Problem: What WENT Wrong?

Peer-to-Peer Business Models: Good for Some, Not So Good for Others peer-to-Peer business models are hot. 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. Peer-topeer businesses act as matchmaker between individuals with a service to offer and others who want the service. Airbnb, for example, matches people who are looking for a place to stay (for a day or two or longer) with people who have an extra room that they're willing to rent. Relying to some degree on smartphone technology's capabilities, lyft and Uber match people who need a ride with people who are willing to provide rides. The success of Airbnb, Uber, lyft, and others has captured the attention of investors, who are generally bullish on the peer-to-peer concept. Sam Altman, president of Y Combinator, a start-up accelerator, was quoted in a Wall Street Journal article saying "We're bullish on the sharing economy (a catchall term for peer-to-peer businesses), and we'll definitely make more investment in it." Despite the promise of the peer-to-peer business model, several high-profile peer-to-peer business have failed. 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 carpooling service, and neighborrow.com, a service that allowed people to list household items for rent, such as vacuum cleaners, tools, and food mixers.

So, what went wrong? 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. BlackJet's 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 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. 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. for those seeking rides, BlackJet charged a $2,500 yearly membership fee and up to $4,000 per ride. As it turned out, there just weren't enough people willing to pay that stiff of a fee for the service. In addition, a private jet ride isn't something people need frequently, so BlackJet wasn't an option that was foremost on people's minds. "If you have to reacquire the customer every six months, they'll forget you," said Howard Morgan, co-founder of first Round Capital, in the same Wall Street Journal article mentioned above. further compounding BlackJet's challenge, there are readily available substitutes for BlackJet's service. Anyone can book a first-class seat on an airline and ride in relative luxury, without having to pay a yearly membership fee. BlackJet closed in late 2013, after only about a year in service.

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. lyft and Uber, mentioned earlier, focus on short rides. Ridejoy experiened early success. 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. But it didn't grow fast enough to satisfy its investors. In addition, it had competition from free alternatives, such as carpooling forums on college websites. Also, some riders started cutting Ridejoy out once they got to know one another. 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 Ridejoy's website or mobile app.

Ridejoy shut down in the summer of 2013, returning about half of its funding to its investors. neighborrow.com would let people list household items for rent, such as vacuum cleaners, cameras, tools, and electronics. 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 site got plently of publicity when it launched, including a story in USA today and a spot on nBC's early morning program, the today Show. It also had thousands of people sign up and list their items. The problem: very few people actually used the service. What the company eventually found is that people don't like borrowing things. In addition, borrowing an item such as a power drill isn't typically an urgent need, so people didn't tend to think "oh, I could get that through neighborrow.com." 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 run.

Questions for Critical Thinking

1. Prior to launching their firms, how could BlackJet, Ridejoy, and neighborrow.com have better anticipated the issues that ultimately caused them to fail?

2. In regard to putting together an effective business model, what can other peer-to-peer business model start-ups learn from the failures of BlackJet, Ridejoy, and neighborrow.com?

3. Spend some time looking at lyft, one of the successful peer-to-peer business model companies mentioned in this feature. Why do you think lyft has been successful while BlackJet, Ridejoy, and neighborrow.com failed?

4. What role do you think the industry that a start-up is in plays in its suceess or failure as a peer-to-peer business? Are some industries more receptive to peer to-peer business model start-ups than others? Explain your answers.