Tag Archives: eBay

Amazon and eBay rentals – business model of the future?

Isn’t it amazing that neither Amazon and eBay let users lend and borrow items between themselves? There are plenty of websites chasing the rental market currently, so why aren’t the e-commerce giants chasing it as a business model?

Connectivity = efficiency = sustainability

Connectivity within a system allows for greater efficiency, as it allows different elements of a system to pool resources and reduce the duplication of effort. From a sustainability standpoint, the rise of the internet is incredibly exciting as it facilitates the sharing of resources, meaning fewer items need to be fabricated for human use, which in turn reduces the total amount of effort and investment wasted on items that have a low usage factor.

Prior to the internet, the pool of objects and items that human beings could “leverage” (i.e. use) to achieve their goals without an outright purchase was mostly limited to those held by their within their own network of friends, neighbours and family. This was a pool constrained by the mind’s numerical capacity for relationships, the lack of a complete and quick way to search a person’s hypothetical inventory of items available for use, and also by the ability to convince others of trustworthiness.

Internet marketplaces facilitate sharing

The internet can disrupt this status quo through the use of marketplaces that can be used to connect borrowers and lenders of items. Items could be listed as available for borrowing/renting, and potential users could search for them. Possible features include:

  • rating the condition of an item by both parties before and after the transaction
  • insurance products could be offered to cover the item
  • payment (if needed) could be handled via the marketplace site/app
  • location of the borrowers/lenders could be matched quickly through mobile GPS
  • the option to buy the item could be provided if desired

There are startups working on this very concept as we speak, such as StreetBank in the UK. Watch their company trailer below:

Business case for Amazon and eBay rentals

Given the interest in the rental model by many startups around the world, driven by the fundamental capability shift that has been enabled by the internet, I find it intriguing that Amazon and eBay do not offer their customers the opportunity to search for rentals (with the exception of holiday home rentals on eBay and Amazon’s e-book and online film/movie rentals).

In my mind, allowing customers to lend/borrow in addition to buy/sell would be a source of additional traffic to the site, adding additional opportunity to grow revenue. The rental model itself would also be extremely appealing to the two companies as, in the case of popular items or items rented for long periods of time, it could yield regular cashflow. For example, it would be perfect for those who want to rent big items like TVs or sofas.

This business model would also hedge their position against a potentially disruptive market force and allow them to stay ahead of the curve (and potentially kill any upstarts dead in the water).

But why don’t they want to offer it as a service to clients? There may be a few reasons:

  • They do not want to lose the focus on their primary business model
  • They don’t want to create a new market that could potentially disrupt their current operations
  • They don’t believe their is a real demand for the service
  • They do not believe that the potential revenue streams do not justify the costs of lost sales and investment in their site infrastructure

I believe that the last two are the more plausible ones, as Amazon in particular are not known for shying away from innovation!

One thing worth noting here is the ingenious “Subscribe & Save” feature of Amazon that allows users to create a regular repeat transaction for an item they buy regularly (such as food or toiletries) and save up to 15% of the cost in the process. This is win-win for both parties: customers save money and Amazon gets a regular cashflow. The service is a step in the direction of the rental model and creates much more of a recurring relationship between the parties (making the user of the site a “client” rather than a “customer”).

Disrupting the very concept of “ownership”

Having wider access to use the items around us (i.e. having greater “personal leverage” of your community’s assets) will suddenly change the very concept of ownership. If an item is readily available to be lent or borrowed by thousands of people via an online marketplace, who will really “own” the item? Technology will blur the lines between group and individual ownership and the old definition of ownership being “the moral right to categorically control something” may begin to feel like an anachronism.

The economist and activist Jeremy Rifkin recently wrote an article for the New York Times heralding “the rise of Anti-capitalism”. He argues that the “zero marginal cost economy” being driven by technological mega-trends such as the Internet of Things will increase collaboration. This will reduce the opportunities for capitalists to make profits and increase the relevance of social enterprises and non-profit organisations.

Given how this could represent a threat to megacorporations, this is a concept worth serious consideration.

Business case for rental not sales

In my mind, this highlights the potential business case for companies renting items to us rather than selling. This is the lifetime cost model versus the upfront cost model of a transaction.

Upfront cost model characteristics

  • immediate access to cash = lower risk of cash loss via customer churn or default
  • Lack of cash flow predictability
  • Upfront cost is a barrier to customer acquisition
  • Vendor has no incentive to take responsibility for maintenance or disposal of product = higher margin

Lifetime cost model characteristics

  • Lower initial cost = lower barrier to purchase = more sales
  • High predictability of cash flow
  • Greater emphasis on client relationship = greater emphasis customer service = greater chance of add-on sales/repeat business
  • Responsibility for life cycle of product (maintenance and disposal) = incentive for sustainability = better quality products made and less wastage

Can you imagine a world where, instead of buying a pair of Jeans outright, you would instead rent them? The borrower would sign up for a certain amount of time (say 5 years) and the lender would be responsible for ensuring they last the allotted length of time (perhaps offering a post-back service to have them fixed or tailored).

This business model would reduce the amount of unused, unnecessary items in circulation, would save customers money, and would allow more responsible and competent companies to thrive. I for one would be keen to see this model take off!