What Happens When The Peer Economy Grows Up?

Every online marketplace expert will tell you: start with supply. It makes sense. If a new shop opens and there is nothing to buy in it, a customer is just going to leave — and probably won’t come back again.

But when a shopkeeper opens her store, she is willing to wait until customers start trickling in. The same works online. Founders should focus on developing their supply, and growing that inventory ahead of the demand. Those who take a different path do so at their own peril. But if you can reach liquidity, what Simon Rothman defines as the “reasonable expectation of selling something you list or finding what you’re looking for,” you’re in a great spot.

Over the last decade, a number of p2p marketplace business have finally started to reach liquidity. Of these, many have been met with an interesting challenge as they have grown: as the supply increases, and the services matures, the buyer comes to expect a certain level of quality and type of product from the marketplace. In keeping up with growing demand, business operators need to be more creative about injecting more quality supply into their marketplaces.

Sometimes, this has great results. AirBnB hired hotelier Chip Conley to help design a concierge experience that all AirBnB hosts would be trained in, so as to make the demand experience uniformly high-quality. Lending Club used very creative financial jujitsu to securitize the loans for the supply, so that more institutional capital would be attracted to the platform.

But just as often, the pressure to aggressively grow the supply brings forth challenges. Over the past couple of months, Etsy has been criticized for allowing resellers, copyright infringers, and stores on the supply side, which makes for a more liquid demand experience, but is harmful to the sellers and hurts the spirit of peer-to-peer. AirBnB has had to carefully consider its policy around property managers, but there are plenty of cases of people who are effectively operating as property managers on AirBnB, taking valuable housing supply out of the long-term market. I’ve heard more and more stories of Uber drivers who don’t own their black cars, but are leasing them from other Uber drivers, who are now running cab fleets using the Uber platform.

None of this is bad, per se. Etsy has taken a lot of heat, but the demand-side user experience on Etsy has never been better, so it’s clearly a double-edged sword. And Etsy responded to the criticism transparently and admirably. One thing seems clear from all of these examples, though: the promise of a pure peer-to-peer platform at scale is a very challenging proposition. eBay has stores of all types on the supply side, and many people buy items new from retailers on eBay now, rather than used from strangers and friends. Craigslist seems, anecdotally, to be purer. One wonders if that is because the company has done very little to scale the platform.

We are invested in a number of marketplaces at Collaborative Fund, and we strongly believe in a peer-powered economy so we have to think deeply about these issues. Kickstarter curates their projects very heavily, and Lyft famously has the most rigorous driver vetting process among any livery or ridesharing services. It seems that the pressure to grow quickly is what brings along this challenge. And perhaps one of Kickstarter and Lyft’s great strengths, while both are growing very quickly, is to stay disciplined about their supply.

The peer economy unlocks economic activity in incredibly efficient and empowering ways, but marketplaces are fragile. And the temptation to scale platforms and maximize profit too quickly can lead to unintended results.

Discuss on our subreddit.