The Next New Economy
At half past three in the morning, Alec Johnson rolls out of bed, puts on his Metro Transit uniform, and walks a block to one of Nice Ride’s bike sharing stations in the Seward neighborhood. He unlocks a neon green bike and pedals down the Midtown Greenway, a former railroad corridor in Minneapolis that now holds biking and walking paths, to 32nd Street and Nicollet Avenue. After docking the bike at another nearby Nice Ride station, he pulls a bus out of the Nicollet Garage and starts his first shift.
Here’s the catch: Johnson’s shift ends at the Uptown Transit Station, one-and-a-half miles from where he started. During the previous six years, this meant that Johnson would have to find a way back to Nicollet Garage after a long day’s work. But today, he can simply use his smartphone to locate a nearby Nice Ride station, unlock a bike, and pedal home.
“I was never really that into biking,” admits the thirty-two-year-old Twin Cities native, “but I find Nice Ride appealing because I can ride somewhere, leave the bike, and plan an alternate way of getting home. It’s not uncommon for me to use Nice Ride a few times a day, mixed in with a bus ride or two.” Getting around is a juggling act for a one-car family with two kids in daycare, but Johnson credits the green bikes for making the daily grind that much easier. “Bike sharing has revolutionized my life. I don’t know how I lived without it.”
Alec is not alone. At the end of 2012, Nice Ride had 1,325 bikes in circulation at 145 stations across the Twin Cities. And there are more to come. According to Mitch Vars, the program’s I.T. director, another expansion is in the works for 2013. “Nice Ride is growing much more quickly than I think any of us would have anticipated,” he says. Given the difficulties of operating a bike-share service in weather-challenged Minnesota, that’s no small feat.
But Nice Ride is just one example. According to a recent national consumer study commissioned by Campbell Mithun, 60 percent of respondents find the concept of sharing appealing, while 71 percent who already use “shareable” goods expect to continue.
The sharing economy leverages the power of online social networks and smartphones to provide a new way for old business models to thrive. No longer just the stuff of pioneer villages and hippie communes, everyday people are sharing, lending, trading, bartering, and swapping goods via peer-to-peer exchanges instead of owning them—and disrupting outdated patterns of consumer behavior at the same time, whether they know it or not. It’s a cultural shift that builds trust between strangers. And it’s an economic revolution where access has become more important, and more fashionable, than ownership. The sharing phenomenon is turning the traditional business model on its head across sectors from transportation to hotels and tourism, and everything in between.
This ‘new old’ way of doing business allows us to live more efficiently by cutting out all the stuff we don’t need, or seldom use. Why own something that often sits idle when you can rent it for brief periods of time instead? Netflix, for example, first improved access to DVDs through home delivery, then through online streaming. Today it has made the practice of owning DVDs nearly obsolete. What’s more, by crunching data on our viewing patterns, the company can make highly personalized suggestions about shows we might not find on our own.
The Minneapolis-based company SOPHIA recognized the peer-to-peer potential for education in 2010. At the time, SOPHIA was the only online platform talking about social education, despite the fact that “the rest of the world had been on social media making experiences much more interactive, personalized, transparent, and engaging,” says Allison Gage, SOPHIA’s senior vice president. The creators of SOPHIA took advantage of these consumer behaviors by building a free platform for people to teach “bite-sized concepts” using a mixture of video, text, audio, and slideshows.
Today SOPHIA has more than 30,000 tutorials and 375,000 monthly users. Even Mayo Clinic shares lessons about gallbladder removal. People are learning surgical processes where others go to brush up on their Spanish. “We no longer have to define social learning. We’ve shown what it is and now it has taken on a life of its own,” Gage says as she describes SOPHIA’s evolution and growth at an impressive rate of 15 to 20 percent a month.
Big companies like Netflix and SOPHIA are transforming industries, but on a smaller, yet no less forceful scale, the sharing economy is empowering a new class of micro-preneurs to create more wealth using assets they already own. In California, drivers can easily fill their cars with paying passengers using Lyft’s on-demand ridesharing app. An unused driveway or garage in the U.K. suddenly produces income via ParkatmyHouse. Homeowners bring in extra cash on Airbnb by allowing travelers to crash in bedrooms worldwide. And Lending Club’s peer-to-peer platform helps borrowers pay lower rates and investors receive better returns, a concept that earned the company a spot on Forbes’ list of “America’s Most Promising Companies” in 2012 and 2013.
In the past, a traditional sharing arrangement might only take place between friends or neighbors who already know one another. Today, these new sharing-based services formalize relatively safe and efficient exchanges between strangers, where online connectivity leads to enhanced offline interaction. As a result, the value of trust is skyrocketing.
In her recent TED Talk, Rachel Botsman, the social innovator and author who coined the idea of collaborative consumption in her book What’s Mine is Yours: The Rise of Collaborative Consumption, suggests that trust is the currency of the sharing economy and that our online reputations will become a tool for measuring trustability. If Botsman is right, then the new Minneapolis-based company Heroic, an online platform for free recommendations, may have made a very timely entrance.
Only two weeks after launching, the platform had already gained five hundred active users who sign on through Facebook to discover trusted recommendations from friends. Dan Linstroth and his business partner Justin Barrett founded Heroic to create an efficient way to connect customers to small business owners, the “heroes” of our communities. Now users can discover trusted service providers in categories from fitness to home maintenance to weddings and events and more.
“What sets Heroic apart is that our service is both free to use, and it helps you find referrals from people you know and trust, as opposed to reviews from strangers,” Linstroth says. While it’s likely that many of us will refer to the recommendation of a stranger at some point in time, a friend’s endorsement carries its weight in gold. According to a recent Nielson report, 92 percent of global consumers say they trust recommendations from family and friends above all other forms of advertising.
Not all activity in the sharing economy depends on high-tech tools or online social networks the way Heroic does. Neighborhood clothing swaps, land sharing, shared tool sheds, and coworking spaces are also experiencing a resurgence fueled by the triple drivers of a tough economy, a more ecologically minded population, and a desire for stronger communities. Take CoCo, for example, a coworking community with two offices in the Twin Cities that offer a home to about 450 coworkers.
“When I first heard about coworking, I was instantly drawn to it,” says Don Ball, CoCo’s founding partner. “It was the cultural aspect that I found so appealing, the idea of a ‘mutual-aid’ society. Everybody was boosting each other’s projects, which was really unusual. It was an abundance mentality rather than a scarcity mentality.” CoCo’s space in Minneapolis, located in the Grain Exchange building, challenges coworkers on the old trading floor to exist within two worlds: the historic grain exchange, which promoted fair trade in the late 1800s when wheat was king, and the progressive hub for entrepreneurs that CoCo is today. With such a unique setting, it’s easy to assume that the space itself is the primary influence on membership, but Ball suggests otherwise: “The secret about CoCo is that it’s not about the space, and it’s not even about work. In the end, people come here for the community.” CoCo offers more than just the opportunity to get out of your home office. “It’s a place where you can be known, where you can be seen, and where you can be yourself,” Ball says. “People connect with you less about whatever you’re projecting or whatever you’re selling—the stuff that we were typically taught to do. You know, the attitude that you have to sell, sell, sell. That doesn’t work here. What works at CoCo is authenticity, openness, generosity. And people give back to you. It’s like you find yourself in others.”
Ball believes the coworking model has been successful in the Twin Cities, but he also acknowledges its challenges. “Culturally, I think personal space is a big thing for Midwesterners. Coworking flies in the face of that, but we’ve been able to publicly demonstrate that this is safe, productive, and really advantageous for business owners,” he says. Today CoCo receives frequent inquiries from big corporations wanting to learn about collaborative working models. Even though the Twin Cities seem to have a smaller community of people who are interested in coworking than the West Coast, where Ball first encountered the model, he believes the trend is catching on. “Something is shifting,” he says excitedly. “All sorts of people want collaborative culture to be part of their workplace.” In fact, Ball’s biggest surprise since opening CoCo’s doors has been who shows up: “To put it crudely, when we first started we thought that baby boomer stockbrokers wearing tassel loafers and ties would never fit in here. But some of those people showed up, and they surprised us by being awesome.”
Coworking is not the only form of space-sharing on the rise in the Twin Cities. Creative urban planners are also turning building owners on to the benefits of nontraditional rentals, especially in areas that could use a little boost.
Founded by a group of graduate students, The Starling Project aims to match owners of partially vacant buildings along University Avenue, specifically in areas affected by the Central Corridor Light Rail construction, with people looking for short-term “nesting” spaces. “Vacant properties in the Twin Cities are an underutilized resource,” says Kristen Murray, Starling’s resource coordinator. “If people can make use of that resource in nontraditional ways, through a short-term lease for example, I think we can all see it as a good thing.” But the challenge, she admits, lies in how to fill vacancies on terms that satisfy the interests of both property owners and prospective tenants.
Last spring, Starling had its first major success in connecting Jennifer Kensok to vacant space in the St. Paul Security Building, which became home to her popular pop-up art gallery, Art Du Nord, for six weeks. Since college, Kensok had always wanted to open a nontraditional gallery, and the short-term lease provided her with a low-risk opportunity to test her ideas: Could she sell low-priced work to nontraditional art buyers? Would she sell enough to support the space? Could she just plunk a gallery down—anywhere? Kensok’s optimism and can-do spirit certainly went a long way toward her success, but her efforts were also aided by the building manager’s support. “Peter Brown and I struck a good deal,” says Kensok. “I asked him to take down the carpet covering the walls, and in exchange, I painted the space white. I think he was really pleased with it.”
Kensok not only left the space more visually appealing than when she arrived, but throughout the course of her lease she also helped draw hundreds of people to the area and into the building. Kensok and Murray agree that Art Du Nord had a hand in bringing a sense of creativity and liveliness back into the neighborhood.
It’s easy to think of something like the sharing economy as a flash in the pan or a niche that only services the well-to-do, but more and more it’s proving to be capable of growing a community in a profound way while also creating staggering wealth. Forbes actually estimates that people will earn more than $3.5 billion this year through the sharing economy, with growth exceeding 25 percent. In today’s scrappy, post-recession atmosphere, these projections signal that the capacity for this movement to generate new economic opportunities is only just beginning.
With the global population expected to reach nine billion by mid-century and our supply of natural resources decreasing, it seems more important now than ever to find new solutions for curbing the waste inherent in modern consumerism. When we commit to owning less, sharing more, and capitalizing on the unused capacity of goods already in circulation, it’s better for all of us, and for the planet.
For a product or service to function in the sharing economy, it must have various essential qualities: durability, adjustability, “share-ability,” and a classic design. Rental systems and redistribution markets both require products that are made to last, will fit a variety of users, and won’t go out of style.
The Nice Ride bikes are a perfect example: sturdy and adjustable, they can fit all sorts of body types, and while they may not have the same trendy appeal as a custom fixie, their neon green color surely goes a long way in keeping riders safe. Not only that, but at its core, the program itself has been designed to keep a valuable resource from being underutilized. “Bike sharing has a pricing model to get people to keep the bike in their possession only when they’re riding it,” Mitch Vars says. “We don’t want people to check out a bike, go to work, and leave the bike leaning against an office wall all day. We want the bikes to be available for other users anytime they’re not being ridden.”
The program has seen tremendous growth, despite the challenges posed by the Twin Cities. But there is still room to grow. Vars compares the Twin Cities to Washington D.C., which has roughly three times as many rentals and riders. According to him, about 40 percent of people who live in the district don’t own a car, and the city has very expensive public transit and terrible traffic congestion. “Those are real drivers for usage,” he says—drivers that don’t exist in the Twin Cities. “We have to do a little more legwork to get people to feel like there’s a place for Nice Ride in their lives.” But Nice Ride’s efforts seem to be paying off: The service now sees an impressive average of 1,630 rides per day during the summer.
Similarly, the Twin Cities-based car-sharing service HOURCAR appears to be picking up speed, despite the nonprofit’s real concern in 2005 about the viability of car sharing in the cities. With thirty-nine cars scattered throughout Minneapolis and St. Paul, and thirty-one more on the way as a result of new funding from the McKnight Foundation and the Central Corridor Funders Collaborative, Christopher Bineham says, “the wonderful surprise has been how people have adopted car sharing and committed themselves to using it.” The service now has 1,900 users, a number that could grow by nearly 100 percent over the next eighteen months.
The Twin Cities’ relatively low population density remains one of the primary challenges for HOURCAR, says Bineham, alluding to the difficulty of placing a car in a location that offers a large number of residents convenient access to the vehicle. But on the other hand, he believes that same lack of density is one of the service’s greatest opportunities. Bineham says HOURCAR fills in the gaps in our growing public transit system for people who have opted to forgo car ownership. When a bus or bike ride doesn’t meet someone’s transit needs for the day, he or she can turn to car sharing.
What’s more, the service not only expands transit opportunities for residents, but also “creates all sorts of positive environmental impacts,” says Bineham, including “a reduction in demand for parking and traffic congestion.”
A nationwide survey of 6,200 car-sharing members by the UC Berkeley Transportation Sustainability Research Center found that car sharing does decrease the number of privately owned cars: For every vehicle in a car-share fleet, between nine and thirteen private vehicles are taken off the street. The researchers also noted that 80 percent of this shift results from single-car households opting to go car-free.
Reducing the number of privately owned cars in cities is not only an environmental boon, but also offers significant advantages to local economies. A study by the National Building Museum found that reduction in car ownership by 15,000 cars could lead to a reinvestment of $127 million in the local economy. Without a car, the study suggests people tend to do business closer to home, proving that some benefits of sharing-based businesses extend beyond individual users themselves.
Clearly the sharing economy will provide new opportunities for cities, but whether they will be able to capitalize on those opportunities is a separate question. In some cases, outdated regulatory frameworks will hold back innovation, and in others, new government policy may need to be developed.
Either way, it will be fascinating to see how cities—especially the Twin Cities—respond to new sharing-based businesses.
The California Public Utilities Commission (CPUC), for example, collided with Lyft, the ride-sharing service, when it issued cease-and-desist letters and fines of $20,000 in November 2012, accusing the company of operating as an unlicensed “charter-party” carrier. Lyft argued that it is a social network where drivers and riders connect—not a taxi service. In late January, Lyft finally struck a deal with the CPUC, which agreed to lift the fines and allow the company to move forward with its expansion from San Francisco to L.A.
Airbnb has also been fighting for legality in major world cities, including San Francisco, New York, London, and Paris. Each has its own unique jurisdiction, but in most cases, Airbnb hosts face possible violations for breaking rules related to illegal transient hotels.
Here in the Twin Cities, as reported by Jonah Newman in the last issue of this magazine, the Minneapolis Department of Regulatory Services shut down the popular monthly food swap called MPLS Swappers in November 2011. Similarly, current state regulation prevents the development of a peer-to-peer car sharing where people rent privately owned cars to each other rather than using an official service, says Christopher Bineham, the HOURCAR program manager.
But regular car sharing is one area where the City of Minneapolis will get in the sharing game. In February, the city issued a request for proposal for a two-year car-sharing pilot program that would help expand the service to more areas of the city and could allow car-share vehicles to be parked on the street instead of private lots. The goal of the program is to determine the feasibility of a self-sustaining, city-wide car-share program.
Local sharing efforts are ramping up, and if the Twin Cities want to remain relevant in the economy of the next century, investing in new business models—such as the pilot program—is essential.
Still, some critics argue that the sharing economy is a trend for slow economic times. Others have aptly pointed out the many possible areas of failure for new sharing-based businesses, including legality, safety, quality, value, and customer service. And of course the looming question is how these services can become more effective in reaching across lines of class and geography.
But whether the sharing economy is here to stay does not depend on the businesses alone. Political leaders of the Twin Cities have an opportunity to take their investment in the sharing economy a step further, supporting local efforts with policy and funding options that will build on the momentum we already have. Meanwhile, it’s encouraging to see entrepreneurs embrace the new model and drive innovation because they, like so many of us, believe that we can’t afford not to try.
This article is reprinted in partnership with thirty two, Minnesota’s forward-looking culture and ideas magazine with a literary edge.
This article has been corrected to accurately reflect the number of cars being added to the HOURCAR fleet. They are adding thirty-one cars, bringing the total to seventy.