Peer-to-Peer Business Models: Good for Some, Not So Good for Others

eer-to-Peer business models are hot.The idea was that if you only
use a power saw or a high-end camera once or twice
a year, why buy one if your next-door neighbor has
exactly what you need and would be willing to rent it
to you for a modest fee.The failures include BlackJet, a service that
matched the owners of private jets with people who
wanted a seat on a private jet for a trip, Ridejoy, a car-
pooling service, and Neighborrow.com, a service that
allowed people to list household items for rent, such
as vacuum cleaners, tools, and food mixers.Sam Altman, president of Y
Combinator, a start-up accelerator, was quoted in a Wall

 

Street Journal article saying aEURoeWeaEURre bullish on the sharing
economy (a catchall term for peer-to-peer businesses),
and we'll definitely make more investment in it.aEUR?On the surface, BlackJet, Ridejoy, and
Neighborrow.com seem very similar to Airbnb, Uber, and
Lyft in that they matched people wanting a particular
service with someone willing to offer it.

BlackJetaEURs basic premise was that once a person
joined the service, s/he could book a seat on a private
jet within minutes for a ride to a desired location.The
success of Airbnb, Uber, Lyft, and others has captured
the attention of investors, who are generally bullish on
the peer-to-peer concept.Instead of paying Ridejoy
its 10 percent transaction fee for a trip from Portland to
San Francisco, for example, the car owner and riders
would just exchange cash among each other instead
of paying by credit card on RidejoyaEURs website or mobile
app.Relying to some degree on smartphone technol-
ogyaEURs capabilities, Lyft and Uber match people who need
a ride with people who are willing to provide rides.For
those seeking rides, BlackJet charged a $2,500 yearly
membership fee and up to $4,000 per ride.Anyone can book a first-class seat on
an airline and ride in relative luxury, without having to pay
a yearly membership fee.Neighborrow.com would let people list household
items for rent, such as vacuum cleaners, cameras,
tools, and electronics.Airbnb, Uber,

and Lyft, three of the most successful firms in the

peer-to-peer business model space, are growing
and are worth hundreds of millions of dollars.Ridejoy was a carpooling service that focused on
connecting people that wanted to share rides for long
distances, such as Los Angeles to San Francisco.During its first year, 2011, its
user base grew about 30 percent a month, with more
than 25,000 drivers signed up and an estimated 10,000
rides completed.Peer-to-
peer businesses act as matchmaker between individuals
with a service to offer and others who want the service.In addition, it had competition from free
alternatives, such as carpooling forums on college web-
sites.The site got plently of public-

 

ity when it launched, including a story in USA Today
and a spot on NBCaEURs early morning program, the Today
Show.The

 

idea was that BlackJet would sign up a large number
of owners of private jets, who would let BlackJet know
when they were making a trip.In addition, a private jet ride
isnaEURt something people need frequently, so BlackJet
wasnaEURt an option that was foremost on peopleaEURs minds.said Howard Morgan, co-founder of
First Round Capital, in the same Wall Street Journal ar-
ticle mentioned above.Further compounding BlackJetaEURs
challenge, there are readily available substitutes for
BlackJetaEURs service.Lyft
and Uber, mentioned earlier, focus on short rides.Ridejoy shut down in the summer of 2013, returning
about half of its funding to its investors.Airbnb, for example, matches people who are look-
ing for a place to stay (for a day or two or longer) with
people who have an extra room that theyaEURre willing to

 

rent.If a seat was open on the
jet, it would be made available to a BlackJet member
who was looking for a ride to the same destination.Ridejoy
experiened early success.But it didnaEURt grow fast enough to satisfy

 

its investors.Also, some riders started cutting Ridejoy out once
they got to know one another.In addition,
borrowing an item such as a power drill isnaEURt typically
an urgent need, so people didnaEURt tend to think aEURoeOh, |Although
they may have read about the company in USA Today
or seen it featured on television, they soon forgot about
the service.Neighborrow.com folded in 2011, after a
five-year runDespite the promise of the peer-to-peer business
model, several high-profile peer-to-peer business have
failed.As it turned
out, there just werenaEURt enough people willing to pay that
stiff of a fee for the service.aEURoeIf you have to reacquire the customer every six months,
theyaEURll forget you,aEUR?BlackJet closed in late 2013,
after only about a year in service.It also had thousands of people sign up and
list their items.What the company eventually found
is that people donaEURt like borrowing things.could get that through Neighborrow.com.aEUR?So, what
went wrong?The problem: very few people actually
used the service.