Lifestyle

Here are the keys to crack the code of the collaborative economy

Image Credit: Oran Viriyincy/Flickr

A lot of collaborative economy companies describe themselves as “the eBay of X.” Airbnb is the eBay of hotels. Lyft is the eBay of taxis. Prosper is the eBay of loans. The examples go on and on. It makes sense, because eBay was the first large company to wrestle with the unique challenges brought on by a collaborative marketplace. In fact, eBay alums are quite sought after in the sharing economy, because they have experience scaling a sharing model higher than any company has ever scaled it before.

If you read “The Perfect Store,” Adam Cohen’s history of the early days of eBay, it’s obvious that trust was a key issue from day one. People were skeptical that purchases they made on eBay would actually show up. Early eBay users asked themselves: Why would I send my money to some stranger on the hope that they will send me my item, and that it will be what they said it would be? Before eBay took off, it seemed foolish to think that it would work. Similar things are said all the time about sharing companies.

But the reality is, with billions of transactions in the last decade and a half, sellers on eBay have proven that they will do the right thing more than 99 percent of the time. From one angle, eBay can be considered the largest social psychology experiment in the world, testing Pierre Omidyar’s core contention: People are basically good.

However, with billions of transactions, even 1 percent is a lot of problems. Experience shows that somewhere between 1 and 3 percent of transactions will generate a problem, even when both sides are participating in good faith. And of course, a small slice of bad actors will intentionally try to take advantage of their transaction partners. Plenty of collaborative business models work great for the 99 percent of transactions where everything goes right, but fall apart for the 1 percent of transactions that generate an issue. That 1 percent can wreck your whole business if you don’t handle it correctly.

The collaborative economy is built on trust. If users aren’t confident they can get problems worked out efficiently and effectively, they will hold back on their participation. Sometimes a collaborative company can work really well in a small community, like an urban neighborhood, where trust is high among residents — but when less trusted outsiders join the marketplace, the system falls apart, and usage drops.

Industry-leading collaborative companies have understood this for years, and have invested heavily in trust and resolutions. For example, like eBay, Airbnb has an extensive reputation system to ensure that past performance as a host or guest is easily discoverable by future transaction partners. Elance has an advanced resolution process that tracks deliverables along pre-defined project milestones, and it identifies problems as soon as they arise, so they can be resolved more quickly and with less financial exposure.

The leading companies in online commerce and the sharing economy understand that trusted resolutions are essential, and they’ve invested tens of millions of dollars in resolution systems that can deliver efficient and effective solutions to their customers. The companies that have the best resolution processes are in most cases now the market leaders.

Newer collaborative economy companies often overlook the importance of resolution systems, or just presume that setting up a customer service line where users can file tickets will be adequate. Working each case manually may work when volumes are low, but as filings increase, the manual approach quickly falls apart, generating user frustration and delays.

Data drawn from eBay demonstrates that customer loyalty is driven by the problem-resolution experience. Users who have a positive-resolution experience are up to 15 percent more loyal to the site where the resolution occurs. As a result, effective resolutions must be a priority for any collaborative economy company. Every company needs a head of resolutions, dedicated to thinking about what problems users are encountering, and how to get those problems resolved. Every company needs an effective online resolution process, easily discoverable and simple to navigate. Hiding resolution processes may decrease filings in the near term, but the frustration it generates will prove toxic over time.

The collaborative economy requires efficient and effective resolutions in order to scale. As eBay demonstrated, trust is the key. The companies that understand that, and that learn from the experiences of eBay and others, will win in the long term.

Colin Rule, founder and chief operating officer of Modria, previously served as the first director of online dispute resolution at eBay and PayPal. Rule will be a featured keynote speaker at ODR14, coming to UC Hastings and Stanford Law Schools June 25-27.

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