Many people today cannot imagine a world where they are unable to reach for their phone, use an app to buy a service, buy something from Amazon, or make some extra money on Etsy. However, there was a time not too long ago when this wasn’t possible. The advancement of technology can be given a lot of credit for this. However, it was the creation of a specific business model that has made all of that, and more, possible. That business model is now referred to as the peer-to-peer business model.
In this article, we will define the peer-to-peer business model and examine its advantages and disadvantages. We will look at the advantages and disadvantages of the model from the perspective of potential platform creators as well as users who hope to use the platforms for business or income purposes.
What is the Peer-to-Peer Business Model?
The peer-to-peer economy is one where an individual sells or offers services to another individual. The peer-to-peer (P2P) business model serves to connect these individuals to share, trade, or rent services or products. This model is built around the idea of decentralization. Most P2P businesses use an online platform or app that allows users to directly interact with one another.
While this business model is relatively new, the peer-to-peer system has existed for decades. Most famously, the P2P system was used to create the music file-sharing site Napster in 1999. The site became a hot topic as the new internet capabilities threatened established industries and sparked debate about copyright and ownership. Now, however, P2P has evolved into a business model that has changed the way many people live and do business.
Peer-to-peer businesses typically have three different revenue options. They can charge a transaction fee to users. This can be a percentage per transaction or a fixed base price. The next revenue option is to charge users for premium access or features. Or businesses can opt to simply make money by displaying advertisements on their site and not charge users anything.
Some of the most successful businesses today are using the peer-to-peer model. AirBnB allows users to utilize space that isn’t being used and rent it out to others. Their platform easily connects users who are renting spaces to users who are looking for a place to stay. Uber is another highly successful P2P business. Uber drivers provide their own cars and can chauffeur people around. The company has grown to also include food delivery services and rental car services. Other P2P companies that are household names at this point include Amazon, Etsy, Pinterest, TaskRabbit, and UpWork. And new peer-to-peer businesses are popping up year after year.
Advantages of the Peer-to-Peer Business Model
Other business models often require initial investments in not only designing and producing items but also transportation, marketing, and staffing. The P2P model lowers the start-up cost for the P2P business and the individuals selling on the platform.
With sellers focusing on providing the products and services, a P2P business does not need to worry about managing inventory or developing and producing items. As well, the P2P platform provides sellers with the tools to easily reach buyers. Individuals wanting to provide products and services to others can utilize the platform instead of heavily investing in marketing and advertising to reach their target market. These cost savings also pass onto the buyer as most consumers find that peer-to-peer marketplace items can be cheaper.
Another benefit of sellers not having to worry so much about other business tasks such as marketing, they are more able to focus on their craft. They can specialize in their area of expertise. By using the data, such as popular searches or items, provided by the P2P platform, sellers can quickly pivot to customers’ rising demands. This allows sellers to provide better products and services to buyers.
Centered on Community
The peer-to-peer business model is centered around community. These platforms often encourage reviews and user-generated content. This can help to build a strong sense of community and trust between buyers and sellers. Buyers can make more informed decisions by the feedback of others. At the same time, sellers can build their audience by providing consistent quality products or services.
Consumers often enjoy being able to help individuals and small businesses by purchasing from them instead of larger name brands. Since the P2P model allows for direct communication between individuals, this provides a more personal experience for consumers. The community-based model can resonate with a lot of consumers looking for a more authentic and personalized buying experience.
Ease of Startup and Operation
In most cases, creating a business using a peer-to-peer business model is easier than building one without this established infrastructure. This is because this model shares the responsibility with others thus minimizing risk as well as resources needed.
For example, in the past, starting a rental property company would require not only the purchasing of a home or condo, but it would also require finding tenants. However, if a person wanted to start a rental property company they may be able to do so by making the property one that exclusively rents out to vacationers using Airbnb or Vrbo.
By doing this, the property owner does not need to worry about finding tenants, maintaining the property monthly for those tenants, or finding new ones if the current inhabitants decide to move. This ease makes this model much more attractive to someone wanting to pursue this type of business.
Disadvantages of the Peer-to-Peer Business Model
Peer-to-peer businesses have risen to success due to their popularity with consumers. With giants such as Uber, Amazon, and AirBnb, dominating their markets, it can be a highly competitive business to enter. New P2P platforms will need to provide a unique customer experience or provide a P2P platform in a market that does not yet have one.
Even as users of these platforms, the competition is high. Take for example freelancing platforms like Upwork and Fiverr. These marketplaces are filled with established and capable freelancers. For new freelancers, it may take time to find clients to work for. For established freelancers, there are scores of new workers signing up for these platforms eager to capture a share of the available clients.
Trust and Safety
A main disadvantage of the peer-to-peer business model is that the P2P platforms don’t have much quality control. It can be hard to set up ways to vet sellers. Because of this, the quality of the products and services offered on a P2P platform can vary greatly. As well as customer service from the seller.
This can result in users of the platform having bad experiences. It’s often on the P2P platform to pick up the slack if sellers are not delivering on what they are offering. P2P platforms will need to have clear policies around user complaints.
Disruptive to Established Markets
We’ve seen in more recent years backlash within certain peer-to-peer markets from unintended harm the change to this model has caused. Uber and Lyft have left many taxi drivers without a job or having to switch to their platforms to get passengers. Housing markets in all parts of the world have seen the effect of the rise in the popularity of Airbnb rentals. Individuals wanting to buy a home and live in it have had to compete with buyers wanting to purchase their third AirBnb rental property.
Regulations are now being put into place to mitigate the effect of certain P2P markets. P2P businesses need to understand the effects they may have on already established businesses and industries. Some industries may not see the potential changes as beneficial.
The peer-to-peer business model is revolutionary and has changed the way individuals buy and sell. It has opened up opportunities for entrepreneurs and has disrupted traditional markets. As the P2P model grows and adapts it is sure to continue to challenge the way we do business.