2012-06-26

Co.Exist

The Potential For Pitfalls And Success In The Sharing Economy

It seems like every day sees the launch of another collaborative consumption startup. Today’s launch: Sidecar, which is akin to Uber with non-professional drivers. Are we really good enough people to be sharing everything?

In the past six months, I have stayed at a stranger’s apartment, crowdsourced the construction of my Ikea dresser, and taken numerous rides from people I never met before (including one where I feared for my safety). Like so many others, I have been participating in the growing sharing economy.

It sounds like something that a preschool teacher might dream up. But it’s a powerful idea—instead of encouraging consumers to buy more goods, sharing startups ask people to share what they already have and get paid in the process. There have been a handful of well-documented successes in the sector already, including short-term rental startup Airbnb, task outsourcing startup TaskRabbit, and peer-to-peer car-sharing startups like RelayRides and Getaround.

With so many successes, it’s not surprising that there is a flock of smaller startups angling to get in on the action. But in their haste to quickly scale up, these companies need to remember that sharing startups face challenges that more traditional companies don’t necessarily have to deal with.

Sidecar is one of the more promising sharing startups to emerge in recent months. The premise of the service, which is backed by investors including Spring Ventures, First Step Fund, and Mark Pincus, is simple, yet no one has tried it before: "community drivers" (they go through an extensive background check and interview process) are matched with people who need rides. The drivers use their own vehicles and are encouraged to think of Sidecar as a part-time gig—something to help offset their automobile costs, perhaps.

The app allows users to select their address and their destination, and nearby drivers can elect to take them on. An estimated time of arrival pops up on the screen so users know when the driver is coming. Passengers can talk to the driver on the phone to discuss details. At the end of the ride, passengers use the app to both rate the drivers on a one to five star scale and provide payment. Users don’t have to offer any money—the app provides a community average suggestion based on the distance of the ride—though they are encouraged to (Sidecar takes a 20% cut of every payment).

My first few experiences with the service, a San Francisco-based mobile ridesharing app that just launched in the Apple app store this week, didn’t go too well. I spent a few weeks testing out the app, which is approaching its 10,000th ride. At the time there were only a handful of drivers on the service. As a result, I ended up with the same driver—who didn’t know his way around San Francisco at all—on multiple occasions.

During one ride, the driver announced to everyone in the car: "Buckle up, because I’m a bad driver!" He then got lost (despite our directions) and came to a complete stop on a highway on-ramp, causing the vehicle behind us to nearly careen into the car. We never received an apology—or even an acknowledgement that the incident occurred.

It’s impossible for even the most diligent sharing startups to completely circumvent situations like this; Airbnb dealt with a user trashing someone’s home last year, and RelayRides recently had to navigate the tricky insurance situation of what happens when a RelayRides user crashes into another car and dies immediately. The sharing economy’s wildcard—its participants—just can’t entirely be controlled.

Sidecar, for its part, has a system in place to keep drivers from putting passengers in danger. "We do leverage the wisdom of the crowds. We look at ratings that passengers provide for drivers, and have booted several drivers out of the system. The driver also rates the passengers and we have removed or reprimanded passengers," says Sunil Paul, CEO of SideCar and founding partner of Spring Ventures. "We want this community to be one where people have confidence about who they’re getting in a car with. We’re leveraging social tools to ensure quality." And in fact, every experience I’ve had with SideCar outside of those initial rides has been great.

Still, the incident highlights some of the unique issues that sharing startups face. SideCar has already overcome a number of them. That voluntary payment system? It’s not in place simply because Sidecar wants to create more of a community feel, though that is part of the reasoning. It’s also because setting a price would violate transportation regulations, which require special licensing for vehicles for hire (like cabs).

So far, SideCar hasn’t encountered any resistance from the taxi industry, but entrenched industries have posed challenges for other startups. Airbnb has faced obstacles from the hotel lobby, and Washington D.C.'s taxi commission has accused black car startup Uber of operating illegally.

"All the sharing companies have this challenge of educating legislators and regulators about the benefits of this new way of organizing our economy," says Paul.

The problems faced by sharing startups inspired San Francisco, arguably the heart of this new economy, to create a Sharing Economy Working Group that aims to "take a comprehensive look at the economic benefits, innovative companies and emerging policy issues around the growing 'sharing economy.'"

Gabriel Metcalf, the executive director of the San Francisco Planning and Urban Research Association (SPUR) explains the need for the working group: "We’re witnessing the emergence of a new type of economic enterprise that does not fit easily into the old categories. When the automobile was first invented, it had to follow the rules of the road that had been designed for horses. There is always disjuncture between the regulations and the way people live, when new ways of doing things are invented. The point of the working group is to create a forum to discover how our economy is changing and what we can do to bring the regulations up to date to recognize those changes."

One of the trickiest aspects of the carsharing model, at least, has been taken care of by past sharing startups. AB 1871, a California law passed in 2010 that has since been copied in Oregon and Washington, protects car owners from being held liable for injury, damage, or death that occurs when another person is driving their vehicle (Paul sponsored the law). That’s why so many carsharing startups—like Getaround and Relayrides—originated in California.

In Sidecar’s model, vehicle owners drive their own cars, so their personal car insurance covers anything that happens during a trip. "AB 1871 was modeled on ridesharing [laws], so for the most part there’s not much that needs to change. But broadly speaking the existing regulation is fine more or less across the U.S.," says Paul. So Sidecar—which currently only operates in San Francisco—expects to expand elsewhere in the country this year.

Sidecar has a lot of potential. Without any concerted advertising efforts, the startup has managed to steadily grow and complete thousands of rides without incident (Paul won’t say how many drivers or passengers have passed through the service)—and the concept for the company only emerged about six months ago.

But Sidecar faces uncharted territory. There is no company like it. There is, however, a market for a service that offers easy access to rides with friendly drivers and flexible payment options. And while Sidecar may have faced serious trust issues among potential users if it launched a decade ago, many people today are more willing to trust strangers because of the trail blazed by companies like Airbnb. Then again, the technology required to make Sidecar viable wasn’t widespread enough 10 years ago anyway.

"We’re living in an era where technology allows us to do a lot more than what regulation ever anticipated," says Paul.