The Social Challenges of Peer-To-Peer Markets

There’s no doubt that Uber was one of the standout tech companies of 2014. Another year of incredible growth led to a staggering valuation – but also brought with it a range of far more unsavoury stories, the stuff of nightmares for most brand consultants.

But is this ‘take no prisoners’ attitude a driver, or a side effect, of Uber’s success? Or, to put it another way – if an innovative business is hellbent on pursuing such an audacious goal of overpowering and dismantling established business models, will it fail unless it adopts this mentality? My instinct (along with many others) is no. As Peter Thiel points out, there’s a clear difference between pushing the envelope (in the way that another peer-to-peer innovator such as Airbnb does) and just going too far.

A couple of days ago, the FT ran an article that introduces a further important consideration to be dropped into the melting pot for those pursuing such strategies of creative destruction. It was sheer luck that I found it, shared as it was on Twitter. I rarely read the FT as a result of the paywall – that’s likely to change if they ever restructure the subscription model to permit Bitcoin micropayments per article like other innovators of course.

The growth of peer-to-peer marketplaces

In the article, Yochai Benkler argues that, in general, the progression towards peer-to-peer models should be applauded. As an authorLegal Professor for Entrepreneurial Legal Studies at Harvard Law School and wearer of many other hats, Benkler has been involved in some very interesting work over the years that’s worth investigating further (as you’d expect from someone who got a lifetime achievement award from Oxford University in recognition of his “extraordinary contribution to the study and public understanding of the Internet and information goods”).

Benkler starts by discussing the modern trend for employees to detach themselves from their corporate employers in order to simply offer their services to customers directly. The driver here is clearly technology. A combination of mobile computing and ubiquitous connectivity has enabled greater discoverability (uncovering previously hidden demand) and spurred innovation to find solutions that use resources more efficiently (simultaneously releasing more supply).

As this evolution into an on-demand (or more accurately collaborative) economy continues, we’re seeing peer-to-peer markets develop. Individuals are now competing directly with the same companies that used to employ them, providing services that are more tailored and often far cheaper.

Transfer of power includes transfer of risk

This is all positive stuff. But, as Benkler warns, there is something else transferring here which is often overlooked. Risk. Stability and equilibrium in our world is an unnatural state of affairs so companies have traditionally acted as a buffer for employees against the rollercoaster of enterprise inside a market economy.

The role of the market here is also essential. Whilst Adam Smith famously explained how the division of labour enabled people who collaborated by carrying out their own piece of specialised work to create more value collectively, there is an assumption that individuals have access to a marketplace. For example, you may be the best sock-folder known to man but you need two more things over and above that admittedly niche ability:

  1. someone who values your sock-folding skill highly enough to reward you with ‘money’; and
  2. a market in which you can exchange that ‘token’ for the things that you truly need and desire.

If neither exists, you’re likely to starve.

Decentralisation in a technology-driven marketplace

So we’re seeing technology uncover new markets. Yet according to Nobel prizewinning economist Ronald Coase, these peer-to-peer marketplaces come at a cost. In an argument well-known to many in the Bitcoin community, the total cost of decentralisation (i.e. P2P transactions) is often higher than centralisation. As a result, rather than simply having individuals transact throughout history, we’ve developed companies – because trying to find 360,000 specialist individuals who can each produce the required components of an aeroplane, for example, would be prohibitively costly, almost impossible to organise and result in an end product that no-one could protect or market.

However,  as with many established theories, modern technology provides a challenge. Rather than acting as an inhibiting factor on the scale of the project, the early years of the internet saw the rise of collaborative projects that resulted in projects that became significant in size and competitive with anything produced by a commercial entity. However, these projects were driven for reasons other than financial gain – Wikipedia and Linux, both created and maintained by a community providing their time and skills for free.

Price directs any collaborative marketplace (not social interactions)

And here lies the crux of Benkler’s argument. With no money involved, these projects could progress without arguments over how those profits should be split. Yet today, we are clearly entering into an age of massive collaboration in which motivation is clearly ‘for-profit’ as opposed to simply for the collective good of others, both within that community and beyond.

With P2P marketplaces, we will undoubtedly see increased efficiency in many cases. But with such a shift in power and risk, we can also expect to see a more pronounced social impact by virtue of the fact that many individuals lack the shelter of employment which provided some form of buffer during previous periods of high economic growth.

To use Benkler’s example, Wikipedia and Linux impacted the publishing and software industries respectively. These were sectors that contained, for the most part, well-educated and adequately remunerated individuals. However, the currently growth of the new on-demand economy is likely to have an impact across far deeper levels of society that enjoy significantly less financial security and lack the educational resources to defend themselves against the coming disruption.

The challenge of progress

As Charles Dickens was so keen to point out, there is a risk that significant economic growth can also bring with it societal inequality. As these new marketplaces evolve within our modern economy, the promise of financial returns will invariably influence the areas in which individuals focus their time and efforts. Benkler’s view believes that some entrepreneurs have already identified that this will result in certain consequences for others within society. But others, however, have not.

Which, in a way, brings this post back full-circle.

It’s easy to be won over by the promise of new technology and the ensuing gains in efficiency. But it’s equally important to ensure that we spend time considering the necessary rules and standards that we need to maintain and, importantly, improve the cohesion within society today as such advancements inevitably take place in the near future. Otherwise we risk alienation that can only be the detriment of increasing numbers.