Pass the Mug, Please

Ten years ago, the notion of sharing a ride with strangers in an unknown vehicle was taboo. Wearing clothes that someone else had already worn was only for the less fortunate. And allowing strangers into one’s unattended home was positively unheard of.

Yet, in today’s ever-connected world, an amazing number of consumers of varying ages and wealth are paying for services of the likes of Uber, Lyft, and Airbnb. In fact, this type of activity has become mainstream.

The rise of the “Access Economy” as told through the origins of Airbnb:

The year was 2008. Two young gentlemen, Brian Chesky and Joe Gebbia, were struggling to pay their San Francisco rent (apparently the two had missed the memo on rent-controlled units). They noticed that all surrounding hotels were booked, and a light bulb went off – Brian and Joe bought a couple of airbeds, published a website called “Air Bed and Breakfast”, and charged $80 per night for visitors to stay on air mattresses in their apartment. Somehow, they had two takers. Shortly after, a man named Nathan Blecharczyk joined Brian and Joe in these endeavors, just in time for the trio to launch a new website. The website went live just before the 2008 Democratic National Convention, and the blossoming “company” was hopeful that Obama supporters would offer their homes to other Obama supporters. Somewhat surprisingly, 600 people stayed at Air Bed and Breakfast’s for the Convention, although perhaps out of lodging desperation as the success halted just as quickly as it had started. Just one week later, Air Bed and Breakfast was again stagnant. In a real-life example of social proof at its finest, nobody wanted to be first. Nobody wanted to be the first person to stay in a stranger’s home as a repeatable practice, nobody wanted to be the first to offer their home to strangers, and with no homes posted on the website, website visitors ceased to browse.

The reaction from bystanders? Terrible at best.

“People are doing this? What’s wrong with them?” – Paul Graham, Co-Founder of Y Combinator.

“This is typical echo-chamber thinking. If this ever becomes mainstream, the whole thing will come crashing down. The kind of people that DO rob, abuse and murder people will start using these systems and that will spread legitimate fear, corrupting the whole thing. Pray that this remains underground, that’s the only way it can survive.” – TechCrunch.

Here’s Co-Founder Chesky on Airbnb’s shaky start:

In summary, investors were not biting. At all. Airbnb had absolutely no funding, but instead over $40,000 in debt. The Airbnb founders (who happened to have graduated from prestigious schools of Design) decided to take matters into their own hands and began designing and selling very expensive cereal boxes to raise funding for their company, again attempting to capture the audience of the political sphere.

capn-mccain_featured

Air Bed and Breakfast raised $30,000 selling Obama-O’s and Cap’n McCains, at $40 a box. Yes, you read that correctly. They sent these cereal boxes to hundreds of tech startups, hoping someone might be impressed. And someone was.

Paul Graham, Co-Founder of Y Combinator, thought if the trio could convince someone to pay $40 for cereal, they could likely convince people to pay to sleep in strangers’ homes. Alas, Airbnb was welcomed into Y Combinator where it raised an additional $20,000, using the money to travel to New York to meet bigtime investors. The three were making a meager $200 a week at this time. View here a great blog post by Fred Wilson of venture capital firm Union Square Ventures on his missed Airbnb opportunity.

After two slow years and many “no’s”, Airbnb finally took off with it’s first year of large funding ($7.2 million) in 2010. A global phenomenon was born.

Airbnb is far from perfect. There have been a few documented negative experiences of theft, although Airbnb offers 1 million in theft protection for hosts. Moreover, use of Airbnb is illegal or limited to certain homeowners in massive cities such as New York, Barcelona, Paris, and California due to the crippling effect on the hotel industry and the over-inflated surge of housing prices due to homeowners paying more than they can afford for housing and making up the difference through Airbnb rentals. If you are thinking to yourself how can this be as you’ve stayed in an Airbnb in one of these cities, this is because an enormous number of people are still using Airbnb illegally in the banned cities.

Nonetheless, it is worth noting the following: Despite its flaws, Airbnb, once worth $20,000, is today worth an estimated $25.5 billion with over 2 million listings in over 190 countries and 34,000 cities. Social proof works in both ways.

If we share our houses, can we also share our coffee mugs?

In Boulder, Colorado, a new startup has emerged.

It’s name? Vessel Works. It’s mission? “To bring transparency to the impact of your everyday choices. Vessel helps you to ditch throw away culture by providing communities with a superior option to avoid single use disposables.” Vessel strives to replace the 58 billion cups that live for eternity in landfill each year in the U.S. alone.

It’s time for sustainability to come down from the ivory tower and hit the streets. – Vessel Works

Vessel Works offers a free reusable stainless steel insulated coffee cup service for participating cafes and customers – essentially, a library book for coffee. As a user, one will enter a café with a “Vessel” sign, use his/her Vessel app to confirm check out, receive the ordered drink in a Vessel, enjoy the drink throughout the day and then, once finished, return the Vessel at any return kiosk or participating café. Similar to the Tesla concept only truly working in places where Superchargers are abundant and convenient, the Vessel concept will need convenient and many cafes to truly take off.

Does the reusable cup concept actually work?

The notion of the reusable cup is not new. Starbucks has offered a bring-your-own-cup discount for two decades, but fewer than 2% of consumers actually participate. The research shows that consumers do not like reusable cups because of the need to carry around a messy mug all day, only to clean a sticky mess later at night. This is precisely why Vessel is allowing users to rid of their coffee mugs as soon as they are finished, removing the burden of cleaning from users.

Europe has proven the concept. Germany has emerged as a leader in the “mug share space,” initiated by coffee roaster El Rojito’s Refill It! program in Hamburg. Refill It! was met with such enthusiasm that the city no longer offers disposable cups. Another such example is the “Freiburg Cup,” sponsored by the city of Frieberg, Germany who paid the bill for the cups and returnable bins for a large network of cafes. Prior to these efforts, Germany estimated a whopping 3 billion disposable cups used per year. About 30% of customers in Freiburg are using the cup, the major hurdle being the cup only comes in one size, which isn’t enough coffee for the avid coffee drinker’s morning fix. I suspect a jumbo-size Freiburg Cup is in Germany’s future.

The jury is still out as to whether or not the U.S. can follow Europe’s lead. In 2014, New York City attempted a similar experiment through a startup called “Good to Go,” which did not make progress beyond it’s initial pilot. New York City at the time made the decision not to fund the startup because of their belief that this was a private sector initiative. Good to Go fell by the wayside.

This begs the important question of what specific incentives are required to ignite a mindshift change among U.S. consumers and U.S. governments, assuming said minds are malleable in the first place.

The Sharing Economy Isn’t About Sharing at All…

Economists and environmentalists have coined the phrase the sharing economy to describe the Airbnb and Uber era. And indeed – we are sharing. We are sharing our homes, our cars, our clothes, our coffee mugs and tomorrow’s options of potential shared goods and services is vast. However, in an excellent Harvard Business Review (HBR) article titled The Sharing Economy Isn’t About Sharing at All, Eckhardt and Bardi posit the following:

It (the so-called sharing economy) has disrupted mature industries, such as hotels and automotives, by providing consumers with convenient and cost efficient access to resources without the financial, emotional, or social burdens of ownership. But the sharing economy isn’t really a ‘sharing’ economy at all; it’s an access economy.

When sharing is market-mediated – when a company is an intermediary between consumers who don’t know each other – it is no longer sharing at all. Rather, consumers are paying to access someone else’s goods or services for a particular period of time. It is an economic exchange, and consumers are after utilitarian, rather than social, value.

Accepting that we are living in an access economy, rather than a shared economy, has vital implications for companies attempting to compete. This insight implies that consumers are more interested in convenience and lower costs than they are in engaging in social relationships with the company or other consumers. Consider the last time you used Uber or Airbnb. Did you choose an Uber pool because you were looking forward to a conversation with strangers on your ride? When looking for an Airbnb did you intentionally choose a single room instead of an entire house in hopes of having riveting conversations with fellow unknown travelers? The data tells us for most people the answers are no and no.

HBR further suggests that Airbnb’s recent rebranding “people, places, love and community” is a mistake, and that there are three key elements of success for companies to truly survive in our access economy:

  1. Access is not the same as ownership. Yet, ownership has long been embedded into our business strategies. Consider countless marketing campaigns that tell us we should buy certain brands because they are “us”. When consumers can access many brands at once, the sense of identity and connection with any one brand is lost. Therefore, attempting to connect a community of consumers around an access economy is a failing business model. Consider Uber and Airbnb: do you feel connected, or similar in identity, to other Uber and/or Airbnb users? Again, the answers for most are no and no.
  2. Companies that emphasize convenience and cost savings, rather than connections, will win.
  3. A market mediator – an Airbnb or an Uber – is vital to facilitate access. One example of a failed pursuit by a start-up attempting to eliminate the market mediator is Eatro, a London-based company trying to convince consumers to pay for food cooked by other consumers. Eatro quickly learned that the absence of a market mediator destroys trust and consequently the business evolved into One Fine Meal, allowing consumers to order through a platform (market mediator) delivered meals prepared by professional chefs.

In short, the widespread belief is that the sharing economy is a mismanaged message perpetuated by the media. We are not actually sharing for the common good when we are profit-driven and seeking payment. And, for the most part, we are not actually buying goods for the sense of community, but rather for low costs and convenience. The term sharing economy actually originates back to the early 2000’s when tech coders would release programs to the world for free. Since, businesses and journalists alike have latched on to the phrase, often coupling it with terms like “collaborative consumption.” In any case, whether one prefers to define 21st century business practices as sharing or access or some other term, its important for competing market players to understand the myriad of incentives that are, and will continue to be, important for consumers.

Looking Ahead:

As Gen Z takes the mainstage, it is interesting to ponder about what will be next in our access economy. It seems that trust is only deepening through the generations, while privacy is becoming less important. I have heard many a millennial say they have “given up on privacy.” Will future generations take the access economy too far? Will there be a tipping point for community-accessed goods and services such that trust becomes destroyed? Let’s hope not. Sure, the access economy might be profit-driven. But, so what? The implications for resource efficiency are vast. Imagine if companies like Vessel actually could replace the trillions of cups that are polluting our landfills. Imagine the carbon savings if Uber and Lyft become so reliable that people give up their gas-guzzlers. The list goes on.

So, the next time you’re in Chicago and craving caffeine, make sure to go to a participating Vessel café. We are all part of the solution.

Categories Company Case Studies

1 thought on “Pass the Mug, Please

  1. Nice post. Could you comment please on the health issues.
    Uber may be saving lives by eliminating drunk driving particularly in young males. But sharing cups, how are the cleaned?

    Like

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