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Trust and network effect most important success factors in sharing economy, concludes HEC Paris conference

8 June 2016

If you have a room in your house you want to let out on a short term basis or a car you wish to open up for others to drive, you are involved in what’s called the sharing economy.  A one-day conference at HEC Paris on May 20th on the subject concluded that for a sharing economy to work effectively there needs to be trust, and a network effect. But these take time to build up, according to the event’s organizer.

Trust and network effect most important success factors in sharing economy, concludes HEC Paris conference - HEC Paris 2016

BlaBlaCar, Airbnb, Uber – these are just some of the companies that make up the sharing economy, best described as a system facilitating the sharing of underused belongings or services (for free or for a fee) between individuals and organizations. A conference held at the HEC campus on the subject examined the challenges of setting up such a business and how it might be funded.

Many in the audience were entrepreneurs who were either looking to set up a company involved in the sharing economy, or in the process of doing so. Among them were the founders of Ooshoot, a website enabling users to commission photographers for a photoshoot. By inputting information like the number of photos they require, the type of photographer needed and budget, Ooshoot connects them with photographers in the area. HEC Paris students who set up Felix were also in the auditorium. The company provides a similar service to the taxi company Uber but for scooters with an app allowing users to source a two-wheeler and driver if they want to catch a ride somewhere fast.

 

The conference featured a number of presentations by companies linked to or involved in the sharing economy, including a talk by Nicolas Ferrary, country manager of Airbnb France. He outlined the tools needed for success in this industry. "The sharing economy is about trust, which is a new currency based on reputation," he said during his talk. Ferrary explained how it took Airbnb a few years to build traction with its business, which enables individuals to rent out rooms in their houses. "At one point the founders’ bank accounts were close to zero, as investors were weary," said Ferrary. However they eventually convinced investor Paul Graham to back their venture, impressing him with their recent sales of 1000 themed cereal boxes priced at 40 dollars each.

 

The trust they subsequently instilled in their customers led to the ‘network effect’, said Ferrary. Many people who stayed as guests in Airbnb properties would go home deciding to become hosts themselves. This, in turn, generated a chain reaction of people who became both renters and hosts – this became a crucial factor in making Airbnb successful.

But building this trust and laying the foundations for a start-up in the sharing economy is hard work, according to event organizer Jean-Rémi Gratadour. "When Airbnb started, they were approaching individuals through Craigslist in San Francisco and had to call on each user and convince them to go on the platform," he said after the conference finished. "This took a very long time and to build this network you have to work extremely hard to develop your platform," added Gratadour, who is in charge of development at the HEC Digital Center.

Gratadour was also impressed with Airbnb’s strategy to build trust. During his talk, Ferrary said that another way the accommodation company paved the way for more trust among its customers was to require all Airbnb users to send in a scan of their passport or other forms of identity so as to be verified. By putting in place this security measure, the firm lost 50 percent of sales, but this was ultimately worth it, according to Ferrary, as by doing so it instilled trust in users.

Following on from the Airbnb director’s presentation, the conference addressed the sharing economy’s impact on other businesses, like the hotel industry. French hotel group Accor’s Yves Lacheret outlined the group’s strategy to counter the rise of Airbnb and other sharing websites like tripping.com. By acquiring online home rental site Onefinestay, he said, it is modelling certain parts of its business model on Airbnb. "Although Airbnb is not a true competitor for Accor, it doesn’t want to be left on the sidelines of this huge trend [towards a sharing economy]", says Gratadour.

An important part of the puzzle when launching a start-up is funding and with the sharing economy this is no different. The conference therefore finished with a segment about crowdfunding, with a focus on raising money from a large number of people specifically to finance startups. This included a talk by WiSeed, with the speakers explaining that the sharing economy can also be a way to finance your own company. Wiseed looked for funding for its platform, which serves to invest in start-ups.

The HEC Digital Center, which was behind this event, brings together HEC’s partner companies interested in digital transformation. Through the Center, they are able to benefit from a network of other companies with whom they can discuss digital topics. They can also leverage HEC students to analyze and help them in their endeavors.   
 



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