What peer-to-peer sharing means for companies

What began with comparatively cheap, purely digital products has now expanded to include highly valuable goods like accommodation space (Airbnb) and cars (Uber, Lyft, Lynk & Co). This makes a lot of sense: An apartment can easily cost hundreds of thousands of euros. Accordingly, the opportunity costs will be very high if it remains underutilized. In addition to that, external costs, most importantly for the environment, can also be reduced by sharing high quality goods like the ones mentioned above, as I have shown in my last blog post about sustainable consumption. However, an important question remains:

How should companies set up their business models in order to make sharing attractive to consumers - and at the same time avoid cannibalizing more traditional linear lines of business within the same firm?

The two fundamental risks of p2p sharing for companies

When a firm sets up an online marketplace for consumers to share its products within a P2P community there are two distinct risks to be balanced whilst growing the community. The first is the risk of matching a consumer with the appropriate cost of ownership whilst managing the risk of the online community the firm operates as a merchant of record to enable the P2P sharing functionality. Compared to linear direct-to-consumer (D2C) business models managing these risks is a lot more complex. On the one hand, there is the risk of individual consumers that is usually assessed using credit bureau data taking into account aggregated information like age, type of job, duration of employment, income, purchasing-power, quality of neighborhood or of residence, size of city, building type and further attributes. The result is a consumer credit score linked to the consumer’s probability of default. For peer-to-peer communities on the other hand, risk scoring models need to be much closer to B2B models due to the network effects at work in the communities. You can find more on this in our whitepaper about leveraging the power of networks.

The second risk and limitation is associated with the concept of ownership retention. The limitations derive from the fact that the strategy is interesting for companies that offer products to consumers with a lot of embedded value. In the case of an automotive company, this might require investing heavily in after-sales and maintenance capabilities. In addition to that, non-linear models like pay per use, pay per activation, pay per subscription aim at reducing the initial entry barrier (the price of ownership) towards the good or service, which is attractive from a consumer’s point of view, but also imposes a direct cash-flow impact on the firm. At the same time, and in particular when a company takes the step from “merely” non-linear business models to enabling full-on p2p sharing, there is the risk of negatively impacting other areas of its business.

Lynk & Co as a case in point

Arvato Financial Solutions’ partner Lynk & Co offers a great example of how innovative companies can take advantage of the opportunities by offering a range of products and services appealing to consumers with very different preferences in balancing convenience, cost of ownership and the risk associated with this.

Owning a car - with extras

The most traditional part of the offering is the option to simply buy their model 01. However, even this model of ownership offers buyers the opportunity to share the car with other members of the opportunity to reduce the cost of ownership. On the other hand, if the buyer values convenience particularly highly, he or she can also subscribe to an additional care plan or insurance. This way, the car’s value as a product is enhanced by adding services. A differentiator in a crowded market.

Month-to-month membership

Customers who want to use a mint condition car but not necessarily own one can take advantage of the month-to-month subscription plan. It removes the entry barrier of putting down a lot of cash to buy the car, leaves the risk of ownership with Lynk & Co and introduces higher monthly costs in exchange. Again, these can be mitigated by sharing the car within the community. This is probably going to work best for consumers living in densely populated urban areas - obviously a key target group of Lynk & Co.

Membership without a car

The most innovative part of the offering - and an important part of the sharing community - is the option to become a Lynk & Co member without buying or subscribing to a car. This is attractive for consumers who are very cost sensitive or rarely need to use a car - or both. From the company’s perspective it is an important part of the offering because it enables the much-needed network effects. After all, members in possession of a car need other members without cars to share their vehicles with.

This isn’t even the full range of Lynk & Co’s offering, but I hope this quick overview clearly conveys how complex the relationship between companies and their customers becomes when firms servicize parts of their business. This carries huge implications for risk assessment and cash flows and brings with it the need to intelligently manage these aspects of the business. Nevertheless, it also offers big rewards for challenger companies eager to disrupt their industries, but also for incumbent firms willing and able to capitalize on their strong positions in their respective markets.