There's a revolution going on, and it's more than what people think. The new, social, virtual world in which we're increasingly finding ourselves has opened the door to a wide variety of physical extensions to that online reality. In particular, a slew of price and product comparison tools have arisen, facilitated by the rise in ultra-mobile computing (namely smartphones). Additionally, new sharing tools are allowing us to focus on the experience or result we want from a product rather than the physical object itself. When we share an item or buy collaboratively, we extend the life of the product and also get utility from it at a lower price than the physical object required to deliver that experience. In other words, we are increasingly buying the hole rather than the power drill, the movie rather than the actual DVD, the transportation to work rather than the car… perhaps one day the sleep rather than the bed, the home rather than the house. The possibilities for entrepreneurs are endless right now.
And yet…
The rise in capitalism in the 20th century saw a huge boom in personal wealth and private consumption (Hubbard and O'Brien, Economics, p. 676-725). Apart from a less dramatic moment during the industrial revolution, the rise of computers has created essentially the only period in all of human history when the average human welfare has substantially improved. (For really cool visualizations of this, check out Hans Rosling's Gapminder and the TED talks I linked to in the previous sentence.) This improvement has come in large part because of the democratization of opportunity that these technologies provide. More than the literal benefits of the technologies themselves, the door was opened to anyone and everyone to improve their lives through entrepreneurship and innovation. People created wealth for themselves by selling things that didn't exist before. And everyone wanted one for themselves.
That trend is reversing again. New online marketplaces and physical exchanges are bringing bartering back into vogue and making price comparison easy. Apps like RedLaser and Amazon Price Check (and StickyBits, and myShopanion) let you instantly compare prices of any product to find out where it is the cheapest by scanning bar codes. Moodstocks lets you do the same just by taking a picture of the product. Group buying has taken off tremendously, with Groupon's valuation at as much as $6 billion inspiring numerous competitors. Collaborative consumption is rising as well, with friends and neighbors buying products together or loaning or trading products they rarely use. Companies like SwapTree, ZipCar, CouchSurfing, Airbnb, and Title Trader are in this space. And then of course there are the likes of eBay and Craigslist which help you sell things you're don't need any more.
When products are bartered, their life is extended, and the original retailer loses a sale. Price comparison means that every mom-and-pop shop has to compete with Amazon, halfway across the globe. Sharing and price comparison means that it's easier for consumers to get the experience rather than the product they want at a lower price, but it also means that it's harder for companies – and especially new, entrepreneurial ones with larger cost, distribution, and awareness barriers – to compete. Why would I buy a large suitcase that I'll use for two weeks for a trip to Europe and then leave languishing in my attic for years, when I could split the cost with a friend and pass it on to her when I'm done? And what prevents us from trading that suitcase at the end of the summer for a nearly-new set of ski poles? And when ski season is over, why not trade the ski poles to some guy in Argentina for his just-used-once hiking boots? What a win for us! We got to carry around our belongings on overseas trips, stabilize our skiing, and protect our feet while hiking - all for half the price of a suitcase. On the other hand, that's one suitcase, set of ski poles, and pair of hiking boots we didn't buy (and thus that manufacturers didn't sell). Companies are the losers in this process. The marketplace is not just globalizing but also optimizing. The fat that previously existed to serve some local, niche, and occasional-use markets is being trimmed. (On the other hand, this also means that the consequences of spontaneous consumption are diminished, since it's easier to neutralize the cost after purchasing an item. This could ultimately lead to more spontaneous purchasing -- a trend on which location-based startups like Foursquare, Gowalla, and especially Shopkick and Geodelic are trying to capitalize.)
I think that ultimately the benefit to consumers is too great to see this as anything but a good thing. We may be bartering, but it's certainly not bringing us back to the times when communal bartering was the only efficient way to obtain certain products. And there are plenty of new technology frontiers to keep innovators busy. But I think it's clear that the virtual world has created an even more profound shift in lifestyles than many predicted. The market is shifting away from consumers who buy everything they need at the nearest store to consumers who are part of a communal purchasing network. I'm not saying people will suddenly view all of their physical possessions as essentially fungible, but I do think that services geared towards friends and strangers interacting with each other around objects and places is the next transformative trend.
I have personally witnessed one component of this trend. In the past few weeks I've talked with the founders of about 40 startups on the University of Pennsylvania campus, mostly MBA students at the Wharton School. The vast majority deliver web or mobile services. Around a quarter of them are either location-based or attempt to bring like-minded strangers together at the same place (or both). These are knowledge-exchange services: an extension of the democratizing power of the internet's access to information into the physical world. (Augmented Reality has the same goal of making online information available offline, although that's a whole other blog post.) The next step for entrepreneurs is to do the same with products by making online information about them always available, including with the aid of recommendation algorithms. The next step for consumers is to always take advantage of the options for finding better prices, products, and ways to benefit from unused purchases. This is the same movement that has driven the switch to Cloud Computing: it's the movement to buy results instead of the tools to achieve those results.
For more on collective consumption, check out this video of a TED talk by Rachel Botsman: