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Platforms, Blockchains, and the Evolution of Trust

Friday, September 8, 2017
Irving Wladawsky-Berger

"In primitive economies, people traded mostly with members of their village and community,” wrote David Brooks in a June, 2014 NY Times OpEd — The Evolution of Trust. “Trust was face-to-face. Then, in the mass economy we’ve been used to, people bought from large and stable corporate brands, whose behavior was made more reliable by government regulation. But now there is a new trust calculus, powered by both social and economic forces.”

Brooks’ article focused on the rise of the on-demand economy — aka, the collaborative, sharing, peer-to-peer economy — and in particular on the surprising success of Airbnb. Rooms for rent in boarding houses and child and pet-care services are nothing new. What’s new is the impact of technology, platforms, and blockchain in particular, on the growing on-demand economy. Companies are being disrupted as consumers are now able to deal with each other bypassing traditional hotels and taxi services. All kinds of on-demand products and services are now coming to market.

The on-demand economy wouldn’t be possible without the mobile devices and platforms that enable peer-to-peer transactions among individuals any time and place; the digital payment systems that reliably and securely broker the transactions between buyers and sellers; and the social reputation systems, where people rank buyers and sellers — a critical requirement for the smooth functioning of collaborative markets like Airbnb.

In the digital economy, our online reputations follow us everywhere, whether we are the renters or the ones renting, the service providers or the service consumers.

The competitive advantage of on-demand companies is their ability to aggregate lots of resources from their suppliers and integrate them with the trust needed to attract customers.

The classic hotels business is based on integrating property with trust, that is, the rooms they make available to customers with the trust created through their brand and reputation that attracts customers to come stay in the hotel. Trust has been the hotel’s key barrier to entry for individual competitors with rooms to let.

Shifting the Dynamic

Airbnb and similar companies have totally shifted this dynamic, however. Lodgings have now been commoditized. Airbnb offers more than 3 million listings in over 65,000 cities in almost 200 countries around the world. Its competitive advantage is its Internet-based reputation systems for trust between hosts and guests, based on the ratings of over 200 million guests. By integrating its reservation and trust management systems, Airbnb has been able to achieve an extraordinary global scale in less than a decade.

Despite its original grass-roots nature, the on-demand economy is now mostly owned by venture capitalists and other investors. New firms continue to enter the market in segment after segment, bringing together consumers and providers of goods and services with their highly scalable platforms and innovative applications. This new class of on-demand companies rely on freelance workers and asset providers instead of on a classic company workforce and assets.

Should we bemoan the fact that some of these on-demand startups have joined the ranks of billion-dollar unicorns, or should we just accept that this is the way capitalism has always worked and celebrate their innovative business models?

As this 2015 Financial Times article noted, on-demand communities “have been delving deep into what it means to be running a collaborative business model within a capitalist framework. Are the two even compatible? Or is there a fundamental conflict at the heart of an industry that preaches collaboration but, due to being radically commercialized by venture capital money from Silicon Valley, also needs to profiteer from the goodwill of others if it’s to remain viable?”

 

Continue reading the full blog on Medium here.