line up in the second category, but are anxious to at least find a responsible way to engage the conventional capitalist system in the newly forming networked Commons.

Neal Gorenflo, the cofounder and editor of
Shareable
magazine, a nonprofit online media publication that reports on new developments in the collaborative consumption economy, notes that while U.S. retail sales in 2011 were $4.7 trillion, collaborative consumption represented nearly $100 billion in turnover that year. Gorenflo asked what retailers can do to leverage their formidable commercial power and quickly take collaborative consumption mainstream.
46

Gorenflo outlines a tracking system that would allow a retailer to continue to capture part of the income stream of each item it sold, as it moved from user to user across the sharable economy. The point of purchase at the retailer would be “a gateway to a collaborative marketplace that manages a product through its lifecycle including multiple owners and users.”
47
Each item would have all the product and transaction data automatically encoded on it and a unique identifier providing a chronicle of its journey from one user to another. The big retailers could establish a mega–
online marketplace that allows each purchaser to list his or her resharable items for rent or swap. Gorenflo says that such a plan would allow him to control how he manages his assets and give him the biggest marketplace in the world to share his stuff. He adds that “I’d be happy to pay a small fee for each transaction for this service.”
48
In this scenario, says Gorenflo, everyone wins.
49
Retailers continue to capture revenue through the product’s lifecycle. They might also be encouraged to market some of their products as a fee-based service, putting them at the center of the resharable
economy. Exacting value through the entire lifecycle of a good would also encourage retailers to upgrade the quality and durability of their products. The user benefits from the lower cost of short-term access versus long-term ownership and also comes to feel like part of a larger sharing economy that is less wasteful and more sustainable.

Interesting idea. Certainly it provides retailers with a piece of the
action—but it’s more like throwing them a bone than handing them a golden opportunity. Whatever small transaction fees they receive in the remaining lifecycle of a product they initially sold are insignificant compared to the losses they incur as millions of people share more and buy fewer new items. Again, it’s not that the capitalist market can’t find value on the Commons, but it will continue to shrink into ever more restricted niche spaces as the social economy comes to eclipse the market economy.

Even backyard gardens are being shared. SharedEarth was founded by Adam Dell, an Internet entrepreneur. Dell wanted a vegetable garden in his yard in Austin, Texas, but had neither the time nor skills to do it himself. So he posted an ad on Craigslist in 2010 that read: “I’ll provide the land, water, and materials if you’ll provide the work. We can share the produce 50–50.” He made the deal with a woman who loved gardening but who lived in an apartment.
50

Like most Internet-savvy professionals, Dell saw the potential opportunity of laterally scaling his experience by taking it to the Web. Within four months, SharedEarth went from 800,000 square feet to 25,000,000 square feet of shared space. Dell envisions millions of acres of unused backyards being transformed into vegetable garden Commons:

I think SharedEarth is something that can be meaningful in its impact, and that is my hope. Just imagine if we had 10 million acres of producing land. That would produce a lot of oxygen, consume a lot of CO
2
and produce a lot of food.
51

SharedEarth is not yet a serious threat to conventional agriculture. Undeterred, Dell believes that if large numbers of wannabe gardeners were connected with unused land they could produce high-quality, local, organic food. He hopes that such efforts will encourage a trend away from vertically scaled centralized farming, with produce shipped over long distances, to distributed, laterally scaled regional farming for local consumption—with the efficiency gains that go with it.

Dell adds that “we are a free service. We have no business model!” A correction: SharedEarth does have a business model—it’s called the Commons.
52

While gardeners are beginning to share harvests on microplots, a younger generation of farmers is sharing harvests on an agricultural scale with urban consumers. Community supported agriculture (CSA) began inauspiciously in Europe and Japan in the 1960s and accelerated rapidly
in the United States and other countries in the 1990s with the rise of the Internet. Urban consumers pledge a fixed amount of money to local farmers in advance of the growing season to pay for the up-front cost of growing the crops. The consumers become, in effect, shareholders. In return, the consumers are provided with the bounty from the harvest delivered to their door or to nearby distribution centers throughout the growing season. If the farmers’ crops are plentiful, the shareholders are awarded with the additional yield. Likewise, if yields are down because of adverse weather or other conditions, the shareholders share in the losses with the delivery of less produce.