June 11th, 2012

The Peer-to-Peer Universe

There’s an incredibly large and tragically unsexy opportunity hidden in all the excitement around consumer-facing “collaborative consumption”: the massive opportunity it presents for enterprise-scale logistics-driven industries like shipping, big box retail, energy and agriculture.

The same principles that apply to “Hey I have a snowblower, extra bedroom, car, desk in my office, or Chanel bag that I don’t use all the time and can rent in off-hours” apply equally well to the four industries listed above. Technology will allow farmers to connect directly with consumers to sell food and allow anyone with a car to become a one-person Fedex in the same way that AirBNB has made everyone a hotelier.

I like to think about it as distributed economies of scale. Previously, achieving economies of scale meant crippling up-front investment: warehouses, hubs, trucks, storefronts, employees, etc. Selling one frying pan costs a lot, but every additional pan sold costs you less.

We all took economics.

Yet the rise of web and mobile technologies has created an opportunity to eliminate so many of the costly steps before the actual sale happens. Up-front investment required is smaller and the economic benefits received from achieving scale come much more quickly because the risk/costs are shared amongst the entire network instead of taking on the entire burden yourself.

At some point someone made the assumption that consumers shouldn’t have to share the burden and are willing to pay more for that. I am not so sure that is true anymore.

While naysayers will point out that the theory won’t hold up for physical goods in the same way it has digitally, I am optimistic. Yes, the belief in such a system requires a rosy outlook on human nature – that the members of any given network won’t ruin the system for everyone. But just as Fedex trains its drivers not to steal packages, I think these emerging P2P systems will first learn some hard lessons and then construct incentive systems that punish bad behavior to the point where it just isn’t worth it. There will always be outliers, just like there are within the existing system.

In some ways the early successes of model suggest that we are at the very, very beginning of an emerging peer-to-peer world. Music to files to bedrooms to, soon, ALL THE THINGS. With properly constructed software, a suburban block can be Target, Costco, UPS, Exxon, and Whole Foods. Whether this will actually lead to more jobs or more efficient consumption or a better world is TBD.