Consumer-to-consumer business before the advent of the Internet: the flea market.
A couple of days ago my girlfriend was visiting me from Kraków, a city 400km away from Budapest, where I live. She used the ride sharing platform BlaBlaCar to get here and back, in order to save on gas and reduce her environmental footprint. Bla Bla What?
BlaBlaCar was started a few years ago as a consumer-to-consumer platform for sharing rides. Drivers can post a ride they’re planning to make on the website, and passengers can ‘book’ a seat in their car in exchange for paying a share of the gas. In theory this is a great system, as it reduces the number of cars needed, and allows people to meet fellow-travellers to their destination.
The consumer-to-consumer (C2C) business model (or online marketplace)
BlaBlaCar is one of a growing number of consumer-to-consumer (C2C) businesses. Or to be more precise, it’s a platform facilitating C2C business, since in its very nature C2C business is a many-to-many relationship. BlaBlaCar joins the ranks of other C2C platforms like Airbnb (apartment rental), Uber (taxi services), and Amazon Marketplace (anything you can think of). These businesses, also called online marketplaces all have a similar model: they bring together supply and demand from consumer to consumer, and take a cut from the revenue if a transaction is made.
Airbnb, one of the most succesful consumer-to-consumer businesses of the moment (Image: Yuko Honda, copyright, modified, CC 2.0 license)
In theory, a consumer-to-consumer marketplace is fantastic phenomenon that adds great value, for two reasons:
- Use of excess capacity. If you’re not using your flat because you’re travelling to South-America for a month, the cost of subletting through Airbnb it would be very low to you. You’re paying rent anyway, and provided you can find a reliable tenant who doesn’t trash the place and leaves it clean, any income you can make from subletting it is more than you would have gotten if you had just left your flat vacant. This is very different from a hotel or holiday apartment, which has to be built for the specific purpose of short-term rental. Using otherwise unused capacity adds value to the economy.
- Saving on overhead costs. Running a business can involve significant overhead costs that come with scale: a front office, administration, buildings, finance, and management, to name a few. If there happens to be one consumer who can provide a service to another at just the right place and just the right time, that limits overhead costs by a lot. You can view the online marketplace itself as overhead, but that is significantly less than that of a traditional business.
In practice, we see that many online marketplaces also attract conventional business-to-consumer (B2C) enterprises. Airbnb now has plenty of bed & breakfasts, guesthouses, and vacation rental companies offering their services through the platform. Uber employs a number of professional taxi drivers. And plenty of electronics stores have their own store front on the Amazon Marketplace. These companies are not on the marketplace because they have excess capacity. They may save some overhead costs if they operate exclusively through C2C platforms. But primarily they view the platform as an additional sales channel to bring them extra business.
The BlaBlaCar driver with whom my girlfriend travelled belonged to that group. He owned a large van that could seat 8, which he normally used for his touring business. When business was slow, he’d post possible trips on the BlaBlaCar platform, and waited to see if any attracted enough customers to make it worth his while. If so, he’d make the drive, earning a nice hourly rate (by local standards).
The psychological difference between B2C and C2C
Is the prescence of commercial players on online marketplaces a problem? At first you might say it isn’t. After all, it just means you have more service offers to choose from. And if their prices aren’t as competitive as that of true consumer-to-consumer participants (because there’s no excess capacity and overhead isn’t eliminated), that just puts them at a disadvantage on the marketplace. No real value is lost.
But there are important differences between B2C transactions and C2C transactions. These differences have to do with the concepts that behavioral economist Dan Ariely calls market values and social values. Market values are the implicit rules and assumptions governing a market transaction such as the purchase at a store or the stay in a hotel. As a consumer you are expected to pay the agreed amount within a certain time frame. As a business you are expected to deliver the agreed good or service in a timely and professional manner, and provide warranty if necessary.
Social values on the other hand govern the domain of friendships, favors, and informal dealings. If your friend offers to drive you to the airport and bails out on the last moment because he has a date, you may think he’s an asshole. But you wouldn’t expect him to pay for alternative transportation, and you certainly wouldn’t sue him for breach of contract. If someone screws you over on a favor it may harm the friendship, and you probably won’t trust that someone again, but that’s the end of it.
Sometimes it is obvious to what realm a transaction or relationship belongs. If you go and buy something at a store, the transaction is clearly governed by market values. If your friend asks you to watch his cat while he’s away for a weekend, social values clearly apply. But what about if you’re selling your old TV second hand at a bargain price? Intuitively I’d say we’re still dealing with market values, but it’s not as obvious. What if your friend asks you to help her promote the hair salon she just opened, and rewards you with a free haircut? I’d call that a favor, even though your friend is running a business and you’re getting something in return. But we’re getting into a grey area.
What if that same friend asks you to help out by filling in for the receptionist who called in sick, offering to pay you the receptionist’s salary? This one’s really on the edge. Does it really matter to which domain a transaction belongs? I think so, because the (implicit) rules that govern each domain are wildly different. Think about what would happen if you show up late for your impromptu receptionist job? Can your friend legitimately be angry with you, or even withhold pay? What if you slip and break your wrist while ‘on the job’? Should your friend be held liable for the hospital costs? If you go for dinner with your entrepreneur friend at the end of the ‘work day’, do you expect her to pick up the tab? Not knowing what values govern a relationship can put you in murky waters, and potentially lead to big arguments.
The murky waters of BlaBlaCar
One girl had to look for alternative means of transportation… (Image: Teppo Moisio, copyright, modified, CC 2.0 license)
This problem became apparent when my girlfriend went to the rendez-vous point for the drive back to Kraków. The driver had apparently made a mistake, and overbooked his car for the journey. One of the people who had booked a ride could not go. The driver didn’t know how to handle the issue, so he told the last girl to show up that the car was full. She was left standing on the parking lot. The other passengers felt uncomfortable about the situation, but obviously didn’t want to give up their own seat either.
The trouble here is that it is not clear which values apply to the BlaBlaCar deal. If social values apply, the driver arguably was a klutz, and not to be trusted again, but the girl left behind should just shrug it off and find different transportation. If market values apply, a contract had been created by the offer and acceptance of transportation in exchange for payment, and the seller was obligated to make the situation right. For example, he could have paid for alternative transportation, or for a hotel and offer to take the girl next day. That’s how things work in the business world (and why prices are often high there).
It’s on BlaBlaCar to make clear what the nature of their platform is. In their T&C they clearly state: “The Services may not be used to offer or accept car sharing for profit or in any commercial or professional context. Drivers may not profit from any Trip.” At the same time these terms are not enforced, and drivers are allowed to charge prices commensurate with commercial bus services. By failing to act decisively in one direction or the other, the platform allows its murky status to continue.
It’s a challenge for any C2C business to decide where it falls on the social-market spectrum, and to clearly shape the values and expectations that come with the service. Uber is an example of a consumer-to-consumer business that has taken the commercial road, and customers know they can expect a business-like treatment. BeWelcome.org is an example of a not-for-profit hospitality platform that actively rejects any commercial encroachment onto its marketplace. I’m curious to see where BlaBlaCar will land. What do you think? Let me know in the comments below.
Hey Martin,
Interesting blog post.
I agree that there are different kinds of transactions, and that they are governed by different – written or unwritten – rules. I wonder however, why you feel it is the responsibility or challenge of a c2c marketplace to determine their position on your “social market spectrum”. In my opinion, it is much easier to leave it to the parties that take part in a transaction to determine what realm that transaction belongs to.
If someone promises me to bring me to the airport, and bails out at the last second, there is a breach of contract. It is up to me how to respond to it. If the person bailing on me was a commercial limousine service, I would almost certainly claim (and ultimately sue) for damages. If he was a friend who promised me a favor, I would almost certainly do no such thing.
Suppose I buy something on marktplaats.nl and I receive a damaged product. Why would I need marktplaats to tell me how to react? I think it’s much easier to all of us to just let out reaction depend on who the other party is, not what platform mediated the transaction.
Cheers,
Rien
@Rien: Thanks for your comment. You are right that an online marketplace doesn’t have to set rules for the conduct of its users. Ultimately there is the law that sets the background rules for all transactions.
But people use C2C businesses with certain expectations, and it leaves a bad taste if you don’t get what you expected, even if that expectation wasn’t justified. I believe that one success factor for C2C businesses (or any business for that matter) is how well they manage expectations.
A secondary reason is that many people don’t know the applicable law to their transactions, nor do they know how to write up a contract when offering a service for consideration. An online platform has the power to set terms that are part of the contract between its users. That both protects and empowers users, which I think is a good thing.
I think Uber passes off as dealing with market values because the end result is effectively a professional-level service by drivers looking to make a profit. But a good deal of that result is due to users expressing their satisfaction/discontent after the transaction and seeing that their feedback triggers certain actions within the Uber environment (i.e. drivers get compensated/suspended), which can be extrapolated to a social environment where after getting ‘screwd’ by a friend and sharing your bad experience within your common social network might result in some form of apprehension from the group towards said friend.
I suppose the beauty of the C2C platforms is allowing a mixture of market and social values to emerge. After all what I want to feel when getting on the blabla ride is the familiarity we get from perceiving that in the long run all involved in the relation are ‘winning’ in equal measure.
@Lucas: You raise a very interesting point with the feedback loop. I think that loop is part of both business and social transactions. A restaurant that keeps getting bad reviews will eventually go out of business. And a friend who keeps standing you up after agreeing to go out will find themselves without many friends left.
What is special about C2C businesses or marketplaces is that they create a structure for this feedback loop. Where originally you’d have to find feedback on consumer reports or in travel guides or by asking friends, on platforms like Uber and Airbnb you can see exactly what other users think about a service offered. And that disciplines businesses not to give bad service… and maybe social contacts not to behave like assholes.