[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
THE POWER OF CONNECTION: PEER-TO-PEER BUSINESSES
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HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
__________
HEARING HELD
JANUARY 15, 2014
__________
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 113-049
Available via the GPO Website: www.fdsys.gov
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HOUSE COMMITTEE ON SMALL BUSINESS
SAM GRAVES, Missouri, Chairman
STEVE CHABOT, Ohio
STEVE KING, Iowa
MIKE COFFMAN, Colorado
BLAINE LUETKEMER, Missouri
MICK MULVANEY, South Carolina
SCOTT TIPTON, Colorado
JAIME HERRERA BEUTLER, Washington
RICHARD HANNA, New York
TIM HUELSKAMP, Kansas
DAVID SCHWEIKERT, Arizona
KERRY BENTIVOLIO, Michigan
CHRIS COLLINS, New York
TOM RICE, South Carolina
NYDIA VELAZQUEZ, New York, Ranking Member
KURT SCHRADER, Oregon
YVETTE CLARKE, New York
JUDY CHU, California
JANICE HAHN, California
DONALD PAYNE, JR., New Jersey
GRACE MENG, New York
BRAD SCHNEIDER, Illinois
RON BARBER, Arizona
ANN McLANE KUSTER, New Hampshire
PATRICK MURPHY, Florida
Lori Salley, Staff Director
Paul Sass, Deputy Staff Director
Barry Pineles, Chief Counsel
Michael Day, Minority Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Sam Graves.................................................. 1
Hon. Nydia Velazquez............................................. 2
WITNESSES
Professor Arun Sundararajan, Professor and NEC Fellow, Stern
School of Business Head, Social Cities Initiative, Center for
Urban Science and Progress, New York University, Kaufman
Management Center, New York, NY................................ 3
Beth Stevens, Assistant General Counsel, Sidecar Technologies,
Inc., San Francisco, CA........................................ 5
Alan Mond, CEO, 1000 Tools, Inc., Ann Arbor, MI.................. 6
Philip Auerswald, Associate Professor, School of Public Policy,
George Mason University, Arlington, VA......................... 8
APPENDIX
Prepared Statements:
Professor Arun Sundararajan, Professor and NEC Fellow, Stern
School of Business Head, Social Cities Initiative, Center
for Urban Science and Progress, New York University,
Kaufman Management Center, New York, NY.................... 20
Beth Stevens, Assistant General Counsel, Sidecar
Technologies, Inc., San Francisco, CA...................... 29
Alan Mond, CEO, 1000 Tools, Inc., Ann Arbor, MI.............. 33
Philip Auerswald, Associate Professor, School of Public
Policy, George Mason University, Arlington, VA............. 35
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
John Zimmer, Co-Founder of Lyft, Inc......................... 39
THE POWER OF CONNECTION: PEER-TO-PEER BUSINESSES
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WEDNESDAY, JANUARY 15, 2014
House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 1:00 p.m., in Room
2360, Rayburn House Office Building. Hon. Sam Graves [chairman
of the Committee] presiding.
Present: Representatives Graves, Chabot, Luetkemeyer,
Herrera Beutler, Hanna, Schweikert, Collins, Velazquez,
Schrader, and Kuster.
Chairman GRAVES. We will go ahead and call the hearing to
order.
Good afternoon, everybody. And thank you for being with us.
I thank all of our witnesses for being with us today.
Today's hearing will continue the Committee's examination
into new types of business models which are propelling
entrepreneurship and small business formation and growth.
As the ability to connect through innovative platforms has
increased, there has been a rise in peer-to-peer businesses.
Peer-to-peer businesses create new marketplaces to access goods
and services by utilizing technologies such as smartphone apps,
GPS locators, and the Internet to easily and efficiently
connect individuals who may be able to meet each other's needs.
While the newness of these platforms limits our ability to know
the true economic impact, these new businesses appear to be
creating significant shifts in the economy and demonstrate
potential for significant economic growth and job creation.
Forbes estimated in 2013 that revenue from the so-called
sharing economy was likely to surpass $3.5 billion. With these
sorts of numbers, it is necessary for the Committee to
understand what these businesses are and what challenges they
face. Notably, many of us have already seen the effects of
peer-to-peer businesses in our daily lives as we utilize things
like eBay or Etsy to purchase unique goods or use an app to
contact a ridesharing company for a lift.
At the state and local level, the rise of peer-to-peer
businesses has fostered interesting debates over whether
existing laws and regulations accurately fit these new
companies. For example, in 2013, California became the first
state to legalize and regulate peer-to-peer transportation
companies finding that those firms were distinctive from
traditional charter carrier companies.
And again, I want to thank all of our witnesses for being
here today and taking the time away from your jobs and making
the travel here to Washington for this important hearing. I
look forward to your testimony, and I now turn to Ranking
Member Velazquez.
Ms. VELAZQUEZ. Thank you, Mr. Chairman.
Technology has long been a catalyst for entrepreneurship.
Just as small businesses often drive some of the most important
scientific breakthroughs, developing new products and services,
major technological advances also create opportunities for
small firms to reach customers. This symbiotic relationship
between entrepreneurship and technology has been an important
source of economic growth and job creation.
In keeping with this trend, development of the peer-to-peer
business model has created new channels for entrepreneurs to
sell goods and services. Technology innovators are harnessing
the web to create new platforms and markets that allow the
selling, renting, and trading of everything from apartment
space to transportation to artisan craft goods.
The numbers strongly suggest that this new sharing company
based largely on interactions between consumers rather than
traditional brick and mortar businesses is here to stay. On a
single Friday night, 150,000 travelers are finding rooms to
rent from private homes on their B&B website. More than 1.5
million Internet users have used TaskRabbit to hire people for
odd jobs. Lending Club, which facilitates loans between
consumers, has led to $2 billion in lending so far and doubles
almost every month. eBay has seen product sales reaching nearly
$70 billion in a single year.
One reason for this sector's rapid growth may be rooted in
broader economic struggles. With job growth still sluggish,
enterprising Americans and dislocated workers are seeking new
ways to replace revenue. Renting out rooms, providing lifts in
their car, and selling homemade goods, food goods, have all
become ways for ordinary Americans to experiment with
entrepreneurship and stay afloat during tougher economic times.
While the explosive growth of these networks has created
new opportunities, the rapid rise raises questions. As always,
it is important that consumers utilizing these sites be
protected against fraud and unscrupulous actors. Most of these
sites contain a review and rating system to ensure users on
both sides of this transaction live up to their commitments.
However, as the popularity of peer-to-peer transactions grow
and become a larger part of the mainstream economy, additional
safeguards may be necessary. As always, the challenge will be
ensuring businesses and consumers are protected without
question or discouraging promising innovation.
Many peer-to-peer networks are themselves small businesses.
Orders are larger entities but are helping self-employed
Americans and small firms identify new channels for reaching
customers. It is important that as this technological
revolution advances, government policy keeps pace. As of yet,
the Small Business Administration's initiatives appear ill-
suited to help bolster this growing sector, something that I
hope can be rectified. It is important this Committee fully
understand what is happening in the new sharing economy and has
a grasp on how we can minimize risk for consumers while
maximizing growth and productivity from peer-to-peer business
models.
On that note, I would like to thank all of our witnesses
for taking the time to be here. Your perspective will add
significant value as the Committee seeks to learn about this
rapidly emerging marketplace.
Thank you, Mr. Chairman. I yield back the balance of my
time.
Chairman GRAVES. All right. Our first witness is Professor
Arun Sundararajan, who teaches at New York University Stern
School of Business where he studies how information transforms
businesses and society. He has been published in Bloomberg,
Harvard Business Review, and many other reputable journals.
Thank you for being here. I appreciate you coming in.
STATEMENTS OF ARUN SUNDARARAJAN, PROFESSOR AND NEC FELLOW,
STERN SCHOOL OF BUSINESS, HEAD SOCIAL CITIES INITIATIVE, CENTER
FOR URBAN SCIENCE AND PROGRESS, NEW YORK UNIVERSITY; BETH
STEVENS, ASSISTANT GENERAL COUNSEL, SIDECAR TECHNOLOGIES, INC.;
ALAN MOND, CEO, 1000 TOOLS, INC.; PHILIP AUERSWALD, ASSOCIATE
PROFESSOR, SCHOOL OF PUBLIC POLICY, GEORGE MASON UNIVERSITY
STATEMENT OF ARUN SUNDARARAJAN
Mr. SUNDARARAJAN. Okay. Thank you, Chairman Graves, Ranking
Member Velazquez, and Committee Members.
I am delighted to have been invited to speak to you about
digitally-enabled peer-to-peer business. Thank you for
convening this important hearing. More light needs to be shed
on this promising new segment, so I hope this hearing is the
first of many.
We need a clear understanding of the economic impacts of
peer-to-peer businesses and changes to regulatory frameworks
that nurture this rapidly growing segment of the economy
because this segment will create work, stimulate consumption,
raise productivity, catalyze innovation, and facilitate
entrepreneurship. The new peer-to-peer economy is enabled by a
set of platforms, new marketplaces powered by digital
technologies. These platforms enable entrepreneurs, people who
want to supply goods and services, to fulfill demand from
consumers, people who want to buy, rent, or consume. Thus, they
create millions of new, very small businesses or what are being
called micro-entrepreneurs. In my written testimony, I discuss
some of the technological drivers--consumerization,
institutions, urbanization, ecological issues in some detail.
Some platforms allow entrepreneurs to create services by
using their own personal labor and assets, like Airbnb, and
Relay Rides create new versions of familiar, commercially
available services like short-term accommodation and car
rental. Eatwith and Feastly, and perhaps even Sidecar, increase
the efficiency and scope of familiar activities like supper
clubs and paid ridesharing. Others, like Yodle and 1000 Tools,
create new services for the rental of owned assets from one
peer to another.
There are a few other categories of platforms I discuss in
some detail in my written testimony. Platforms like Uber and
Kitchit that allow professionals of different kinds to leverage
their skills and operate sole proprietorships. Markets like
oDesk and TaskRabbit that connect freelance workers with new
sources of work, marketplaces like Etsy and eBay that allow
individuals to operate new online retailing businesses, often
for products that otherwise would not have a mass market. There
is also a host of new peer-to-peer finance and peer-to-peer
education platforms that I do not cover because they have
unique issues and impacts that I think require a separate
discussion.
I believe that peer-to-peer businesses enabled by digital
platforms will constitute a significant segment of the economy
in the coming years and will have a positive impact on economic
growth.
Why do I think so? First, these businesses and platforms
put people to work, not always in traditional jobs but they are
nevertheless creating work that generates income. We need to
measure this work creation better.
Next, they create new consumption. The peer-to-peer sharing
economy expands the variety and quality of existing goods and
services, as well as creating entirely new consumption
experiences.
Next, they will be a gateway to entrepreneurship. If you
want to start a small business but the risks seem too high, you
can transition as a peer-to-peer supplier or dip your toes in
the water part-time on one of these platforms. As my colleague
Lisa Gansky says, they may be like finishing school for
entrepreneurs.
Next, they are likely to increase productivity by tapping
into underutilized labor sources, by increasing the efficiency
of asset usage, and by increasing motivation levels for workers
who can now better capture the value created by their labor.
Again, further details in my written testimony.
Over the next few years, we need robust measurement of the
economic impacts of peer-to-peer business and especially of the
small businesses created. We also need to refine existing
economic measures so that they fully capture the new forms of
production, consumption, and work facilitated by peer-to-peer
business.
The current regulatory infrastructure is likely impeding
the growth of these businesses. The regulations are not
fundamentally flawed and the safe harbors are not the issue
here. It is primarily because this wage of digital disruption
is altering how we experience familiar services. So there is a
misalignment between the business models and roles of these new
peer-to-peer businesses and the rules and guidelines for the
older analog industrial-age ways of providing services through
hotels, taxis, or car rental companies.
So I believe that a self-regulatory solution with some
government oversight, perhaps through the creation of new self-
regulatory organizations or SROs is worth exploring for these
peer-to-peer business markets. The SROs could be the platforms
themselves, new industry consortia, or may even emerge from
consumer-collectives like peers, with government oversight.
The reason why I believe this is a good solution is that
delegating some regulation will ease the tremendous strain that
government at all levels would otherwise bear from constantly
having to monitor and correct misalignment as hundreds of new
peer-to-peer businesses emerge in coming years. It is also that
these new marketplaces have sophisticated digital controls,
reputation systems, identity verification, quality screening
built in, which play a natural regulatory role that we can rely
on to some extent. Consumers already do.
The interests of the platforms are also naturally aligned
with the interests of a tax book regulator. They can also
identify new regulatory issues faster as they arise and take
action against infringing market participants more easily.
To summarize, these peer-to-peer businesses and the
platforms that enable them will create work, stimulate
consumption, raise productivity, catalyze innovation, and
facilitate entrepreneurship. We should make sure that our
regulatory framework nurtures their progress. Thank you.
Chairman GRAVES. Thank you, Professor.
Our next witness is Beth Stevens. Ms. Stevens serves as the
assistant general counsel for Sidecar Technologies, which is
headquartered in San Francisco, California. Sidecar is a ride-
sharing phone app that operates on a peer-to-peer level
connecting car owners with folks that need rides.
So thank you for being here and coming all the way.
STATEMENT OF BETH STEVENS
Ms. STEVENS. Thank you.
On behalf of Sidecar Technologies, I would like to thank
Chairman Graves, Ranking Member Velazquez, and the members of
the Small Business Committee for this invitation to speak on
peer-to-peer businesses and ridesharing in particular.
Sidecar was founded over a year ago and is a ridesharing or
carpooling, if you will, information service that enables
members to exchange information via the Sidecar smartphone
mobile application or app with other members to enable
ridesharing in a privately-owned vehicle.
So the way that our service works is a passenger can enter
their pickup and destination locations and the app will send
that information out to available drivers and drivers will then
choose to share a ride. In other words, we offer the digital
equivalent of an on-demand carpooling service or for those of
you who do slugging here in the District, a dynamic slug line.
So instead of having to show up at a particular location or
look on an employee corkboard, you can open up your GPS-enabled
smartphone and say, ``I need a ride and here is where I am
going,'' and a driver can say, ``I have got a car and I am
going that direction.''
So trust and safety is vitally important to the Sidecar
community. The app is built with a number of important safety
features, including a dual rating system. So just like eBay
allows buyers and sellers to rate each other, Sidecar's mobile
app allows a passenger and driver to rate each other. We also
have a Share My ETA function which allows riders to text,
tweet, Facebook, e-mail their estimated arrival time to a loved
one or friend. We also have an in-app ability to contact the
passenger or driver, so there is no need to share or avail
personal contact information when trying to coordinate. We also
include a picture of the driver and the driver's vehicle so
that passengers can verify that the correct driver is showing
up. We have an in-app receipt of the ride with the driver's
name. Most often this gets used for lost items, but it also, if
something were to go wrong on the ride, it enables the
passenger to have comfort that they know who they shared a ride
with.
There is also an in-app ability to immediately call the
Sidecar support team should there be an issue on either the
driver or passenger side, and it is a completely cashless
system, which protects drivers against potential crimes.
We also have a $1 million commercial liability policy that
covers passengers and third parties for any damage or bodily
harm that is the result of the driver.
We also prescreen our drivers. So we conduct Social
Security Number-based background checks consistent with federal
and state laws, which screen for sex offenses, DUIs, reckless
drivings, and a whole host of other criminal offenses. We
collect the driver's personal information, including their
driver's license and personal insurance, and we train drivers
how to use our app and provide tips on distracted driving.
I am sure at this point you are saying, ``Well, yeah, I can
just carpool with my neighbor. I do not need all this.'' And
what this program allows you to do over traditional ridesharing
programs and carpoolings and vanpools is to develop a critical
mass to make sure that these ridesharing programs can succeed.
The research shows that even though carpooling has been around
since World War II, programs have failed because there has not
been a critical mass of users. Users need to know if they are
going to take a shared ride somewhere that they can get home,
and we also have to encourage drivers and incentivize them to
participate. One way to do that is through financial
incentives. Allowing them to either earn the expense of
operating a vehicle, which in an urban area can be quite a bit
if you talk about $400 a month to park downtown, the cost of
gas, the depreciation of the vehicle, insurance, and
maintenance of a vehicle. And ridesharing allows individuals--
micro-entrepreneurs, if you will--to either earn those costs of
the vehicle or maybe earn a little bit more as part of
supplemental income that they bring in.
Sidecar's mobile application offers the opportunity with
the ubiquitous use of mobile location-based services to
accelerate a broad-based adoption of ridesharing or carpooling.
This adoption of ridesharing has the potential to produce
large-scale public benefits, including easing traffic
congestion and the strain on existing infrastructure, reducing
pollution, and fostering a sense of community, all while
providing car owners an opportunity to offset the cost of car
ownership.
Sidecar is grateful for the opportunity to discuss
ridesharing with you, and I look forward to your questions.
Chairman GRAVES. Thank you very much.
Our next witness is Alan Mond, CEO and Co-Founder of 1000
Tools located in Ann Arbor, Michigan. Mr. Mond is a self-
described mechanical engineer turned web developer and
entrepreneur. He launched his company in June of 2003. 1000
Tools is an online platform that allows individuals to rent
tools from the neighbors.
Mr. Mond, thanks for being here.
STATEMENT OF ALAN MOND
Mr. MOND. Thank you very much.
Chairman Graves, Ranking Member Velazquez, and members of
the Committee, I am Alan Mond. I am the CEO of 1000 Tools and I
am very grateful for the opportunity to speak with you
regarding our peer-to-peer business. We actually started in
June 2013, so we are one of the youngest around here.
1000 Tools is an online platform that enables people to
rent tools from each other. Our latest product allows local
governments to rent underutilized equipment to one another, but
we will get to that in a minute.
We are based in Ann Arbor, Michigan, and it is an honor for
me to be here today. I come from a family of tinkerers, and the
idea for 1000 tools came when I had to replace the timing belt
on my 1995 Ford Probe. I had the willingness to do it myself
but I did not have the right tools for the job. So my solutions
at the time were to buy a bunch of expensive tools that I am
never going to use again or to borrow from my friends, but my
friends did not have all the tools either, and if I
continuously borrow from my friends that is going to erode even
the best of friendships. So I thought, ``I wonder if anyone
else has this problem? And would it not be nice if I could just
access tools, a large network of tools?''
So with this idea in mind, we built 1000Tools.com and we
launched in June 2013 to test this hypothesis. Our website
offers a secure interface for tool renters to pay with a credit
card and for tool owners to get funded via direct deposit
straight into their bank account. Prices are set by the tool
owner and they compete directly against established tool rental
stores. Tool exchange happens locally, in person, so no
shipping is required. Reviews and ratings are also provided for
each transaction.
1000 Tools provides Americans the opportunity to become
micro-entrepreneurs using assets they already own. This new
generation of collaborative consumers and micro-entrepreneurs
live in an ecosystem called the sharing economy and it has
already crossed the chasm into mainstream adoption. As many of
us have already explained here, Airbnb, for instance, the
online marketplace for listing and booking short-term housing
accommodations, announced in June 2012 that they have reached
their 10 millionth booking and they compete head-to-head
against even the largest hotel chains in the country.
Most of our users in our space of tools rentals are early
adopters. They have participated in other areas of the sharing
economy, however, there are still some concerns about liability
and property damage, and these are still predominant barriers
to mass adoption. Additionally, there are very few insurance
companies that are familiar with this type of exposure, and
there are even fewer that are able to offer liability insurance
for micro-entrepreneurs.
So as we grow our user base, we started looking at a
different customer segment, and this is how we found out the
really interesting niche in local governments. Three months ago
we started focusing on local government equipment sharing and
after interviewing 30 municipalities in the southeastern
Michigan region, we discovered an incredible gap. Large
municipalities have expensive equipment that goes underutilized
and small municipalities tend to rent at high premium rates
instead of purchasing equipment. Out of the 30 city managers
that I interviewed, 70 percent were extremely eager to try our
prototype.
So with this information in hand, we retooled our existing
technology to cater straight and directly to municipalities.
That is how we created Muni Rent. Muni Rent is a new website
that spun out of 1000 Tools that allows different levels of
local governments--like municipalities, counties, road
commissions--to rent out the equipment to each other.
Now, some of you may be asking, why are municipalities not
doing this already? And that is really a great question. But as
with most areas of local government, resources are limited. It
takes a lot of resources for municipalities to set up a rental
agreement, maintain some sort of catalogue of all the equipment
they have, and let alone keep track of invoicing, hours,
maintenance records, et cetera.
Muni Rent. We provide a vetted roundtable agreement between
the different municipalities and handle all the details,
including insurance verification, payment, invoicing, and all
of this is available through an extremely easy to use website
and a just released yesterday Android app.
Our journey began building a peer-to-peer tool rental
marketplace, but we now look forward to welcoming
municipalities as the newest members of this brave new sharing
economy. Thank you very much.
Ms. VELAZQUEZ. It is my pleasure to introduce Professor
Philip Auerswald. He is an associate professor at the George
Mason University, School of Public Policy, where he focuses on
entrepreneurship and innovation in a global context.
Previously, he was a senior fellow at the Kauffman Foundation
and has served as an advisor to the Clinton Global Initiative
since 2010 on topics related to job creation, education, and
market-based strategy. Professor Auerswald is the co-founded
and co-editor of Innovations, Technology, Governance,
Globalization, a quarterly journal about entrepreneurial
solutions to global challenges and is the author of The Coming
Prosperity: How Entrepreneurs are Transforming the Global
Economy.
Professor, you are most welcome.
STATEMENT OF PHILIP AUERSWALD
Mr. AUERSWALD. Thank you very much.
Chairman Graves, Ranking Member Velazquez, members of the
Committee, I appreciate the opportunity to share with you this
afternoon some thoughts on the economic context for peer-to-
peer business models.
In 1988, a quarter century ago, I drove a stranger's Nissan
Sentra from Washington, D.C. to Seattle, Washington. In the
process, I earned $250 with the added bonus of moving both
myself and my stuff across the country. The vehicle's owner
made out well, too. She got her car transported 3,000 miles for
less money than she would have had to pay if she had hired a
commercial service and certainly at a lower opportunity cost of
time than she would have incurred if she drove the car herself.
Peer-to-peer, win-win.
At its human core, the peer-to-peer or sharing economy is
not a new phenomenon. Had Alexis de Tocqueville had the chance
to write about the United States of today in addition to that
of the 1830s, he would have found in peer-to-peer businesses
like Sidecar and 1000 Tools, much of a distinctly American
character.
So is there any fundamentally new about the sorts of peer-
to-peer businesses that have been proliferating in the past
five years? Yes. The difference between the past and the
present is in the platforms over which people find one another,
conclude transactions, and establish reputations? The triple
revolutions in computation, communications, and algorithmic
power that have unfolded over the past half century have, as we
have been hearing, dramatically lowered the costs of finding a
provider of a service, assessing their reliability, and
ensuring that the transaction can be performed in an equitable
manner.
Participants in the peer-to-peer marketplaces are clearly
drawn by the straightforward gains from trade that are made
possible by lower search and transaction costs. Simply put,
buyers pay less than they would without the service and sellers
earn more, if only because they often would not be able to
bring their service to market without the peer-to-peer
platform. Furthermore, buyers have access to previously
unavailable options in the marketplace, while sellers have
opportunities to diversify their sources of income and increase
their financial resilience.
Of course, new business models that gain market acceptance
almost invariably invite challenges from incumbents. New peer-
to-peer businesses are no exception. Wherever peer-to-peer
platforms have gained traction across other country, regulatory
challenges have followed. Invoking regulatory equity, for
example, taxicab drivers have sought to slow the growth of car
and ridesharing services like Sidecar and so forth in other
areas of the peer-to-peer economy, these are largely local
issues.
So what does this all mean for the formulation of policy at
the federal level? From the standpoint of the United States
Congress, the peer-to-peer business models that matter most are
the ones that we have not seen yet. It is instructive to ask
ourselves while we are focused today on local transportation,
hospitality, food service, and the rental of consumer goods as
the most significant domains of innovation in peer-to-peer
business models. The reason arguably is that these are
industries in which regulatory complexity is relatively low.
In contrast, there has been relatively little innovation of
peer-to-peer business models within healthcare, energy, and
education where regulatory complexity is relatively high. These
three industries comprise more than a quarter of U.S. GDP. The
greatest macroeconomic impacts of peer-to-peer business models
for the United States thus will not be realized until we have
established the training, certification, licensing and auditing
mechanisms at all levels of governments that allow neighbors to
earn their livelihoods by taking care of neighbors and by
providing power to their communities and offering validated
work-relevant training to people anywhere who seek expanded
opportunities.
In more general terms, the bottom line is this. Shared
prosperity requires not only innovations that scale up to
create new wealth but also innovations that scale out to create
new opportunities. Let me be very clear about this point. Much
of my own work, as well as important research conducted over
the past decade at the Kauffman Foundation in Kansas City with
which I have been affiliated, is about the value to society of
scale-up innovation, particularly via new entrepreneurial
entrants. This research had demonstrated that the small
proportion of new ventures that scale up rapidly are
responsible for a disproportionate share of value creation in
the economy.
But here is the problem we have run into. While some scale-
ups creates large numbers of new jobs, many do not. Companies
like Apple, Google, Facebook, Instagram, and Twitter have all
achieved valuations in the tens and even hundreds of billions
of dollars but they directly employ far fewer people per dollar
of revenue than their Fortune 500 counterparts did a generation
ago.
This is where peer-to-peer platforms come into play. By
their very structure, peer-to-peer platforms scale out success
to reach tens of thousands, even hundreds of thousands of
people with opportunities to create viable livelihoods for
themselves. They create new and enticing invitations to latent
producers within the economy to employ their individual assets,
talents, to create economic value.
In the coming decades, the United States and other advanced
industrialized economies will no sooner return to the
routinized and manufacturing-centric economy of the 20th
century than to the agrarian economy that preceded it. The
issue is not whether new livelihoods based on peer-to-peer
business models are better or worse than the industrial-aged
jobs that are disappearing from large corporations. The real
point is when jobs are eliminated in the process of digital
disruption, they will not be coming back in their old form. As
that happens, we humans have no choice but to fall back on our
fundamental social skillset, creating and sharing with one
another.
There is, however, one big difference. Unlike our isolated
ancestors of millennia past, Americans in this century are
empowered by architectures of collaboration that allow for the
creation of new and diverse livelihood at unprecedented rates.
Therein lies the power of today's peer-to-peer economy.
Chairman GRAVES. Thank you all very much. And we will now
go on with questions.
I am going to turn to Mr. Collins for the first questions.
Mr. COLLINS. Thank you, Mr. Chairman.
I think this is a great hearing because I, for one, really
had not heard of peer-to-peer. We all know about Uber here in
D.C., but I guess I had not considered the tool-to-tool, the
1000 Tools and what Sidecar is doing. I am intrigued by that
and I think your hearing today might spur some other
entrepreneurs to think, well, there are people that want to
borrow more than just tools.
So I am curious, Mr. Mond, you have been in this year, and
my first question is I am assuming you have a fee charged
because yours is a cashless transaction so you must just charge
a percentage?
Mr. MOND. Yes, that is correct.
Mr. COLLINS. And so what issues, I mean, do you have any
issues, for instance, do you have to give out 1099s or if
somebody really sees this going and they are renting out a lot
of tools, it is kind of an underground economy so there is
always the question of sales taxes. There is a question of
income taxes, underground economy. Because you are conducting
the financial transaction, what is your liability or what
issues do you face?
Mr. MOND. So we have not had to come across that point yet
because we are not old enough as a company, but yeah,
typically--I am also a super host on Airbnb, on the room
sharing website. And, yeah, we receive 1099s as hosts.
Basically, we receive an income.
Mr. COLLINS. No, I am thinking more the person that is
renting the tool. He is getting money. How does his income get
reported?
Mr. MOND. Right. Yeah. There is a form that you receive as
the owner.
Mr. COLLINS. Oh, from you? That you prepare?
Mr. MOND. Yes.
Mr. COLLINS. Oh, okay. All right.
So you are a year in and is it--are you nationwide or are
you in specific markets? And how do you, I mean, I wanted to
replace my faucet the other day. I recognized I did not have
the tools either so I just hired a plumber. But that was
probably safer as well. But you need a critical mass as well,
because if I go to Tool-to-Tool, 1000 Tools, and I cannot find
what I need, I may not come back. And so how many cities or
markets are you in?
Mr. MOND. Well, Mr. Collins, hopefully after this hearing
we will go nationwide. But right now we are very strong in Ann
Arbor which is where we started. We actually have, for some
reason, a critical mass in the D.C. area because when we were
at the Maker Faire event in Detroit, we have had a contingency
of people from the D.C. area and they said please open this up
in the D.C. area. And so we did. And it is open here, so if you
have tools that you would like to post for rent, it would be
our honor to have you.
Mr. COLLINS. I would think, too, I mean, you have developed
the IP to the software. I mean, whether it is tools or whether
it is boats or whether it is jet skis or, I mean, I would think
it could expand beyond just tools; right?
Mr. MOND. Yeah. We wanted to stay very focused on tools for
an important reason and that is kind of dilution of focus. When
people come to our site, we want them to know that what they
are going to find are tools, and if they think of any tool that
they will need, they can automatically relate that to 1000
Tools. There are other sites that came and went that were very
broad. So you could rent anything that you could possibly think
of but that is the problem. Sometimes you just do not know what
is going to be available so you get turned away.
Mr. COLLINS. Sure.
So Ms. Stevens, how do you make money? Is yours cashless
and you charge a transaction fee?
Ms. STEVENS. That is correct. We take a percentage of the
ride payment that the passenger makes to the driver.
Mr. COLLINS. And the driver sets that payment?
Ms. STEVENS. Not currently. That may be an option in the
future. We are just over a year old but currently the payment
is determined based on time and distance using a third-party
API.
Mr. COLLINS. Okay. And I am assuming you must track repeat
customers and the like. What is the biggest complaint you get?
Ms. STEVENS. The biggest complaint. From drivers or
passengers?
Mr. COLLINS. Both.
Ms. STEVENS. From drivers, the biggest complaint currently
would be declined credit cards. So we are working on a
preauthorization system and we are guaranteeing payment on all
rides to drivers if for some reason that credit card is
declined.
From passengers, I am not sure we get a whole lot of
complaints. We get a whole lot of questions of I left my
cellphone in the back of the car. And fortunately, since we
track every ride and they know who gave them a ride, we can
usually find it pretty quickly.
Mr. COLLINS. Very good. Well, my time is expired, but
again, thank you for coming in because I think you are on the
cutting edge of something new. It is intriguing. Thank you.
Ms. STEVENS. Thank you.
Chairman GRAVES. Ms. Velazquez.
Ms. VELAZQUEZ. Thank you, Mr. Chairman.
Professor Sundararajan, given the nature of the peer-to-
peer platform, it will be difficult, if not impossible to
capture their contribution in official employment statistics.
What are the ramifications of excluding job creation from these
government employment indicators?
Mr. SUNDARARAJAN. I think that one of the ramifications is
that we may be under--we may be not measuring the full extent
to which the country is employed because we tend to count
employment in terms of whole jobs. We do try and capture to
some extent people's second jobs, but in a lot of cases
individuals who are providing labor and assets through say a
marketplace for renting tools or occasionally being an Airbnb
host or selling stuff on Etsy do not think of this as a job and
so they do not report it in the statistics. So one ramification
could be that we are not measuring the extent of job creation
as much as we should be. Another ramification might be that we
may be moving into sort of an economy where a fraction of the
population does not hold a full-time job but gets their income
from providing sort of assets and services on a number of
different peer-to-peer platforms. And if this is the case, then
we need to start thinking about a bunch of issues that surround
what happens when, you know, rather than people having sort of
mainstream jobs from traditional corporations, a much larger
fraction of the country are freelancers or self-employed.
Ms. VELAZQUEZ. Professor Auerswald, do you have any
thoughts?
Mr. AUERSWALD. Thank you, Ranking Member Velazquez. I think
you have asked an extremely important question.
The statistics that we have came out of the middle of the
20th century when the concentration of economic activity was
essentially the way in which the economy grew. And employment
within large-scale firms was considered to be employment
success. We are really moving into a very different world today
and I fully endorse the notion that we have to think about
different forms of measurement. I am not representing George
Mason today but I can say that we are daily facing the question
of how best we can equip a new generation to be successful in
the 21st century. We are well aware that we need to train
students and train young people or people of all ages to adapt
flexibly in a changing economy. But I think that this dimension
of being able to provide services directly to other people,
particularly in those large areas of the economy as I
mentioned, a health above all, but also energy and education.
Peer-to-peer services and the ability to serve other people
directly and provide services directly I think is a tremendous
area of growth.
Ms. VELAZQUEZ. Thank you.
Many of the new peer-to-peer entrepreneurs have had
difficulty operating their businesses in a regulatory scheme
that was formed for traditional brick-and-mortar businesses.
With the changing environment in which companies conduct daily
businesses, how can we adapt existing laws and regulations? To
work for the entire marketplace?
Mr. AUERSWALD. So entrepreneurs always will work within
whatever the structure, regulatory and market that they are
facing. I think peer-to-peer businesses have done the same
thing. They have, as I noted, been most successful and have
grown most quickly in those areas where that has been some sort
of regulatory clearing. Maybe there is some uncertainty as to
how the business model will be received, but that is part of
the risk of being an entrepreneur.
I think the important thing is for regulators to appreciate
the contribution of the peer-to-peer economy, and that is
exactly why this hearing is so welcome. And to understand that
this is a new and valid mode of economic activity, neither
better nor worse than what we have seen in the past, but
something that brings a lot, even if it, of course, is going to
be associated with new risks and new ways of thinking. I do not
know that it varies greatly from industry to industry, what the
appropriate responses are, but I think the most important thing
is that regulators understand that these open spaces for
innovation are not just important; they are, I think, critical
for the economic future of this country.
Ms. VELAZQUEZ. What we hear is that some of the peer-to-
peer businesses, the kind of obstacles that they face is in
terms of regulations at the state and local levels. So my
question is what can we do at the federal level to help foster
growth with these businesses?
Mr. AUERSWALD. Well, obviously, given our federal system
and distributed authority, there are limits to what the federal
government can do at the state and local levels. But I think
there really are signaling issues. There are issues about
coordination of regulation at different stages. And I think at
the federal level there are issues of focusing in those areas
where the federal role is particularly significant. And so that
is why I say healthcare is one area where we could have very
significant innovation in peer-to-peer models that would be
cost lowering and that would reach particularly people over 50
with care in their homes and through mobile services, business
models that are nascent but really have not been seen because
the regulatory environment is not inviting them. So I would say
that that is the most important role for Congress is to focus
on the areas where its regulatory oversight is most direct.
Ms. VELAZQUEZ. Professor Sundararajan.
Mr. SUNDARARAJAN. Yeah. This is a really important
question. I think that the reason why we have seen state and
city regulatory barriers to peer-to-peer businesses thus far is
that a lot of the issues that have come up in the industries
that are being disrupted--accommodation, transportation, urban
transportation--tend to be regulated by city and state
authorities. However, I do believe that there is a role for the
federal government to play here on two fronts. One is to sort
of provide the groundwork that might sort of lead to the
creation of something resembling self-regulatory organizations
for some of these industries. I think that there are going to
be a lot of new regulatory issues that come up as more and more
industries become peer-to-peer businesses and it helps to sort
of delegate responsibility with oversight to the people who are
closest to the changes and who also have the ability to take
action most easily. So a platform can disconnect an infringing
supplier from their platform very easily.
Ms. VELAZQUEZ. But how do we provide a level playing field
for those brick-and-mortar businesses that have to comply with
regulations that might put them at a disadvantage with peer-to-
peer?
Mr. SUNDARARAJAN. Well, it seems to me that a lot of the
regulations that are in question here are ones that were
developed to address specific issues that are sort of like
prevalent in brick-and-mortar provision of say like if you are
running a hotel chain or if you are sort of providing taxi
services. Some of these regulations may be supplanted by
digital technologies. I have also always had the impression
that a brick-and-mortar company can also in addition,
especially a large brick and mortar company. There is nothing
that is preventing them from adding a peer-to-peer or a rental
or a sharing dimension. I fully expect that Wal-Mart and Amazon
will enter the space. BMW has entered sort of like the space.
GM is an investor in Relay Rides. And so they are not sitting
on their hands and waiting. They certainly have the opportunity
to adopt these new business models themselves if it turns out
that the lowered regulations on those fronts are going to sort
of give them business advantage.
Ms. VELAZQUEZ. Thank you, Mr. Chairman.
Chairman GRAVES. Mr. Schweikert.
Mr. SCHWEIKERT. Thank you, Mr. Chairman.
Professor, you were starting to go down a couple paths
there that----
Mr. SUNDARARAJAN. Which professor?
Mr. SCHWEIKERT. I am sorry. I am not wearing my glasses.
How many do I have?
Mr. AUERSWALD. There are two professors.
Mr. SCHWEIKERT. Okay. All right.
Professor Number One.
Mr. AUERSWALD. Okay.
Mr. SCHWEIKERT. Okay. We actually have a number of examples
of this in our economy that have been going on for quite a long
time. In many ways private jets have been leasing out their
excess capacity. I know of large printing facilities that, you
know, you have these huge capital expenditures and the
equipment is designed to run 24/7, so well your excess
capacity. And many of us have always thought of the peer-to-
peer type sales as business-to-business, for those who have
engaged in large capital expenditures, to basically maximize
out, you know, how do you amortize out the cost of this? What
is fascinating here, and to my friend from 1000 Tools, I am
your new best customer because I own every tool you can
imagine. I own tools I have no idea what they actually do. But
it is fascinating. And Professor, have you looked at some of
the modeling of what upheaval but also what opportunities?
Because in many ways you are creating these high levels of
efficiencies in the economy but you also may now change certain
need for certain capital expenditures. If I have to go buy a
$3,000 swaging machine that I am only going to use for one
project, I no longer need to do that. So you may slow down
capital expenditures but actually make the economy much more
efficient.
Mr. SUNDARARAJAN. That is true.
Mr. SCHWEIKERT. So it is an allocation.
Mr. SUNDARARAJAN. Yep. That is true and that is a very good
point. At this point, the evidence suggests the direction of
change is unclear. I mean, there are many different effects as
you point out. On the one hand, you know, the increased
efficiency of usage may cause some people to say, well, I do
not need to buy a car. I can just sort of rent one through
Relay Rides whenever I want one, or I do not need to buy a
bunch of power tools. I can just rent them through 1000 Tools.
On the other hand, there may be some people who are not
incurring these capital expenditures because they cannot afford
them. They want the asset but they cannot afford, like, I want
that nice car but I cannot buy it. And now that there is a
secondary market over which I can rent it when I am not using
it, maybe I am going to increase my acquisition.
Mr. SCHWEIKERT. It is a simple example. The person who buys
the house with the guest room and they intend to rent it.
Mr. SUNDARARAJAN. What I am reassured by is that
historically whenever there has been a technological change
that has led to greater asset efficiency, this tends to grow
the economy rather than shrink it. It sort of creates new forms
of consumption that tend to sort of have a positive rather than
a negative effect. But as you say, the jury is still out. We
need to gather data over the next few years to actually
quantify the extent to which this is altering both welfare and
capital expenditures.
Mr. SCHWEIKERT. And to Professor--is it Auerswald?
Mr. AUERSWALD. Auerswald.
Mr. SCHWEIKERT. Auerswald. Do you agree with Professor
Number One in regards that this actually makes an economy more
efficient, therefore, you get a multiplier effect and economic
growth?
Mr. AUERSWALD. So the professors are in agreement. That is
a good thing.
Mr. SCHWEIKERT. But also just sitting here I can come up
with probably a couple dozen examples of this that have existed
for years in our economy in some fashion and have done actually
quite healthy and quite well with actually a very soft touch
from a regulatory environment?
Mr. AUERSWALD. Well, I think that is partly what is
fascinating about this space. Before the 20th century, the
peer-to-peer economy was the economy. There was no other
economy. We did not have large corporations providing services.
This is a relatively new thing. Now we have platforms where we
can return to something like an economy that we had in the past
but with the efficiencies of the 21st century and with the
computational power that we have developed over the past 50
years with billions and trillions of dollars of investment.
So what I think is different here is that--and I think part
of the answer to your question is that there is a threshold to
undertaking a project, and so I think that there are certain
projects, whether in the home or for other people, that people
would not have undertaken did they not have access to the tools
once 1000 Tools grows to scale.
Mr. SCHWEIKERT. But in that same is the threshold for--is
it Ms. Mond?
Ms. STEVENS. Stevens.
Mr. SCHWEIKERT. So, no, Mr.----
Mr. MOND. Mond.
Chairman GRAVES. Mr. Mond. Yeah.
Mr. SCHWEIKERT. Okay. On 1000 Tools, so your biggest
barrier is to actually in many ways have participants in many,
many different places willing to take their privately-held
capital assets and make them available. So your biggest barrier
right now is actually one of information and liability I would
assume. And so now you have sort of a whole new world of law of
what liability do I have? What sort of insurance do you require
a driver to have if they pick up someone, if you let me loose
with someone else's skill saw and I do not know how to ratchet
it down. And I will not show you my toe that I put a nail gun
through earlier this year.
With that, Mr. Chairman, I am well over time. Thanks.
Chairman GRAVES. And we have a set of votes coming up so we
will try to get through everybody real quick.
Mr. Luetkemeyer.
Mr. LUETKEMEYER. Mr. Mond, everybody is sitting on the edge
of the chair here wondering after your testimony did you get
your car fixed?
Mr. MOND. Yes.
Mr. LUETKEMEYER. Did you use your own service? Did you find
somebody else's tools or did you go to a rental place? Or how
did you get it fixed?
Mr. MOND. Actually, I went to Sears and bought a bunch of
tools.
Mr. LUETKEMEYER. So now you are one of your own members of
your own company; right?
Mr. MOND. Absolutely.
Mr. LUETKEMEYER. Renting out your tools?
Mr. MOND. I eat my own dog food.
Mr. LUETKEMEYER. Okay.
I am kind of curious, what is the biggest impediment that
you have come across so far in your business, Mr. Mond and Ms.
Stevens?
Mr. MOND. So the biggest barrier was or still is education
about this. And essentially, mass adoption of this type of
business model. And the second impediment has been the
litigious society that we live in prevents a lot of people from
just joining blindly. They are very careful about liability. So
having some sort of liability insurance for micro-entrepreneurs
would be, if I were an insurance company, something I would
seriously look into because Airbnb, who is kind of been around
for a while, since 2008, they do not offer liability insurance.
So just so that is on the record. On their website they say
that you have to protect yourself from liability.
Mr. LUETKEMEYER. Ms. Stevens.
Ms. STEVENS. Our biggest issue is local regulators and
viewing these--what we really believe is an information and
technology platform in an online marketplace in the lens of a
traditional taxi or a commercial carrier. So while we have made
good progress with regulators in California and here in the
District of Columbia who are willing to look at this in a
different lens, the Seattle City Council has reacted quite
aggressively and with the express and stated purpose of
protecting incumbent taxi drivers. So it is really about
competition and protecting the status quo in some local
municipalities, which we think does not benefit the consumer.
So that is our largest hurdle. We were shut down in New York
and Philly and Austin by local regulators.
Mr. LUETKEMEYER. I assume that you are probably not too
capital intensive so you probably do not need lots of funding,
but do you have any access to credit problems from the
standpoint that you are a startup company and you are doing
something that is unique, never been done, or has not been done
very much anyway? Do you find that to be a problem?
Ms. STEVENS. We are the traditional startup with VC
backing. We have not experienced limitations in that way, the
way that maybe a traditional small business would going to a
bank, asking for a loan, so I cannot say that we have suffered
that. But the challenge here is proving that this can work in a
way that is cash flow positive.
Mr. LUETKEMEYER. Mr. Mond, have you had any problems with
that?
Mr. MOND. We are even less traditional of a startup because
we are bootstrapped, meaning we pay for our own way through
other means.
Mr. LUETKEMEYER. Okay. To attract people to list their
tools with you, how much marketing do you do? Do you have
somebody that goes out and contacts all these people or do you
just have a mass mailing? How do you do that?
Mr. MOND. So our main means of marketing this is actually
going to the biggest Maker Faires that we can find. There is
where it is our biggest bang for our buck. So Maker Faires are
places where a lot of people congregate and they are all people
that work with tools. And people just go nuts when we go there.
But that is really our best way, just word of mouth.
Mr. LUETKEMEYER. How do you market your product then to the
consumer? How do you market the product to your consumer?
Mr. MOND. What do we tell them or what is the vehicle?
Mr. LUETKEMEYER. How do people find out about you?
Mr. MOND. Mostly through word of mouth.
Mr. LUETKEMEYER. Word of mouth. Really?
Ms. Stevens.
Ms. STEVENS. For us, there is a lot of traditional social
media advertising. So Facebook, Twitter, et cetera. Word of
mouth is really important. So for any peer-to-peer marketplace,
the secret is how do you crack virality? How do you get people
to talk about your product, to share referral codes, to use it?
Mr. LUETKEMEYER. Are you on Craigslist? Will Craigslist
have you?
Ms. STEVENS. We do have some ads on Craigslist to attract
drivers.
Mr. LUETKEMEYER. Wow. Fantastic.
I will stop right there, Mr. Chairman. Thank you very much.
Chairman GRAVES. Ms. Herrera Beutler. And welcome back. We
have been thinking about you and your baby.
Ms. HERRERA BEUTLER. Thank you very much.
Ms. Stevens, I was really intrigued. I am from Washington
State. I was intrigued to hear you say that the City of Seattle
focused a little bit more on what it sounds like protecting a
certain subset of--I guess I do not know if it would be workers
or owners--taxi drivers versus the entire commuting population
of a very busy city with a lot of really bad traffic. And it
sounds like you have experienced--because when you were talking
about it I thought, well, similar with 1000 Tools, go to a big
city. It does not surprise me that 1000 Tools works well here
in D.C. People do not have a lot of space to store stuff. They
do not want to invest in going to buy a bunch of tools. I have
been in this place myself. My car broke. We had serpentine
belts. We had to go buy some big weird tool, like this big,
that was more than the belt that we will never use again. And
then I think we left it somewhere because it is like I do not
have room for this.
So that does not surprise me when I think about your
services. You are going to look in the big cities. And it
sounds like several of them have created either a regulatory
barrier or almost kind of, I do not know, I think you described
it as defending the status quo which to me is just absolutely
nuts because congestion in some of these cities is some of our
biggest problems. So why would you not want to develop this
system?
I actually was in the state legislature when someone
brought up slugging. And having been back here I said, ``Hey,
slugging is a good option for us.'' How could we help with
that? I mean, do you see that as just kind of protectionism? Is
it education? I mean, how could we help?
Ms. STEVENS. I absolutely agree. We are flabbergasted by
it. And our goals, and this is why we have always included
destination, passengers entering their designations because we
want to get to true ridesharing. And there is this idea with
perhaps some of our competitors that suggests that this is
really just quasi-tax. And so it is education. It is also
signals that you all can send to your home states about the
importance of this and the potential. But it is really about
fostering innovation and waiting for, not cutting off before we
can achieve all of the potential that I mentioned in my opening
remarks about reducing congestion, reducing strain on existing
road infrastructure, and potentially reducing pollution.
Chairman GRAVES. I want to thank all of you for
participating today. I really appreciate you taking the time
out of your hectic schedules to come and help us understand
better some of the peer-to-peer businesses out there and get
your perspective on how these are affecting our economy.
Particularly when we have jobs that are so scarce, these new
business are offering unique opportunities for individuals to
monetize some assets and for entrepreneurs to pursue some
really good ideas. But I do appreciate you all coming in.
We do have a series of votes coming up, so the timing ended
up being just about right.
I would ask unanimous consent that members have five
legislative days to submit statements and supporting materials
for the record. Without objection, that is so ordered. And with
that, the hearing is adjourned. Thank you.
[Whereupon, at 1:59 p.m., the Committee was adjourned.]
A P P E N D I X
Peer-to-Peer Businesses and the Sharing (Collaborative)
Economy:
Overview, Economic Effects and Regulatory Issues
Arun Sundararajan
Professor and NEC Faculty Fellow, NYU Stern School of Business
Head, Social Cities Initiative, NYU Center for Urban Science
and Progress
Written testimony for the hearing titled, The Power of
Connection: Peer-to-Peer Businesses, held by the Committee on
Small Business of the United States House of Representatives,
January 15th, 2014.
Chairman Graves, Ranking Member Velazquez, and Committee
Members, I am delighted to have been invited to speak to you
about digitally-enabled peer-to-peer businesses. Thank you for
convening this important hearing. More light needs to be shed
on this promising new area, and I hope this is the first of
many such hearings that contribute towards an understanding the
economic impacts of peer-to-peer businesses, while facilitating
changes to the regulatory framework that nurture this important
and rapidly growing part of the economy.
To summarize: I believe that peer-to-peer business enabled
by digital platforms will constitute a significant segment of
the economy in the coming years. It is likely that this
transition will have a positive impact on economic growth and
welfare, by stimulating new consumption, by raising
productivity, and by catalyzing individual innovation and
entrepreneurship. Robust measurement of the economic impact of
peer-to-peer businesses, and especially small businesses, is
important, as is the possible refinement of existing economic
measures so that they fully capture new forms of production,
consumption and work facilitated by smaller peer-to-peer
businesses. The current regulatory infrastructure can impede
the growth of these businesses, in part because of misalignment
between newer peer-to-peer business models/roles and older
guidelines developed to mitigate safety concerns and economic
externalities for the existing ways of providing the same or
similar services. A path to lowering these barriers while
ensuring that market failure is avoided could be to restructure
the regulatory framework to address new issues raised by the
expansion of peer-to-peer businesses, delegating more
regulatory responsibility to the marketplaces and platforms,
while simultaneously preserving some government oversight.
Overview
A classification all the different kinds of businesses in
this new economy that is comprehensive and useful would make
this section quite lengthy. Rather than attempting to be
exhaustive, I provide a few examples (along with a detailed
discussion of the forces shaping peer-to-peer business) that
will motivate the subsequent discussion about economic impacts
and regulatory issues. More information about the `sharing
economy', the `collaborative economy', or peer-to-peer commerce
is available from a variety of sources \1\.
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\1\ Detailed early discussions are in Rachel Botsman and Roo
Rogers, What's Mine Is Yours: The Rise of Collaborative Consumption
(Harper Business, 2010), or Lisa Gansky, The Mesh: Why the Future of
Business is Sharing (Portfolio Trade, 2010). For more recent and
succinct discussions of definitions, drivers and business implications,
see Arun Sundararajan, From Zipcar to the Sharing Economy (Harvard
Business Review, 2013), or Rachel Botsman, The Sharing Economy Lacks a
Shared Definition (Fast Company, 2013).
First, let's distinguish between three different
constituents: platforms (marketplaces), entrepreneurs (small
businesses, micro-entrepreneurs) and consumers. The platforms
are the person-to-person marketplaces which facilitate the
exchange of goods and services between peers. The entrepreneurs
are the individuals or small businesses that supply goods and
services in these marketplaces. The consumers are the
individuals who demand: buy, rent, consume. (Both the
entrepreneurs and the consumers are often referred to as
`peers'.) Typically, the payment from the consumer to the
entrepreneur is mediated by the platform, which often charges a
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commission to one or the other trading party.
For example, in the context of peer-to-peer accommodation:
Airbnb and VRBO are platforms, an individual who offers living
space for short-term rentals is the entrepreneur, and an
individual who rents the living space from the entrepreneur is
the consumer. In the context of peer-to-peer car rentals:
Getaround and RelayRides are platforms, a car-owner who offers
their vehicle for short-term rentals is the entrepreneur, and
an individual who rents this vehicle from the car-owner is the
consumer.
The forms of peer-to-peer business facilitated by the new
platforms are of many kinds. I describe some of these (again,
non-exhaustively) below \2\.
---------------------------------------------------------------------------
\2\ A evolving directory of different peer-to-peer, sharing and
collaborative businesses and platforms is maintained at http://www.
collaborativeconsumption.com/directory/
(1) Repurposing owned assets as `rental' services: These
platforms create a marketplace for the provision of asset-based
services, often generating new labor opportunities for
individuals who are not professional providers. Many of these
services bear a resemblance to those that have historically
been provided by more `traditional' business. For example, the
platform Airbnb allows individuals to become entrepreneurs who
offer part or all of their living space to their peers as
short-term accommodation (a service traditionally provided by
different kinds of hotels). The platforms RelayRides and
Getaround allow car owners to become entrepreneurs who offer
their vehicles to their peers as short-term car rentals (a
service traditionally provided by car rentals companies like
Hertz and Avis). The platforms Lyft and Sidecar allow people
who own and drive their cars to offer short-range (and
sometimes, point-to-point) ridesharing or chauffeured urban
transportation (a service traditionally provided by taxicabs
---------------------------------------------------------------------------
and limousine services).
Often, the emergence of these peer-to-peer platforms
increases the scale and scope of small business that is
traditionally local. For example, the platforms Eatwith and
Feastly allow entrepreneurs to offer `social dining' services
where a small group of semi-anonymous peers dine on a meal
prepared by the entrepreneur at his or her home (historically
provided by informal `supper clubs').
In other cases, the platforms create a new category of
commerce that converts an informal peer activity into a
business. For example, the platform 1000tools.com facilitates
the short-term rental between peers of power tools and
equipment that a consumer would traditionally purchase (or
borrow from a neighbor). The platform SnapGoods allows
individuals to offer short-term rentals of their household
appliances (like vacuum cleaners) to others (who would
traditionally either buy the asset themselves, or borrow it
from a friend/neighbor).
(2) Professional service provision: These platforms create
a new channel for existing providers of different services,
often expanding their business opportunities in a way that
allows individuals to become entrepreneurs rather than working
with a traditional organization. For example, the platform Uber
allows professional drivers (entrepreneurs) to offer point-to-
point chauffeured urban transportation to consumers. The
platform Kitchit allows professionally trained chefs to become
entrepreneurs who prepare meals in the kitchens of their
consumers.
(3) General-purpose freelance labor provision: These
platforms create new marketplaces for different kinds of
freelance labor. For example, the platform oDesk allows a
variety of technology professionals, translators and writers to
find work \3\. Some other platforms like TaskRabbit and
FancyHands are more closely associated with the creation of new
categories of freelance work.
---------------------------------------------------------------------------
\3\ The distinction between (2) and (3) is often not clear-cut. I
make the distinction because providers on the marketplaces in (2) are
more likely to be thought of as entrepreneurs rather than as contract
or freelance workers.
(4) Peer-to-peer asset sales: These platforms create
marketplaces that allow entrepreneurs to sell goods directly to
consumers. Some of these platforms, like eBay, have been
operating for over a decade, and are more closely associated
with peer-to-peer trade of traditional retail items, thus
facilitating entrepreneurship in retailing. Other platforms,
like Etsy, have emerged more recently, and are more closely
associated with expanding peer-to-peer trade of items which do
not have mass-markets, thus facilitating entrepreneurship in
---------------------------------------------------------------------------
both manufacturing and retailing.
Two other categories of peer-to-peer businesses that
require a different (and dedicated) economic impact and
regulatory discussion are peer-to-peer education (including the
provision of education and training by individuals directly to
groups of others over platforms like Skillshare and Udemy), and
peer-to-peer finance (including the provision of venture
funding by individuals to others over platforms like
Kickstarter, Rockethub and Indiegogo, or of peer-to-peer
lending over platforms like LendingTree).
The new peer-to-peer businesses frequently involve new ways
of providing familiar and ``real world'' services, like short-
term accommodation (Airbnb, Couchsurfing), urban transportation
(Lyft, Sidecar, Uber) and venture financing (Indiegogo,
Kickstarter, Rockethub). This distinguishes them from many
other disruptions of business that have been caused by digital
technologies over the last two decades.
It is also worth pointing out that there are a number of
new ``rental'' business models that, while not peer-to-peer,
are associated with the `sharing economy'. Some are in markets
which have traditionally had rental markets: for example,
Zipcar offers short-term flexible rentals while maintaining
ownership over a fleet of cars; BMW's `Drive Now' offers on-
demand access to vehicles without the need to buy them. Other
companies, like Rent the Runway (which offers short-term
rentals of high-end apparel), are creating rental markets in
new categories, which in turn, may stimulate peer-to-peer
business in these categories.
A number of factors have led to the development of this new
economy. I summarize a few of the key drivers below.
(1) The consumerization of digital technologies: In the
1980's and 1990's, innovation in digital technologies was
driven by the needs of business and government; the needs of
consumers were generally an afterthought, met by adapting
technologies developed primarily for businesses into consumer
products. However, over the last ten to fifteen years, we have
witnessed the ``consumerization'' of information technologies,
whereby radical innovation is driven by the needs of consumers
rather than of businesses or government. (Social media and
mobile technologies provide two recent examples.) This trend is
pertinent because it is often the mass-market placing of the
capabilities of these new digital technologies (powerful mobile
computers, GPS technology) in the hands of millions of
consumers that creates the possibility of digitally
intermediated peer-to-peer business. It has also led to a
growing familiarity \4\: with the idea of platform-enabled
peer-to-peer exchange (initially of digital content) among
consumers, as well as a greater level of acceptance of the idea
of renting rather than ownership as a primary form of
consumption (again, initially in markets for digital content)
---------------------------------------------------------------------------
\4\ I discuss these technological drivers in some more detail in
The Sharing Economy (http://youtu.be/nOVjP59NSOo).
(2) The emergence of ``digital institutions'': As a growing
fraction of human interaction and exchange is mediated by
digital technologies, we have witnessed the emergence of a
number of different kinds of ``digital institutions'': digital
technology-based platforms that facilitate economic exchange in
the same way that economic institutions historically have done.
For example, over the last 15 years, a digital `reputation
system' (which allows buyers and sellers to provide feedback
about their transactions) has enabled semi-anonymous peers on
the platform eBay to trade assets with each other without being
physically collocated or having to relying on traditional
business infrastructure. The digital rights management
technologies of platforms like Apple's iTunes and Amazon's
Kindle are, de facto, subsuming government-mediated
intellectual property laws for digital music, video and books.
Today, a wide variety of other digital identity verification,
reputation and credit scoring systems (which often leverage the
real-world social capital that mobile device usage, Facebook,
LinkedIn and other social technologies bring online) facilitate
trusted economic exchange in hundreds of different peer-to-peer
---------------------------------------------------------------------------
marketplaces.
(3) Urbanization and globalization: The U.S. is currently
experiencing positive rates of urbanization, and there is also
some evidence of a recent trend of migration to more densely
populated metropolitan areas \5\. (Worldwide, both these trends
are projected to be substantially more pronounced than in the
US: the UN estimates that by 2050, the global urban population
will double, and about 70% of the world's 9.3 billion people
will be city dwellers). Cities are already natural ``sharing
economies''--the space constraints and population density of
urban living favors consumption that involves access to shared
resources over asset ownership. Urban residents have shared
their assets and space informally for centuries, but innovative
network technologies and social tools have made co-producing,
lending, trading and renting assets cheaper and easier than
ever before--and therefore possible on a much larger scale.
---------------------------------------------------------------------------
\5\ The population in U.S. urban areas grew by about 30% between
1990 and 2010, accompanied by a growth in urban population density of
about 10%.
(4) Ecological and resource considerations: Many `sharing
economy' business models facilitate more efficient use of
natural and other physical resources. Over time, people's
desire to choose `asset-light' forms of living that utilize
fewer resources and lower their ecological footprint is likely
to favor peer-to-peer sharing. Furthermore, the global pressure
to rapidly create massive new urban infrastructure may induce
city planners to adopt `sharing economy' approaches less
reliant on physical resources and more cost-effective than
---------------------------------------------------------------------------
traditional approaches for managing growth and urbanization.
Economic Impacts of Peer-to-Peer Businesses
The expansion of peer-to-peer business that is being
facilitated by these new platforms will have a number of
economic impacts. The economic impacts stem from lower
marketplace transaction costs; `production' that is more
efficient; a greater level of output being created from the
same level of physical assets and labor; and the creation of
production and exchange opportunities that were not previously
possible. It also is likely that such platforms will be new
engines for innovation by creating `micro-entrepreneurship'
opportunities that empower individuals previously constrained
by employment at traditional corporations.
It is still too early in the evolution of this newly
enabled peer-to-peer businesses to draw any robust empirical
conclusions about whether their eventual economic impacts will
have a positive effect on economic growth and welfare, although
it seems very likely. During the next five years, ongoing
measurement of the economic impact of peer-to-peer businesses,
and especially small businesses over the next five years is
important, as is the possible refinement of existing economic
measures so that they fully capture new forms of production,
consumption and work facilitated by smaller peer-to-peer
businesses.
The phrase `sharing economy' often creates a misconception
about these platforms and the businesses they enable. While
some may facilitate sharing, they are typically not organized
like food cooperatives or farmer collectives. Rather, they are
grounded in simple free enterprise, individual property rights,
external financing, trade-for-profit, market-based prices, and
new opportunities for exchange.
Here is a discussion of some of the economic effects that
are anticipated.
Expansion in consumption: The peer-to-peer businesses
created by these new platforms are creating new consumption
experiences of higher quality and greater variety that are
likely to stimulate economic growth. It is thus very likely
that the peer-to-peer business facilitated will not merely
substitute old forms of commerce with new digitally enabled
ones: they seem poised to grow the pie, rather than simply
carving it up differently.
Productivity gains: The peer-to-peer businesses enabled by
these new platforms can lead to more efficient use of physical
capital by tapping into assets like real estate and automobiles
that are not being fully utilized. They also draw on
underutilized human capital: people supplementing their full-
time jobs with extra work as Airbnb hosts or Lyft drivers,
professional providers who find more employment via platforms
like Uber, TaskRabbit and Kitchit. Technological change that
generates more output from the same capital, or that
facilitates more efficient usage of labor, increases
productivity. A consistent historical pattern associated with
this kind of producitivity-enhancing technological change is
that in the long run, it typically leads to economic growth.
Entrepreneurship and innovation: There is very little doubt
that the peer-to-peer business facilitated by new platforms
will lead to an expansion in entrepreneurship and innovation.
The creation of these platforms allows society to tap into
abilities and aspirations that individuals have which would
have otherwise not been realized (Etsy and the ``maker
movement'' being prime examples). For many individuals, the
relatively low-risk micro-entrepreneurship allowed by peer-to-
peer business may be the first step to broader
entrepreneurship, perhaps an ``on-ramp'' of sorts to
freelancing or starting an independent business, by generating
supplemental income, extending expertise and creating a broader
professional network. The extent to which this will stimulate
the creation of larger traditional businesses, and their
ensuing economic impact, is an empirical question. However,
there is very likely going to be a short-term rise in the
number of freelance workers and sole proprietorships.
The emergence of `invisible work': The peer-to-peer
business facilitated by new platforms shifts labor from more
narrowly specialized activities to a broader range of
activities. Although many entrepreneurs work full-time to
provide the services they supply, many do not. Moreover, many
of this latter set are engaged in labor that does not reflect
their primary skills. Thus, it is quite likely that the
``work'' that is being created by peer-to-peer businesses is
not being fully measured by government employment surveys \6\.
As peer-to-peer business starts to constitute an increasing
fraction of the economy, it seems important that these be
updated to reflect work that is not considered by the worker as
traditional ``employment''.
---------------------------------------------------------------------------
\6\ For a more detailed discussion on this point, see Emily Badger,
The Rise of Invisible Work (Atlantic Cities, 2013)
Shifts in asset markets: The creation of new peer-to-peer
rental opportunities has a number of effects on the extent to
which people purchase manufactured goods. For simplicity
consider the example of peer-to-peer car rentals. The increased
availability of short-term rentals is likely to expand overall
consumption because consumers have access to a broader range of
driving options (relative to when they were constrained to
driving the car they owned). Some of these consumers will
choose not to purchase their own vehicles, which lowers car
sales. However, others who might not have made a purchase might
now be induced to buy a vehicle because the supplementary
income opportunities offered to them by the peer-to-peer rental
marketplace facilitates making otherwise unaffordable car
payments. The net effects (which bear some resemblance to those
---------------------------------------------------------------------------
induced by secondary markets) are not immediately clear.
A brief discussion of some regulatory issues \7\
---------------------------------------------------------------------------
\7\ There are a distinct set of regulatory issues associated with
peer-to-peer finance, and with peer-to-peer education, which are not
covered as part of this testimony.
The platforms and businesses associated with the new forms
of peer-to-peer businesses described earlier seem to face
regulatory hurdles more frequently than one might expect from
new technology businesses or small entrepreneurs. In part, this
is due to a misalignment between newer peer-to-peer business
models/roles and older guidelines developed with existing ways
of providing the same or similar services in mind. For example,
an entrepreneur (`host') who provides short-term accommodation
occasionally via a platform like Airbnb is not a traditional
`hotelier'. Similarly, individuals who occasionally offer
rideshares via a platform like Lyft or Sidecar are not
---------------------------------------------------------------------------
traditional `taxi drivers'.
The creation of new kinds of services has also been
accompanied by new questions of liability, and the need for the
creation of new forms of insurance: in particular, when assets
owned by peers are now commercially ``rented'' to other peers
for payment. For example, the platforms RelayRides and
Getaround have created entirely new insurance products that
cover entrepreneurs and consumers in the peer-to-peer rental
marketplace.
Regulatory uncertainties and concerns about liability can
impede individuals from pursuing otherwise productive and
profitable peer-to-peer business opportunities. (In a recent
example, the New York State Attorney General has subpoenaed
information about the 15,000 or so Airbnb hosts operating in
New York. This had led to many discussions about whether Airbnb
is ``legal'' in New York, and it is quite likely that this
situation has caused many potential entrepreneurs to become
hesitant about being providers via this platform.)
Existing federal ``safe harbors,'' like those under the
Digital Millennium Copyright Act that limit the liability of
digital intermediaries for illegal activity conducted via their
platforms, are likely to help nurture the evolution of peer-to-
peer business platforms a little. However, by themselves, they
are an insufficient solution to today's regulatory barriers to
peer-to-peer business. In particular, the central issue here
concern what constitutes legal peer-to-peer exchange. A
platform cannot ``take down'' illegal providers unless there
are clear and accepted definitions about what constitutes legal
trade.
Typically, government intervention is necessary when it is
required to ensure consumer safety, or to avoid market
failure--the inability of a marketplace to facilitate trade
that would be good for society, or to facilitate the provision
of something society deems necessary. In thinking about how one
might lower regulatory barriers for peer-to-peer business, I
would suggest pursuing a path that delegates more regulatory
responsibility to the marketplaces and platforms.
The interests of the platforms are well aligned
with facilitating safe and profitable peer-to-peer trade (since
their revenues are directly linked to the volume and continued
growth of such trade). The platforms are also better positioned
to `take action' against infringing entrepreneurs and consumers
(for example, by simply disconnecting them from the platform).
As discussed earlier in this document, the
platforms that facilitate peer-to-peer business have created a
wide variety of digital identity verification, reputation and
credit scoring systems, often leveraging the real-world social
capital that mobile device usage, Facebook, LinkedIn and other
social technologies have digitized. These `trust mechanisms'
currently facilitate economic exchange in hundreds of different
peer-to-peer marketplaces, and may play a significant
``preventive'' role that historically has required government
oversight \8\.
---------------------------------------------------------------------------
\8\ For further discussion on this point, see Balancing Innovation
And Regulation In The Sharing Economy (TechCrunch, 2012)
New forms of technology-mediated peer-to-peer
business are likely to continue to emerge rapidly over the
coming years. It would strain the government's resources to be
constantly monitoring and correcting regulatory misalignment
---------------------------------------------------------------------------
across a wide variety of industries.
However, this does not imply that the new peer-to-peer
marketplaces should be completely unregulated. There are,
potentially, safety and equal access concerns that the market
may not self-provide. Further, the newness of many peer-to-peer
businesses is bound to raise new regulatory issues. (A recent
example related to liability for accidents between fare-paying
rides for a driver who connects and disconnects frequently from
an urban transportation platform.) Some level of government
oversight seems necessary, certainly until there is enough data
about the extent to which the platforms can prevent market
failure by themselves, and enough data about any new safety or
liability issues.
A historical example that might be instructive in this
regard is the 1934 Securities and Exchange Act (and its
numerous subsequent amendments), which requires securities
exchanges to operate as self-regulating organizations (SROs)
with oversight from the Securities and Exchange Commission.
While the nature of peer-to-peer trade on the newer platforms
discussed in this testimony has complexities different from
those associated with trade of financial securities, the
structure--of creating a set of SROs with federal government
oversight--seems like one that is worth exploring further.
TESTIMONY OF ELIZABETH STEVENS, ASSISTANT GENERAL COUNSEL OF SIDECAR
TECHNOLOGIES, INC.
BEFORE THE HOUSE COMMITTEE ON SMALL BUSINESS
``THE POWER OF CONNECTION: PEER-TO-PEER BUSINESSES''
JANUARY 15, 2014
On behalf of Sidecar Technologies, Inc., I would like to
thank the House Committee on Small Business and Chairman Graves
for the invitation to speak on peer-to-peer (``P2P'')
businesses and ridesharing. On behalf of Sidecar Technologies,
Inc. (``Sidecar''), a peer-to-peer ridesharing company, I
respectfully submit this testimony to assist in understanding
how modern ridesharing as a peer-to-peer business works and the
significant and varied benefits its offers governments,
communities, and citizens.
Overview of Sidecar Mobile App
Sidecar is a ridesharing, or carpooling, information
service that enables members to exchange information via the
Sidecar smartphone mobile application (``app'') with other
members to enable ridesharing in privately owned vehicles.
Sidecar was founded over a year ago on the idea that private
individuals would be willing to fill empty seats in their
private vehicles with other private individuals seeking a ride
with similar starting and destination locations. Sidecar
enables carpoolers or ridesharers to find ride matches with
greater convenience, security, and efficiency through its
interactive app.
Sidecar is only the provide3r of the software and the
operator of the technology platform that facilitates this peer-
based exchange of information leading to a ridematch. In other
words, Sidecar does not own the vehicles that are used to
rideshare. Sidecar does not employ or control drivers or
riders. Sidecar does not dictate hours, schedules or shifts for
drivers, nor does Sidecar dispatch drivers to pick up riders.
Rather, through the app, people choose to share carpool in a
safer, more convenient, and more dynamic way than other
electronic networks for carpooling and ridesharing, such as
Craigslist or company bulletin boards.
As a trust and safety service to its users, Sidecar
facilitates driver criminal background checks consistent with
federal and state laws, which screen for sex offenses, DUIs,
reckless driving and other criminal convictions, and bars any
driver with the enumerated offenses from participating on the
Sidecar platform. Sidecar also requires prospective drivers to
provide proof of a current and valid drivers' license, proof of
valid personal automobile insurance as required by state law.
Sidecar additionally provides a commercial liability policy
that covers passengers and third parties for up to one million
dollars per occurrence.
The Sharing Economy
To understand the importance of Sidecar in the modern
economy, a discussion of the ``sharing economy'' \1\ and the
history of ridesharing is informative. Sharing personal assets
is not a new concept; however, new technologies are
facilitating the emergence of new sharing economy that enables
peer-to-peer exchanges and the efficient use of underutilized
assets. Other companies that are part of this sharing economy
include eBay (matches sellers of goods with buyers),
couchsurfing.com (matches travelers with available couches to
``crash'' on), AirBnb (allows home owners to share their empty
rooms or homes), and TaskRabbit (matches handyman and
deliverymen with individuals in need of limited support).
---------------------------------------------------------------------------
\1\ In addition to sharing economy, terms such as ``collaborative
consumption'', ``distributed capitalism'' have been used. See, e.g.,
Zuboff, Shoshanna, ``Creating Value In The Age Of Distributed
Capitalism'', McKinsey Insights, September 2010, available at http://
www.mckinsey.com/insights/strategy/
creating--value--in--the--ag
e--of--distributed (last accessed January 11,
2014).
In this new economy, ``asset owners use digital
clearinghouses to capitalize the unused capacity of things they
already have, and consumers rent from their peers rather than
rent or buy from a company''.\2\ Or as Lisa Gansky, author of
the Mesh: Why the Future of Business is Sharing, explains
``[w]e're moving from a world where we're organized around
ownership to one organized around access to assets.'' \3\
---------------------------------------------------------------------------
\2\ Geron, Tomio, ``Airbnb and the Unstoppable Rise of the Share
Economy'', Forbes, January 11, 2013, available at http://
www.forbes.com/sites/tomiogeron/2013/01/23/airbnb-and-the-unstoppable-
rise-of-the-share-economy (last accessed January 10, 2014).
\3\ Id.
This technology-led sharing economy, of which shared
transportation is just one segment, is growing rapidly, and,
despite general economic slow-down in other sectors, the United
States is poised to become a global leader in this enterprise.
According to a recent Economist article, Rachel Botsman, a
leading expert on the sharing economy, estimates that just one
segment of this sharing economy, the peer-to-peer rental
market, is worth at least $26 billion.\4\ The shift to such
collaborative consumption benefits owners, renters, companies
and the wider society for several reasons:
---------------------------------------------------------------------------
\4\ ``The Rise of the Sharing Economy'', The Economist, March 9,
2013, available at http://www.economist.com/news/leaders/21573104-
internet-everything-hire-rise-sharing-economy (last accessed January
10, 2014).
Owners make money from underused assets. Renters,
meanwhile, pay less than they would if they bought the
item themselves. And there are environmental benefits
too: renting a car when you need it, rather than owning
one, means fewer cars are required and fewer resources
must be devoted to making them.\5\
---------------------------------------------------------------------------
\5\ Id.
As consumer and cultural patterns shift to broader
participation in the sharing economy, established veterans in
technology and e-commerce are forecasting significant change
for existing businesses and for the economy at large. According
to eBay's chief executive officer, John Donahoe, often ``these
businesses and entrepreneurs are portrayed as disrupters,'' but
``[i]n many ways, you're empowering individual consumers to get
what they want'' and ``empowering human beings to be able to
create jobs.'' \6\
---------------------------------------------------------------------------
\6\ Kramer, Katie, ``Take a seat with Rising Stars of the Sharing
Economy'', CNBC.com, April 24th, 2013, available at http://
www.cnbc.com/id/100668331 (last accessed May 6, 2013).
The sharing economy model addresses this cultural and
economic change by delivering greater efficiencies with fewer
environmental impacts, while creating a more interconnected
community. Substantial literature and research suggests that
sharing economy companies have great potential to support
important federal and state policy initiatives and produce
demonstrable, beneficial change that will improve individuals'
daily quality of life, particularly in crowded urban areas.
From housing to transportation to parking, the sharing economy
marries the best of capitalist enterprise with societal and
---------------------------------------------------------------------------
environmental consciousness.
Sharing economy companies, like Sidecar, are leading this
wave of innovation, producing important changes in consumer
behavior and consumption. This shift will be as profound as the
Internet revolution that preceded and enabled it. Sidecar has
the potential to create cascading social benefits by making car
ownership and consumption more efficient, both financially and
environmentally.
Ridesharing
Nowhere are the benefits of collaborative consumption more
apparent than in the transportation sector. While carpooling
and ridesharing have existed for decades, the shift towards
cultural acceptance of peer-to-peer commerce and asset sharing
between strangers has accelerated mainstream adoption of
ridesharing.
Since the 1940s, federal, state and local governments in
the United States, as well as non-profits and companies, have
sponsored, funded, and managed carpooling and ridesharing
networks to achieve critical and economic and social goals,
including reducing energy consumption, environmental impact,
commuting costs, and traffic and parking congestion. In the
last thirty years, government-sponsored regional programs
shifted, focusing on reducing traffic congestion and pollution,
mainly by creating employer-sponsored vanpool incentives,
including federal tax credits. With the advent of the Internet,
this ridesharing evolved from telephone-based ridematching to
online ridematching services. Today, federal, state, and local
governments continue these carpool and vanpool initiatives to
ease traffic congestion, reduce pollution, and reduce
dependence on foreign oil.
Although federal, state, and local governments have
expended resources to develop ridesharing, sustained successes
have been scarce. The academic and government literature
documenting these programs demonstrate that the majority of
ridesharing programs are limited in scope or temporary.\7\ This
is because the ridesharing market, like many markets, benefits
from economies of scale. Numerous studies have concluded that
sustained ridesharing success is dependent on developing a
``critical mass'' of participants.\8\ To transition from
``casual carpooling'' based primarily on repeated, common
commutes to a more ``dynamic'' model focused on spontaneous
trips, ridesharing demand must be stimulated.
---------------------------------------------------------------------------
\7\ See, e.g., John A. Volpe National Transportation Systems
Center, ``Ridesharing Options Analysis and Practitioner's Toolkit'',
Department of Transportation, Federal Highway Administration, December
2010.
\8\ ``Critical Mass'', available at dynamicridesharing.org, (last
accessed January 10, 2014).
The success of any ridesharing model depends on developing
a critical mass of ridesharing economy participants, as
discussed above. Most fledgling ridesharing trials have failed
because they did not achieve the critical mass of users to
sustain a dynamic ridesharing model. More plainly, if the
number of participants is not high enough to support consistent
and good ridesharing matches, riders will not continue using
the system.\9\
---------------------------------------------------------------------------
\9\ Deakin, Elizabeth, Karen Trapenberg Frick, and Kevin M. Shively
``Markets for Dynamic Ridesharing?: Case of Berkeley, California,'',
Transportation Research Record: Journal of the Transportation Research
Board, No. 2187, Transportation Research Board of the National
Academies, Washington, D.C., 2010, pp. 131-37, at 131-32.
Researchers have identified several barriers to achieving a
critical mass of ridesharing participants: safety concerns;
lack of comfort with technology; a preference for other modes
of transportation such as conventional carpooling programs; and
a basic lack of awareness of dynamic ridesharing programs.
Study results found that major obstacles, however, appear to be
a lack of perceived incentives such as savings in costs and
time and a fear that a ridematch will not be available, leaving
potential ridesharers stranded on the return commute.\10\
---------------------------------------------------------------------------
\10\ Id.
With the recent introduction of mobile, location-based
services and real-time matching capabilities, there is a
historic opportunity to accelerate the broad-based adoption of
ridesharing, thereby producing large-scale public benefits.
Regulatory frameworks and enforcement, having already long
supported ridesharing goals, should support, not hinder, this
opportunity.
Testimony of Alan Mond
CEO of 1000 Tools Inc
House Committee on Small Business
``The Power of Connection: Peer-to-Peer Businesses''
Wednesday, January 15, 2014
Chairman Graves, Ranking Member Velazquez and members of
the committee, I am Alan Mond, CEO of 1000 Tools, and I'm very
grateful for the opportunity to speak with you regarding our
peer-to-peer sharing business.
1000 Tools is an online platform that enables people to
rent tools from each other. Our latest product allows local
governments to rent underutilized equipment to one another,
which we'll get to in a minute. We are based in Ann Arbor,
Michigan and it is an honor for me to be here today.
I come from a family of tinkerers and the idea for 1000
Tools came when I had to replace the timing belt on my 1995
Ford Probe. I had the willingness to do it myself, but not the
right tools for the job. My solutions at the time were to:
buy the tools outright - expensive and
clutters your living space
borrow from friends - don't' have the right
tools, can erode friendship
So I thought:
1. Does anyone else have this problem?
2. Wouldn't it be nice if I could access a large
network of tools to rent on a short term basis?
We built 1000tools.com and launched June 2013 to test this
hypothesis. Our website offers a secure interface for tool
renters to pay with a credit card and tool owners to get funded
via direct deposit. Prices are set by the tool owner, competing
directly against established tool rental stores. Tool exchange
happens locally, in person - no shipping required.
1000 Tools provides Americans the opportunity to become
micro-entrepreneurs using assets they already own. This new
generation of collaborative consumers and micro-entrepreneurs
live in an ecosystem called the sharing economy and it has
crossed the chasm into mainstream adoption. As an example,
Airbnb, the online marketplace for listing and booking short-
term housing accommodations, announced in June 2012 they
reached their 10 millionth booking. This competes head to head
against the largest hotel chains in the country.
Most of our users are early adopters, who have participated
in other areas of the sharing economy. However, concerns about
liability and property damage are still predominant barriers to
mass adoption. Additionally, there are very few insurance
companies that are familiar with this type of exposure to offer
liability insurance for micro-entrepreneurs.
Due to the nature of our rental transaction technology, we
decided to search for a customer segment which would already
have liability covered by insurance. This is when we found a
really interesting niche.
3 months ago, we started focusing on local government
equipment sharing. After interviewing 30 municipalities in the
southeastern Michigan region, we discovered an incredible gap.
Large municipalities have expensive equipment that is
underutilized and small municipalities tend to rent at a high
premium rate instead of purchasing equipment. I interviewed 30
city managers about their equipment needs, and 70% were very
eager to try out a prototype.
With this information in hand, we retooled our existing
technology to cater to municipalities, and created MuniRent.
MuniRent allows different levels of local government to rent
out equipment to each other.
Some may ask why aren't municipalities dong this already?
As with most areas of local government, resources are limited.
It takes a lot of resources for a municipality to set up a
rental agreement and maintain some sort of catalog, let alone
keep track of invoicing, hours, maintenance records, etc. We
provide a vetted round-table agreement between the different
municipalities and handle all the details, including insurance
verification, payment and invoicing. All of this is available
through an easy-to-use website and mobile app.
Our journey began by building a peer-to-peer tool rental
marketplace. We now look forward to welcoming municipalities as
the newest members of the brave new sharing economy.
Written Testimony of Philip Auerswald
Associate Professor of Public Policy
George Mason University
U.S. House Committee Small Business
United States House of Representatives
January 15, 2014
Chairman Graves, Ranking Member Velazquez, Members of the
Committee, I appreciate the opportunity to share with you this
afternoon some thoughts on the economic context for peer-to-
peer business models.
In 1988, a quarter century ago, I drove a stranger's Nissan
Sentra from Washington, DC, to Seattle, WA. In the process I
earned $250, with the added bonus of moving both myself and my
stuff across the country. The vehicle's owner made out well
too; she got her car transported 3,000 miles for less money
than she would have had to pay for a commercial service, and
certainly at a lower opportunity cost of time than she would
have incurred if she drove the care herself.
Peer-to-peer. Win-win.
This personal anecdote is intended to support my first
point, which is that peer-to-peer businesses were around long
before the Internet. Indeed, there was a time in this country
and elsewhere in the world (roughly until the end of the 19th
century) when the peer-to-peer economy was the economy. Large
corporations providing consumer services simply did not exist.
Regulation governing consumer services was minimal. People
provided services on a personal basis to other people who were
very much like them. There were no call centers, no focus
groups or strategic planning retreats. The archetypal
entrepreneur hung up a shingle on Main Street. While not to be
taken literally, this image correctly reflects a world in which
barriers to entrepreneurial entry were very low.
Markets in the 19th century and earlier were not the
anonymous and abstract entities they sometimes appear to be
today. They were physical spaces where people met to exchange
items that, in many cases, they themselves had created or
harvested. This of course is what markets are fundamentally
about: realizing the productive possibilities of people.
At its human core, then, the peer-to-peer or ``sharing''
economy is not a new phenomenon. Were Alexis de Tocqueville to
write about the United States of today he likely would see a
distinctly American character in the peer-to-peer businesses
such as Sidecar and 1000Tools. The question is, therefore,
whether there is anything fundamentally new about the sorts of
peer-to-peer businesses that have been proliferating in the
past five years. The answer is yes. The difference between the
past and the present is the platforms over which people find
one another, conclude transactions, and establish reputations.
The triad of revolutions in computation, communications,
and algorithmic power that have unfolded over the past half-
century have, as we have been hearing, dramatically lowered the
costs of finding the provider of a service, assessing their
reliability, and concluding a contract to engage their
services.\1\ Two decades ago, the first Internet commerce
companies brought consumer markets into new ``virtual'' spaces.
Companies like eBay and Amazon (via Amazon Marketplace) made it
newly possible for regular folks to find and exchange goods
across large distances. Peer-to-peer businesses employ the same
sort of powerful platforms to enable the exchange of services.
Since services make up more than 84% of the economy, this is a
big deal.
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\1\ Butler, Patrick, Ted W. Hall, Alistair M. Hanna, Lenny
Mendonca, Byron Auguste, James Manyika, and Anupam Sahay, ``A
Revolution in Interaction,'' McKinsey Quarterly no. 1 (1997): 4-23.
My colleague Lisa Gansky, author of The Mesh and cofounder
of the photo-sharing site Ofoto, illustrates the popularity of
peer-to-peer business models by comparing the Intercontinental
Hotel chain with the room-sharing site Airbnb. Intercontinental
Hotels have been around for 62 years, and they have an
inventory of 650,000 hotel rooms of which they own 100%. In
contrast, Airbnb has been around for five years and has an
inventory of 500,000 listings, of which it owns 0%. This means
that Airbnb has unlocked latent assets comparable to 62 years
of cumulative investment within the corporate world, and it has
done so with essentially no capital outlay beyond its
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investment in the platform itself.
In 1988, when I took the trip in the Nissan Sentra to which
I alluded at the outset, the costs of finding a car-sharing
match were sufficiently large that the relevant peer-to-peer
services were limited to trips across the country. Today, costs
have dropped to the point that using peer-to-peer car-sharing
services makes sense for trips across town or down the street.
Participants in peer-to-peer marketplaces are clearly drawn
by the straightforward gains from trade that are made possible
by lower search and transactions costs. Simply put, buyers pay
less than they would without the service, and sellers earn
more--if only because they often would not be able to bring
their service to market without the peer-to-peer platform.\2\
Furthermore, buyers have access to previously unavailable
options in the marketplace, while sellers have opportunities to
diversify their sources of income and increase their financial
resilience.
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\2\ See, for example, Etsy, ``Redefining Entrepreneurship: Etsy
Sellers' Economic Impact'' (2010), https://www.etsy.com/blog/news/
files/2013/11/Etsy--Redefining-
Entrepreneurship--November-2013.pdf
Buyers and sellers alike also report deriving a
Tocquevillian satisfaction from participating in such
markets.\3\ They enjoy exchanging services on peer-to-peer
platforms not just for the pecuniary benefits they derive but
also for the sense of connectedness they experience with others
in a community. In some cases these communities are
geographically defined, in others they are organized by areas
of interest. Such connections themselves have economic value,
as informal relationships built across social and geographical
boundaries create what sociologists have come to term ``weak
ties,'' which can materially enhance the success of
entrepreneurial ventures and other collaborative
undertakings.\4\
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\3\ See, for example, Sonari Glinton, ``For Ridesharing Apps Like
Lyft, Commerce Is A Community,'' National Public Radio: All Tech
Considered (2013). http://www.npr.org/blogs/alltechconsidered/2013/11/
14/245242805/for-ridesharing-apps-like-lyft-commerce-is-a-community
\4\ Granovetter, Mark S. ``The Strength of Weak Ties,'' American
Journal of Sociology 78, no. 6 (May 1, 1973): 1360-1380.
Of course, new business models that gain market acceptance
almost invariably invite challenges from incumbents. New peer-
to-peer businesses are no exception. Wherever peer-to-peer
platforms have gained traction across the country, regulatory
challenges have followed. Invoking regulatory equity, for
example, taxi drivers have sought to slow the growth of car-
and ride-sharing services like Sidecar. Invoking consumer
safety and production, hotel and restaurant owners,
respectively, have sought to slow the growth of room-sharing
services like Airbnb and the proliferation of food trucks in
urban areas that has been accelerated by ratings platforms such
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as Yelp. These, of course, are largely local issues.
So what does all this mean for the formulation of policy at
the federal level?
From the standpoint of the United States Congress, the
peer-to-peer business models that matter are the ones we've not
yet seen.
It is instructive to ask ourselves why we are focused today
on local transportation, hospitality, food service, and the
rental of consumer goods as the most significant domains of
innovation in peer-to-peer business models. The reason,
arguably, is that these are industries in which regulatory
complexity is relative low. In contrast, there has been
relatively little innovation of peer-to-peer business models
within healthcare, energy, and education, where regulatory
complexity is relatively high. These three industries together
comprise more than a quarter of U.S. GDP. The greatest
macroeconomic impact of peer-to-peer business models for the
United States thus will be realized when we have established
the training, certification, licensing, and auditing mechanisms
at all levels of government that allow neighbors to earn their
livelihoods by taking care of neighbors, and by providing power
to their communities and offering validated, work-relevant
training to people anywhere who seek expanded opportunities.
In more general terms, the bottom line is this: shared
prosperity requires not only innovations that scale-up to
create new wealth but also innovations that scale-out to create
new opportunities.
Let me be very clear on this point. Much of my own work, as
well as important research conducted over the past decade at
the Kauffman Foundation in Kansas City with which I have been
affiliated, is about the value to society of scale-up
innovation--particularly via new entrepreneurial entrants. This
research has demonstrated that the small proportion of new
ventures that scale-up rapidly are responsible for a
disproportionate share of value creation in the economy.
But here's the problem we've run into: while some scale-ups
create a large number of new jobs, many do not. Companies like
Apple, Google, Facebook, Instagram, and Twitter have all
achieved valuations in the tens and even hundreds of billions
of dollars, but they directly employ far fewer people per
dollar of revenue than their Fortune 500 counterparts did a
generation ago.
This is where peer-to-peer platforms come into play. By
their very structure, peer-to-peer platforms scale-out success
to reach tens of thousands, even hundreds of thousands, of
people with opportunities to create viable livelihoods for
themselves. They create new and enticing invitations to latent
producers within the economy to employ their individual assets
\5\ and talents \6\ to create new economic value.
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\5\ See, for example, Lyft, Sidecar, and Airbnb.
\6\ See, for example, Task Rabbit, Zaarly, and Mealku.
The significance of peer-to-peer business models thus is
not effectively measured by adding up the share of GDP they
represent in terms of monetized transactions. These innovations
in work are rushing in at the fringes of the advanced economies
to fill the void left behind as large corporations continue to
``lean up''--that is, to shrink their payrolls by employing
algorithms and machines to perform routine tasks previously
performed by people. As Gansky puts it, ``We're in a period of
exploration. While we might be looking at a relatively small
magnitude of overall economic activity now in the peer-to-peer
economy, it's happening at a time when all the tried-and-true
industries are going through significant transformations.''
Steven Straus, former managing director of the Center for
Economic Transformation at the New York City Economic
Development Corporation, looks at the same phenomenon from the
standpoint of service providers: ``We currently have about
three job seekers for every available job and 11 million people
looking for work--so the growth of the sharing economy isn't
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surprising.''
In the coming decades, the United States and other advanced
industrialized economies will no sooner return to the
routinized, manufacturing-centric economy of the 20th century
than to the agrarian economy that preceded it. The issue is not
whether new livelihoods based on peer-to-peer business models
are better or worse than the Industrial Age jobs that are
disappearing from large corporations. The real point is that
when jobs are eliminated in the process of digital disruption,
they will not be coming back in their old form. As that
happens, we humans have no choice but to fall back on our
fundamental social skill set: creating and sharing with one
another. There is, however, one big difference: unlike our
isolated ancestors of millennia past, Americans in this century
are empowered by architectures of collaboration that allow for
the creation of new and diverse livelihoods at unprecedented
rates. Therein lies the potential of today's peer-to-peer
economy.
WRITTEN TESTIMONY OF JOHN ZIMMER,
CO-FOUNDER OF LYFT, INC.
TO THE HOUSE COMMITTEE ON SMALL BUSINESS
``THE POWER OF CONNECTION: PEER-TO-PEER BUSINESSES''
JANUARY 15, 2014
Chairman Graves, Ranking Member Velazquez, and members of
the Committee, my name is John Zimmer, Co-founder and President
of Lyft, Inc., and I want to thank you for the opportunity to
submit these written comments about the peer-to-peer sharing
economy.
Before my Co-founder, Logan Green, and I came up with the
concept for Lyft, we were struck by a statistic that showed
that 80% of the seats in cars go unused everyday. We were
inspired to maximize the number of unused passenger seats by
creating a model that would incentivize ridesharing and make
the ridesharing experience safe, friendly, and efficient. The
greatest challenge to making this a reality is developing a
model that creates a reliable base for critical mass. That
model is Lyft, and since the beginning of 2013, we have
expanded to 20 new markets and shared over one million rides.
Our story is only one of many that show how ubiquitous the
sharing economy has become, and how peer-to-peer platforms can
maximize existing resources. In just a few short years, the
sharing economy has become a $350 billion industry with over
100 million participants. Cities worldwide are looking to the
peer economy to drive sustainability, affordability, and local
economic activity. Trailblazers like Mayor Ed Lee in San
Francisco and Mayor Greg Ballard in Indianapolis are leading
the push for safe and innovative consumer choices for products
and services that are needed and used everyday. These leaders
also recognize the economic benefits of a free and fair market
that embraces this innovation as an economic driver for their
community. They know that towns and cities with active sharing
economies are more favorable places for people to live,
commute, and even start a company.
As is often the case with innovation, government must now
identify its role in this conversation. The Federal Trade
Commission (FTC) has recognized the value and consumer benefits
of the sharing economy, and ridesharing networks in particular.
The FTC has demonstrated their belief that state and local
jurisdictions should not enact protectionist and anti-
competitive laws around the emerging ridesharing industry. They
have sent letters to municipalities and state agencies
advocating for an open market and pro-business policies while
still addressing public safety and consumer protection.
This is the type of leadership we need from our Federal
government. We need the Federal government to encourage state
and local governments to embrace innovation, and to look past
powerful special interests that seek to stymie the sharing
economy's place in a fair and open market.
We believe that Congress, and this Committee in particular,
will play a critical role in shaping the future of the sharing
economy. In order to promote the innovation, entrepreneurship,
and economic development that go hand in hand wit the sharing
economy, state and federal legislators and regulators must do
their part in supporting and fostering this rapidly growing
segment of the economy.
Thank You,
Written Comments Submitted by John Zimmer, Co-founder and
President of Lyft, Inc.