What is Crowd-based Capitalism, aka Shared economy?
Every year, more and more entrepreneurs aim to create businesses that put people and the planet first. Unfortunately, by far, they also have the highest rate of failure. Simply because their business models suck.
The main reason that one of the hottest and most popular industries in the world has produced so few successful examples so far is that many founders forget the first rule of launching a new startup:
you’re building a business, not a charity. For your startup to make a real impact, it first needs a strong business model that allows it to grow.
In this article, I'll explain why crowd-based capitalism and the sharing economy could be the solution and how you can build successful business models around these ideas for the next generation of businesses.
Startups tend to ride on a trend every few years. One year, Web3 is hot; another year, VR/AR is all the rage. These trends produce more startups than you can count, and as you've guessed, almost all of them fail when the time for that trend comes to pass.
However, there's one trend that never went out of fashion. Because it's not a trend, it's not a shiny new technology that can be replaced in a few years, but in a nutshell, it's a perspective. Shared economy is the single most potent ingredient of many successful startups today.
Before exploring what the shared economy is all about and how we can incorporate it into our ideas, let's start with the idea behind the shared economy, why we need it, and why it's so effective.
Everyone wants to live like a king!
The story of how the first restaurants in the world were created is fascinating. Not long ago, we lived in a world that had nothing similar to the restaurants we enjoy today. The idea of the first restaurants was simple, and it came from chefs of kings back then.
They said that an ordinary person cannot eat like a king every day, but they can afford it for one meal. So, let's make them feel like kings for one meal service.
They can order anything they want, especially the food that they normally wouldn't even dream of. They will be served by servants just like kings, and other servants will clean up after them when they are full and satisfied.
Essentially, not everyone can be king, but they can afford to feel like one every once in a while. We can charge them for this experience much more than what the food itself is worth.
Today, ordinary people have access to many services that a king only dreamed about 500 years ago. From the power to choose their entertainment and the number of options we have today to the ability to travel to the other side of the world in less than a day, we're living better than kings.
So, how did each of these services become so affordable? The short answer is that the main factor behind every successful disruptive technology we have today is that with that technology, we made it cheaper and easier than before. After that, by implementing the economics of scale, we made it cheaper and cheaper.
This democratization of luxury and convenience is largely due to technological advancements and innovative business models. However, this progress has also brought new challenges, such as increased resource consumption and environmental concerns, which the shared economy aims to address.
We live in a world where the resources are finite, but our desire is infinite.
Also, economies of scale have their own limitations. They can reach a certain point, but no more. Today, everything is getting more expensive and less affordable. You can say that's one of the main bugs in capitalism as well.
That's where the crowd-based capitalism, aka shared economy, enters.
Shared Economy
We cannot waste like kings. Not only is it not good for the environment, but it's also impossible to satisfy every person's full desire. Shared economy idea is very simple. Let's make our products and services more affordable, by sharing resources that we can. It's a win-win-win!
The core principle of the shared economy is resource sharing to maximize efficiency and reduce waste. Instead of everyone owning individual assets, people share goods or services based on demand.
This model relies on access rather than ownership, allowing people to use resources (like cars, homes, or tools) only when needed. By leveraging technology platforms, individuals can rent, borrow, or share assets, which optimizes usage, saves costs, and minimizes the environmental impact.
“We used to live in a world were there people, private citizens, a world where there are businesses, and now we’re living in a world where people can become businesses in 60 seconds,” - Brian Chesky, Founder of Airbnb
The shared economy rests on three key pillars:
- Identify and minimize waste: Focus on making better use of underutilized resources.
- Build a system that ensures access and convenience: Create a platform that benefits both providers and users, making transactions seamless.
- Develop a profitable business model: Charge for the access and convenience you offer, turning the platform into a sustainable source of income.
How can we do that? By identifying the main causes of waste in our industry, we can design a system to reduce it by sharing the resources we use with others.
Let's see a few examples:
Uber:
70% of the time, Taxis are empty, and the time of drivers is wasted. Let's design a system to send customers to drivers one after the other without wasting their time. We can offer passengers near them, so they don't waste time and fuel until they reach the next passenger. This system optimizes resource allocation by reducing 'dead miles' — the distance drivers travel without passengers.
We can even let them share rides with others, so the same car and the same driver can be used for two trips at once.
The driver will make more, and the passenger will spend less.
Airbnb:
Many of us have more space and rooms than we need. This space is wasted without any use. Why not convert it to a temporary hotel room? The house owner will make money from the wasted space, and the guests can have a more affordable place to stay.
This model not only utilizes unused space but also often provides travelers with more authentic, local experiences compared to traditional hotels. Even more, why should owning a hotel be limited to a few people when a lot of people own houses? Let's share homes and create a new industry: small independent hotels.
These examples show how a shared economy benefits different players. Unused resources are shared, waste is reduced, and as a result, the price for the end customer can be lower.
Many argue that the shared economy only works in two-sided businesses (like Uber and Airbnb), but that's not true. Shared economy principles can be used in any industry. The key is to identify waste and reduce it.
Let's look at another example:
Amazon AWS:
Every day, millions of servers waste energy and other resources. They're not used as much as they consume energy. Let's create a cloud system where customers can rent servers and share those resources. To maximize our profits, we will use only the needed number of servers and resources as our customers demand and can increase them anytime they want.
Less waste in energy, less reousrces used by AWS and the customers only pay for what they actually use.
(OK, don't laugh at this. This was the original idea, but the ugly side of capitalism kicked in)
Although AWS was initially built on shared economy principles, its implementation has evolved. Today, major cloud providers frequently overprovision resources to guarantee high availability and top-tier performance, which can introduce some inefficiencies. Still, the core concept of shared resources remains, offering significantly greater efficiency than individual organizations running their own data centers.
The Internet:
Yes, the Internet itself can be called one of the most successful implementations of the shared economy. What if we can democratize content sharing? What if, instead of traditional media owned by a few, everyone can host their own content and publish it in the world? Let's call it the World Wide Web.
By creating a network of every computer on planet and sharing their resources, we can cut down the cost of having a media to near zero. After that, we can use this massive network and turn it into the biggest platform for businesses. Now anyone can have an online business at a fraction of the cost.
The same can be argued for blockchain technology and decentralized solutions. They use the same basic principles, but they still lack the main ingredient: they need to reduce waste.
Only then will they be able to successfully shape the next generation of the Internet.
Civilization is built on the idea of shared economy.
The shared economy is not a new idea; it's actually thousands of years old. One of the first examples of the successful implementation of a shared economy is the invention of agriculture, which led to the creation of cities and civilization as we know it. Traditional agricultural communities often shared tools, labor, and harvests. Otherwise, it would have been impossible.
As was for the story of the restaurant, we can see that we often dramatically reduce waste by sharing the used resources. From thousands of years ago until today, shared economy was the safest bet to reduce waste.
We've built the first connected network of messages with the same idea, it's called the Post service. We've built busses, trains and passenger airplanes with the same ideology. When we look at these paradigm-shifting examples, we see how we made these services more efficient when we found out the cause of waste in them and applied the same ideology to them.
We can always reduce waste. Post services now share cargo, planes, and other resources much more efficiently with other partners to reduce the cost of each package. Connected flights have made cheap air travel possible, especially if you're willing to sacrifice your convictions for a better price.
They're not only cost-effective to the end consumer, but they're less wasteful. In today's world, where the effects of climate change can literally end the world, reducing waste should be the #1 priority of every one of us.
Open source ideology
The idea of open source is one of another successful examples of shared economy. Why should we create products from zero when we can build on top of each other's hard work?
“The best collaborations create something bigger than the sum of what each person can create on their own.”
Open source ideology allowed us to develop more powerful and complex products in a fraction of the time. Operating systems, browsers, website makers, and almost all promising languages are made with the power of collective collaboration.
Best of all, instead of reinventing the wheel, we're constantly improving each other's work. It's like we're all working on a single shared project.
Open source embodies shared economy principles by treating knowledge and code as shared resources. This approach reduces duplication of effort, accelerates innovation, and democratizes access to technology.
Open source doesn't mean free. Many successful businesses are built on top of this idea. Open source reduces the development cost for companies and democratizes access to the best products available in the market for more people. This allows more businesses to build their entire products on top of open-source solutions and have a less expensive alternative to available tools in the market.
A great example here is Automattic, the company behind WordPress. They've used open-source ideology to create one of the world's most successful online businesses. Today, WordPress powers more than 42% of all websites on the planet! They're making billions of dollars in the process while reducing the cost of website development significantly for millions of people at the same time.
Crowdsourcing ideology
Effective collaboration is one of the key principles of the shared economy. Without it, it will fail. A shared economy is only successful when you reduce waste, and the first step is to design effective collaboration between all parties: your team, your partners, and your customers. All should work in harmony.
Crowdsourcing was born to improve collaboration. Why should a single company burn billions to create an outdated dwarf of an encyclopedia when the collective collaboration of millions of people can create a much better encyclopedia that costs the end customers $0?
Crowdsourcing enables people to contribute a fraction of the time when they can and when you add all these little times, it's like magic.
Wikipedia is the most well-known example of crowdsourcing. Millions of articles are created and updated every day by these contributors, giving us a free source of knowledge that is up-to-date and very seriously fact-checked by thousands of people.
Google Maps is another great example of how millions of willing contributors can improve your map for free. Hundreds of millions of added places, reviews, and questions answered by people make our lives so much easier that we cannot even remember how we went to a place without Google Maps anymore.
Waze is another example that uses the same idea, but for drivers. Waze found out that the map that drivers need when they're driving is very different from other times, and they invested in making that drivers' map useful by crowdsourcing.
Waze built a GPS navigation app powered by real-time, crowdsourced traffic data. Drivers share live information about traffic conditions, accidents, potholes, accidents, and even police cameras.
Waze's crowdsourced model became so successful that Google acquired it for over $1 billion in 2013. Today, millions of users contribute to its real-time traffic updates globally. Creating such a powerful map used to cost other companies like Tomcat millions of dollars, and they had to charge people hundreds of dollars a year without a tenth of these real-time features. Now, it's free, all because of crowdsourcing and the shared economy.
Duolingo is another great example that leveraged crowdsourcing in a very unorthodox way. In its early stages, Duolingo leveraged crowdsourcing to translate web content while teaching users new languages!
As users completed language lessons, they were given real-world sentences from the web to translate. These sentences came from websites, news outlets, and other sources. Users would translate the sentences as part of their practice, and as more learners worked on the same content, the platform would aggregate the most accurate and high-quality translations.
This innovative model allowed the company to offer its language-learning app for free while simultaneously generating revenue through its crowdsourced translations.
Crowdsourcing isn't limited to digital products. Local communities often use similar principles for physical projects. For instance, community gardens apply crowdsourcing principles to urban agriculture, with residents sharing labor, knowledge, and resources to create green spaces and grow food.
Crowdsourcing is a shared economy at its finest. It incorporates many ideas from open spruce idealogy and adds the next level of real-time collaboration to it.
Of course, not all businesses can be crowdsourcing businesses, but all businesses can use crowdsourcing methods to improve their products. For example, many successful companies are now crowdsourcing their tutorials, knowledge hubs, and use cases by creating a community of their customers who contribute by sharing their questions, tips, and know-how.
Crowdsourcing in AI
The rise of GenAI in recent years has opened new doors to the next level of crowdsourcing ideas. The LLMs themselves are created by crowdsourced ideology. AI is now on the path of reaching collective wisdom, harnessing all of the world's knowledge automatically and applying it when needed.
The next generation of AI businesses can use crowdsourcing to create fully automated services that use multiple resources at once to better predict users' next actions and commands. This is key to creating fully automated systems based on AI.
A great example of this already happening is Tesla Autopilot. Tesla leverages crowdsourcing from its fleet of vehicles to continuously improve its self-driving AI. Every Tesla car on the road, equipped with cameras, sensors, and GPS, collects vast amounts of data on driving conditions, road environments, and driver behaviors. This real-world data is then sent back to Tesla, which is used to train and refine the company's machine-learning algorithms.
Another example here is the annoying reCAPTCHAs that we all hate, but they actually benefit us in a crazy way. Google uses reCAPTCHA to crowdsource image recognition and labeling. Every time users identify street signs, cars, or traffic lights in a CAPTCHA, they are helping train AI to recognize objects in images, improving Google’s AI systems for everything from Google Maps to autonomous vehicles.
On the other hand, developers and data scientists are sharing more datasets and databases publicly that can be used to train more powerful AI systems for specific use cases. From studying human gnomes to developing the next generation of energy fuels, these crowdsourced datasets combined with crowdsourced AI systems can be the only answer to developing the next generation of technologies.
All these examples show how visionary founders used the principles of the shared economy to create scalable businesses with viable business models that actually helped people have a better life.
These examples show that there are no limits to what we can do in crowd-based business ideas. We only need to identify waste in the industries that we have today and leverage ideologies like crowdsourcing, open source, and shared economy to build a scalable and profitable business model.
This is even more critical for the success of social entrepreneurship startups, sustainability ventures, and climate-focused companies. They should all leverage the shared economy to build viable, growing businesses while minimizing waste.
We all need to build businesses that put people and the planet first, but a failed business will neither serve people nor save the planet.
Only a successful business can create a true paradigm shift.
