networked commerce

Trust and the rise of networked commerce

Most people would agree that the web has had a profound impact on the way we do business. However, in many ways the web has just become another channel to support traditional commercial business models; that is, individuals trading with global retailers and brands. The next evolution of commerce will be the escalation of trade between one individual and another facilitated through the power of the network. There is just one missing ingredient: an authentic and reliable measure of individual trust.

The arrival of the web has flattened hierarchies and disrupted distribution. It enables people with similar interests to connect directly and to share. The first major example of this behavior was the arrival of peer-to-peer software that turned the music industry on its head. Peer-to-peer software allows two people to connect via the internet, regardless of location, and download files from each other’s computers. Ignoring the economics for a moment, this is a much more cost-effective and convenient way of browsing, discovering, sharing, and listening to music than the bricks and mortar retail model that existed before. Although commonly associated with illegal file sharing, the peer-to-peer model is at the heart of the emerging sharing economy and networked commerce (look at eBay, for example). The question is how to take this networked peer-to-peer approach to business and make it work in non-digital environments? In addition, how do we facilitate these transactions with the same level of trust we would expect from trading with big global brands that invest heavily in building trust with their customers? There are two approaches with really exciting start-ups that are beginning to facilitate this kind of networked commerce.

The institution as an enabler

Firstly, there is the changing nature of the institution. Instead of selling direct to the individual, the institution acts as an enabler between two parties wishing to trade or share their skills or belongings. Chief Scientist at Salesforce, JP Rangaswami, said in his talk at Nesta’s FutureFest this year that:

“The business model started shifting from the institution to the individual and the individual became the buyer and the seller …and an exchange type model evolved. The institution became the enabler, the platform, a place where these things could happen and get exposed in ways that make sense.”

What he argues is that the nature of the institution is changing to help to better manage the ‘flows’ of information and resource. He provides a great example of a company called FlightCar, self-described as the ‘first peer-to-peer car-sharing company’. Instead of buying huge volumes of fleet cars for multiple airport locations, the company recognizes that there is already a huge supply of cars sitting in car parks doing nothing.

FlightCar has created a central place for individuals to register their cars for rental and, in return, it takes a cut of the earnings or obtains a very significant discount on a car rental at their destination. The company manages the flow of vehicles in a much more efficient way and at the same time creates extra value by utilizing an under-used resource. FlightCar recognizes the importance of trust in this kind of business model and so offers guarantees on car return dates and cleanliness. It also insures each vehicle up to the value of US$1 million. In this instance, the evolved institution acting as an enabler in networked commerce acts as the agent of trust.

Digital trust identifier

The second networked commerce solution is to build a measure of trust that individuals can use as a badge of endorsement every time they look to trade with someone they do not know. This is similar to the rating model used by eBay but is more open to uses outside of eBay. Why do we need this? Well consider this scenario:

Mr. Smith is running an open communal house where anyone can share tenancy as a place of short-term residence. A room can be rented out for a reasonable fee on the understanding that they will be sharing the rest of the house with other people who are not known to them.

How likely are you to take Mr. Smith up on his idea of communal residence? Who is Mr. Smith and what is the house like? Who else is staying there and will I be safe? For most people, this proposition is unlikely to be that attractive. If you re-frame this scenario in the context of renting a room in a well-known hotel, the proposition becomes a whole lot more appealing. Why? Because of recognition, familiarity and trust – attributes that are associated generally with the concept of hotels and the money and longevity invested in that particular hotel brand. Mr. Smith’s room rental idea is typical of the types of services available through the sharing economy, which will only become a reality if supported by an indicator of reputation and trust.

There are services being developed like TrustCloud that provide services to “measure your virtuous online behaviors and transactions to build a portable TrustScore you can easily use within the Sharing Economy”. Digital identity is becoming an increasingly talked-about concept because of its importance in enhancing what is feasible online. In a previous post, I talked about how Eastern European countries were leading the way in developing services that would authenticate who you are. Services like TrustCloud and Connect.me look to give others a sense of what you’re good at and how trustworthy you are. Therefore, in this instance trust is established through the verification of an individual’s identity and other people’s experience of dealing with that person. Even though these new networked business models and trust verification services are in their infancy, they are emerging quickly and will impact on existing business and marketing models.

Marketing models will become increasingly location-centric to connect the dots between over-supply and latent demand more effectively which will help to boost local economies and reduce wastage. Equally, businesses most likely to benefit or to face disruption are those where there are inefficient flows of information or resource. Where there is under-occupancy or utilization of resource (for example hotel rooms, restaurants, or even the workplace) there will be latent demand somewhere for this resource. The networked business model will simply join the two together.

As we see the proliferation of peer-to-peer and sharing business models, a new type of value exchange will be created for individuals and branded platforms to deliver new digital products and services. However, trust will become the currency of acceptance that will enable unknown parties to connect via the network and interact with confidence.

This was first published for GfK’s TechTalk magazine

Image: Martin Ezequiel Sanchez

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The emergence of networked commerce and a new wave of business models | >>Fast Forwardreply
March 31, 2014 at 08:03 AM

[…] to focus on creating platforms that enable people to trade or share with other people. In a recent blog post I discussed JP Rangaswami’s view that new business opportunities can be exploited by managing […]

The emergence of networked commerce and a new wave of business models | >>FastForwardreply
October 02, 2014 at 10:10 PM

[…] to focus on creating platforms that enable people to trade or share with other people. In a recent blog post I discussed JP Rangaswami’s view that new business opportunities can be exploited by managing […]

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