The peer-to-peer (P2P) economy is one where buyers and sellers interact directly without the need for an intermediary third party or other business. The peer-to-peer economy is a business model where two individuals buy and sell products and services directly. In a peer-to-peer company, the seller has the ability to create the product or offer the service themselves.
Understanding a peer-to-peer economy
The peer-to-peer company is seen as an alternative to traditional capitalist markets, where businesses control goods production and own the finished product. These businesses act as intermediaries, employing workers to carry out the production process and then selling the finished goods to consumers.
It should be noted that a peer-to-peer economy can exist within a traditional capitalist market. For example, open-source software is sold alongside commercial and retail software. Uber operates in large cities with taxi companies, while several Airbnb properties may be available on the same block as a hotel. Many consider Uber and Airbnb to be operating in a quasi-peer-to-peer economy since each provides the intermediary service of payment processing. However, using a third party to provide this service is sometimes unavoidable and should not be used as the sole determinant of a peer-to-peer economy.
The growth of the peer-to-peer economy has been fuelled by the internet, mobile technologies, and tremendous advances in analytics, artificial intelligence, and big data. These factors have made transactions between individuals more accessible, efficient, and safe. Changing consumer preferences toward a sharing economy have also spawned multiple industries where intermediaries are simply no longer required.
Peer-to-peer economy platforms
In a peer-to-peer economy, various platforms connect buyer demand with seller supply.
These platforms are normally for-profit entities that provide payment services and mitigate the risk of the buyer failing to pay or the seller failing to deliver.
Examples of peer-to-peer platforms include:
Marketplaces – eBay, Etsy, Gumtree, and to a lesser extent Amazon.
Some platforms also incorporate aspects of the sharing economy, where peer-to-peer transactions enable online communities to acquire or provide shared access to goods and services. These communities utilize idle assets such as spare bedrooms or vehicles through fee-based sharing arrangements.
Sharing economy platforms have allowed the peer-to-peer economy to thrive. They include:
Fashion – such as Nuw, The Dress Change, Swap Society, Vinted, and ThredUp.
Freelancing – Fiverr, Upwork, Guru, Airtasker, and 99designs.
Accommodation – Airbnb, HomeToGo, Tripping, and VRBO.
Transportation – in the peer-to-peer sharing economy, this includes carpool service BlaBlaCar, storage and car parking platform Spacer, and car-sharing service Zipcar.
Software, knowledge, and media sharing – this includes Stack Overflow and educational platform Coursera.
Item sharing – where consumers share power drills (Toolmates), toys (Kindershare), and caravans and similar recreational vehicles (Camplify).
The evolution of the peer-to-peer economy
The peer-to-peer economy of today is similar to the environment that existed before the industrial revolution. During this time, most people worked either as subsistence farmers or artisans making hand-crafted goods.
However, the introduction of machinery created economic systems that afforded greater productivity and wealth through economies of scale. Once large-scale agriculture become widespread, wealthy individuals bought village land once used by subsistence farmers. This forced villagers to find new jobs with businesses in towns and cities, thereby creating an economy dominated by intermediaries which continues to this day.
Will the peer-to-peer economy once again become the status quo? The internet has certainly made it a more viable prospect, with the self-producer model of capitalism disruptive enough to have caught the attention of third-party intermediaries. These companies have invested heavily in making P2P transactions safer and more efficient for buyers and sellers, despite having no direct involvement in the economy itself. If nothing else, these investments strengthen the case for a peer-to-peer economy well into the future.
Peer-to-peer business model examples
A marketplace is a platform where buyers and sellers interact and transact. The platform acts as a marketplace that will generate revenues in fees from one or all the parties involved in the transaction. Usually, marketplaces can be classified in several ways, like those selling services vs. products or those connecting buyers and sellers at B2B, B2C, or C2C level. And those marketplaces connecting two core players, or more.In the food delivery business model companies leverage technology to build platforms that enable users to have the food delivered at home. This business model usually is set up as a platform and multi-sided marketplace, where the food delivery company makes money by charging commissions to the restaurant and to the customer. A two-sided marketplace is a platform business that connects two primary groups as it enables them to interact and transact within the platform. As an intermediary working to enable frictionless interactions and transactions on the platform, it will usually work as a government collecting a “tax” on both groups on the platform. Uber Eats is a three-sided marketplace connecting a driver, a restaurant owner and a customer with Uber Eats platform at the center. The three-sided marketplace moves around three players: Restaurants pay commission on the orders to Uber Eats; Customers pay the small delivery charges, and at times, cancellation fee; Drivers earn through making reliable deliveries on time.
Key takeaways:
The peer-to-peer (P2P) economy is one where buyers and sellers interact directly without the need for an intermediary third party or other business. The growth of the peer-to-peer economy has been fuelled by the internet, mobile technologies, analytics, artificial intelligence, and big data.
The peer-to-peer economy consists of various platforms which connect buyer demand with seller supply. These platforms are operated by third-party businesses, ostensibly to reduce the risk of the buyer not paying or the selling not delivering. Sharing economy platforms, where communities provide access to shared goods and resources, are also an important component of the peer-to-peer economy.
The peer-to-peer economy was prevalent before the industrial revolution, where most were employed as farmers or artisans. This changed with the introduction of farm machinery and economies of scale, but the peer-to-peer economy is making a comeback today and may become dominant once again.
An effective business model has to focus on two dimensions: the people dimension and the financial dimension. The people dimension will allow you to build a product or service that is 10X better than existing ones and a solid brand. The financial dimension will help you develop proper distribution channels by identifying the people that are willing to pay for your product or service and make it financially sustainable in the long run.
Business modelinnovation is about increasing the success of an organization with existing products and technologies by crafting a compelling value proposition able to propel a new business model to scale up customers and create a lasting competitive advantage. And it all starts by mastering the key customers.
Digital and tech business models can be classified according to four levels of transformation into digitally-enabled, digitally-enhanced, tech or platform business models, and business platforms/ecosystems.
A digital business model might be defined as a model that leverages digital technologies to improve several aspects of an organization. From how the company acquires customers, to what product/service it provides. A digital business model is such when digital technology helps enhance its value proposition.
A tech business model is made of four main components: value model (value propositions, mission, vision), technological model (R&D management), distribution model (sales and marketingorganizational structure), and financial model (revenue modeling, cost structure, profitability and cash generation/management). Those elements coming together can serve as the basis to build a solid tech business model.
A Blockchain Business Model is made of four main components: Value Model (Core Philosophy, Core Value and Value Propositions for the key stakeholders), Blockchain Model (Protocol Rules, Network Shape and Applications Layer/Ecosystem), Distribution Model (the key channels amplifying the protocol and its communities), and the Economic Model (the dynamics through which protocol players make money). Those elements coming together can serve as the basis to build and analyze a solid Blockchain Business Model.
In an asymmetric businessmodel, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus have a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility.
In an asymmetric businessmodel, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus having a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility. This is how attention merchants make monetize their business models.
While the term has been coined by Andrew Lampitt, open-core is an evolution of open-source. Where a core part of the software/platform is offered for free, while on top of it are built premium features or add-ons, which get monetized by the corporation who developed the software/platform. An example of the GitLab open core model, where the hosted service is free and open, while the software is closed.
Open source is licensed and usually developed and maintained by a community of independent developers. While the freemium is developed in-house. Thus the freemium give the company that developed it, full control over its distribution. In an open-source model, the for-profit company has to distribute its premium version per its open-source licensing model.
The freemium – unless the whole organization is aligned around it – is a growth strategy rather than a business model. A free service is provided to a majority of users, while a small percentage of those users convert into paying customers through the sales funnel. Free users will help spread the brand through word of mouth.
A freeterprise is a combination of free and enterprise where free professional accounts are driven into the funnel through the free product. As the opportunity is identified the company assigns the free account to a salesperson within the organization (inside sales or fields sales) to convert that into a B2B/enterprise account.
A marketplace is a platform where buyers and sellers interact and transact. The platform acts as a marketplace that will generate revenues in fees from one or all the parties involved in the transaction. Usually, marketplaces can be classified in several ways, like those selling services vs. products or those connecting buyers and sellers at B2B, B2C, or C2C level. And those marketplaces connecting two core players, or more.
B2B, which stands for business-to-business, is a process for selling products or services to other businesses. On the other hand, a B2C sells directly to its consumers.
A B2B2C is a particular kind of business model where a company, rather than accessing the consumer market directly, it does that via another business. Yet the final consumers will recognize the brand or the service provided by the B2B2C. The company offering the service might gain direct access to consumers over time.
Direct-to-consumer (D2C) is a business model where companies sell their products directly to the consumer without the assistance of a third-party wholesaler or retailer. In this way, the company can cut through intermediaries and increase its margins. However, to be successful the direct-to-consumers company needs to build its own distribution, which in the short term can be more expensive. Yet in the long-term creates a competitive advantage.
The C2C business model describes a market environment where one customer purchases from another on a third-party platform that may also handle the transaction. Under the C2C model, both the seller and the buyer are considered consumers. Customer to customer (C2C) is, therefore, a business model where consumers buy and sell directly between themselves. Consumer-to-consumer has become a prevalent business model especially as the web helped disintermediate various industries.
A retail business model follows a direct-to-consumer approach, also called B2C, where the company sells directly to final customers a processed/finished product. This implies a business model that is mostly local-based, it carries higher margins, but also higher costs and distribution risks.
The wholesale model is a selling model where wholesalers sell their products in bulk to a retailer at a discounted price. The retailer then on-sells the products to consumers at a higher price. In the wholesale model, a wholesaler sells products in bulk to retail outlets for onward sale. Occasionally, the wholesaler sells direct to the consumer, with supermarket giant Costco the most obvious example.
The term “crowdsourcing” was first coined by Wired Magazine editor Jeff Howe in a 2006 article titled Rise of Crowdsourcing. Though the practice has existed in some form or another for centuries, it rose to prominence when eCommerce, social media, and smartphone culture began to emerge. Crowdsourcing is the act of obtaining knowledge, goods, services, or opinions from a group of people. These people submit information via social media, smartphone apps, or dedicated crowdsourcing platforms.
In a franchained business model (a short-term chain, long-term franchise) model, the company deliberately launched its operations by keeping tight ownership on the main assets, while those are established, thus choosing a chain model. Once operations are running and established, the company divests its ownership and opts instead for a franchising model.
Businesses employing the brokerage business model make money via brokerage services. This means they are involved with the facilitation, negotiation, or arbitration of a transaction between a buyer and a seller. The brokerage business model involves a business connecting buyers with sellers to collect a commission on the resultant transaction. Therefore, acting as a middleman within a transaction.
Dropshipping is a retail business model where the dropshipper externalizes the manufacturing and logistics and focuses only on distribution and customer acquisition. Therefore, the dropshipper collects final customers’ sales orders, sending them over to third-party suppliers, who ship directly to those customers. In this way, through dropshipping, it is possible to run a business without operational costs and logistics management.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
