Data-Smart Cities and the Sharing Economy

Nick Carney Grey

By Nick Carney • June 24, 2013

Much digital ink has been spilled about the rise of the “sharing economy.” One of the most recent articles can be found here from Boston Magazine’s Janelle Nanos. There’s plenty of fertile ground to discuss what this shift presages for the economy at large: as individuals move from the purchase of items that they use only once or twice, to instead renting those goods from neighbors and businesses, surely there will be some significant consequences for consumer demand, and therefore overall manufacturing, employment, and general productivity?

But for us, the most salient question is what this “collaborative consumerism” means for cities. Conveniently, the natural habitat of the sharing economy ­­­­is urban areas; after all, people are far more likely to hold off on purchasing a drill, a car, or a bicycle when they know that within a short distance of their house there are a large number of individuals who may be willing to rent out those goods. This is straight from economic theories of agglomeration—density makes exchange of information and goods easier and more likely.

But while it opens new doors for connectivity for consumers, collaborative consumerism may shut potential sources of information for governments and others attempting to improve city life through data analytics.

Yet even more relevant to this blog is the centrality of digital communication in this new economic model, and how that affects the efforts of cities seeking to become “data-smart.” The sharing economy model requires the ability of consumers to communicate quickly, and would be nigh impossible without the Internet and other telecommunications technologies. Imagine trying to make collaborative consumerism work via the classified section of a print newspaper, for instance—a much more difficult prospect than using a mobile app.

So for city governments looking to harness the data from this new collaborative consumerism, a pertinent question must be whether these model will be largely based on peer-to-peer exchanges, often facilitated by third parties such as RelayRides and GetAround, or instead consumers renting from businesses that specialize in directly providing the good needed, such as Zipcar (recently acquired by Avis). NYU Professor Arun Sundararajan suggests in the Harvard Business Review that ultimately the business model of a company like Zipcar is not fundamentally different from that of an old-school rental company like Avis: the company still has a “dedicated fleet, still inventory that the company has to acquire, manage and monetize,” while RelayRides and GetAround leverage an already extant supply of cars that people already own, meaning that they don’t face the inherent logistics issues of a traditional rental car company or Zipcar. The latter may be a gateway into the sharing economy for many people, he believes, but it is not the future.

If this prediction is correct, the sharing economy will dramatically increase the importance of those companies that offer a platform that efficiently, safely, and reliably connects and brokers the exchange of goods or services between two individuals. Furthermore, collaborative consumerism will fully depend on the quality and reliability of reviews of renters and rentees.

In short, the sharing economy will require an enormous amount of social capital and trust, and for the companies that operate in this space, that trust is invaluable and essential, perhaps even more so than for other companies working in the digital space.  Their reputations are worth their weight in gold.

So would Airbnb or RelayRides be willing to open their city data to governments or researchers? A company like Zipcar might be convinced to share its data for purposes of research or improvements in service provision if it can be assured that the identities of consumers will be protected. This is what has occurred in Côte d’Ivoire: mobile companies opened their data to researchers to map bus routes and determine the efficiency of the current system.

But the entire reputation of a firm like Airbnb will likely rest on how well they protect those elements of identity that people don’t want shared as they share goods with complete strangers. Customers may be understandably wary of the firms providing third parties with useful data, even with entities perceived to be relatively benign, such as local governments or university researchers.

This give and take over the privacy and availability of such data will certainly evolve over time, but the RelayRides and Airbnbs of the world will need to tread lightly in the interim; it seems likely that they will be inherently skittish about sharing customer information even for the purpose of improving city services.

As collaborative consumerism grows as a force, city dwellers will feel most benefit from new methods of economic exchange. But while it opens new doors for connectivity for consumers, it may shut potential sources of information for governments and others attempting to improve city life through data analytics. The balance between privacy and openness of data is not a new debate, but the sharing economy adds a new complicating ingredient to the mix. Residents, city governments, researchers, and businesses will need to work together to ensure that one new innovation does not undermine another.