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The Sudden Rise of Peer-to-Peer (P2P) Commerce

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Published : June 18th, 2012
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The idea of using the Internet for peer-to-peer interactions – "P2P" in trade shorthand – got off to a rocky start. In the beginning, most P2P had to do with file sharing. People would digitize their music collections and pass them around to friends who shared their tastes. Then Napster took the next logical step, removing friends from the equation and creating a centralized meeting ground in cyberspace, where anyone could post files to be shared with anyone else who logged on. The genie was out of the bottle.

That set off a predictable firestorm of protest from the entertainment industry, resulting in a long parade of lawsuits, prosecutions, and government attempts at regulation. Though Napster is long gone, along with subsequent file-sharing services like LimeWire, the issues remain largely unresolved. What once only affected music is now spreading to movies, thanks to increasing storage space and bandwidth, and to books, thanks to the mass adoption of e-readers in recent years.

While music and film "piracy" may be what most people think of when P2P is mentioned, the concept is fundamental to the structure of the Internet, and thus was bound to eventually find its way far beyond the file sharing realm. Today, business are sprouting up around the world based on the idea of connecting individuals directly to each other to trade products and services. While the idea is very much in its infancy still, like the music business at the dawn of Napster, we're beginning to grasp the potential.

On March 8 in this space, Alex Daley wrote about the new phenomenon of peer-to-peer lending, a web-based service that connects those needing loans to those willing to make them – without putting a bank or other large financial organization in the middle. As yet, P2P carves out just a small slice of the lending pie, but it is growing fast, with more than $1 billion in loans originated to date and annual growth projected to double that in half the time it's taken to get to the first billion.

Concurrently, there has been a sharp rise in P2P service-trading sites, where those with a skill or resource can offer their wares and get paired up with those looking for that service... sometimes at below-market rates.

For example, do you love to travel but are put off by the soaring cost of hotel rooms? Then maybe is for you. CouchSurfing gives users access to members in some 230 countries, with whom you can connect to arrange to stay as a guest in their homes or to offer a space in your own home (perhaps the eponymous couch) to a fellow traveler. Or you can just make a date for a meetup with someone of similar interests in a strange place.

As Forbes wrote:

"CouchSurfing boasts a surprisingly large user base of three million people in 81,000 cities. Some 5.6 million connections have taken place on the site – whether that's people sharing a couch, a coffee, or simply local knowledge of the best bars, restaurants and sight-seeing spots with other diehard CouchSurfers. The organization recently learned that a Mongolian livestock farmer has hosted over 100 CouchSurfers in his yurt in the capital of Mongolia."

Other websites are creating jobs – to repeat this election year's never-ending political mantra – in a more direct way, by cutting out the middlemen, which must always include government. Democrats and Republicans alike tout the ability of government to "create" jobs. Yet they never admit that government can't employ Peter without first taking from Paul the money to pay him. Furthermore, there is little stomach in Washington, D.C. – in either party – for rolling back some of the regulations that stifle entrepreneurs who would otherwise be creating real jobs.

New York Times writer Anand Giridharadas recently wrote of governmental meddling:

"Say you want to start a home catering business in New York city. According to the city government, you'd need, among other things, a food protection certificate, a food service establishment permit, a gas authorization, professionally installed range hoods, a licensed carting company for waste, registration as a sales tax vendor as well as compliance with portable fire extinguisher rules and the unincorporated business tax."

That's a pretty formidable list; and it doesn't even include state and federal registrations and compliance. As a result, many entrepreneurs now are circumventing all this and taking to the streets. Or, to be more precise, to the biggest street of all: the Internet. They're creating P2P sites that make it easy for people on both ends of a transaction to contact and work with each other.

Have some small job or errand you'd like to outsource? Just go to TaskRabbit. Founded in 2008 in San Francisco, the business is currently operating in Boston, the Bay Area, San Antonio, Austin, Chicago, Seattle, Portland, Los Angeles, and New York. You just post your need to their website, the company puts your request out to those on its contractor list with the requisite skills, and they bid on it. Lowest bidder gets the work.

TaskRabbit can hook you up with willing labor for everything from deliveries and household chores to skilled tasks like carpentry, electrical work, and plumbing. For safety, the company puts applicants who want to become Rabbits through a process that includes a video interview, federal background check, Social Security number trace, and lastly, a test to determine if they have what it takes. Once in the labor pool, Rabbits also earn ratings based on user feedback.

The company is growing dramatically. Last October, founder Leah Busque said it is handling $4 million in bids per month. Most Rabbits are retirees, stay-at-home moms, or students, but the unemployed are finding a place as well. "Our most active TaskRabbits are cashing out about $5,000 a month," Busque says, making tasking a full-time job. And she says she is also looking into the possibility of group health insurance for her contractors.

Or consider this. What is your car doing when it's just sitting there? Nothing. But it could be earning you money, if you want to list it on RelayRides. This is a P2P service that matches those needing a car for a short time with those willing to provide one to a stranger on an hourly or daily basis. Sounds a bit dicey, of course, since there's always risk involved putting any human behind the wheel of a vehicle. RelayRides tries to mitigate that risk by providing insurance, renter verification and screening, and 24/7 roadside assistance.

The service launched in Boston in 2010 and this March went nationwide. Car owners set their own prices, and the company takes 35%. Owners can earn up to $7,000 annually, the company estimates. I checked for available wheels in my general area, and found everything from a basic 2011 Mazda at $6/hour to a 2005 BMW sports convertible at $20/hour. (Competitor Getaround is similar, and includes the ability to grab cars right from the San Francisco airport, from a Prius to a Porsche.)

Then there's oDesk, which brings together employers and remote contractors for part- or full-time jobs in such fields as writing, Web and software development, graphic design, customer service, and marketing. The service uses a unique "Work Diary" feature to verify that time billed is actually time spent on the project. Though it doesn't do any withholding, oDesk does report contractors' yearly earnings to the IRS.

This is just a small sample of the P2P websites now operating. A few others you might wish to take a look at include: airbnb, through which people can rent out their spare rooms; Kitchit, where you can hire a private chef for your dinner party; and Etsy, an online marketplace for your crafts or other handmade items.

A question that naturally arises is: is all of this legal? After all, much of what goes on in the P2P space involves transactions that, if they were conducted in the more traditional business world, would face the kind of government regulation that New York imposes on wannabe caterers.

For instance, is RelayRides analogous to you lending your Toyota to your buddy for the day, which would be unregulated? Or is it more like Hertz, which has to comply with a full range of regs? Shelby Clark, the founder of RelayRides, admits that his service exists in "a little bit of a legal gray area."

That gray area includes questions about where legal jurisdiction lies. Does a supplier in a peer–to-peer network require a local business license? Or does the network manager have to register in all locations where services are provided? Who is liable if something goes wrong: the supplier, the network, or both? And of course, there still – always – is the matter of taxation.

Taxing online commerce is of course a hot topic of the moment. Governments strapped for cash can be expected to cast a covetous eye on any new potential sources of revenue. Taxing P2P deals will be more complicated than placing a levy on Amazon sales, but it's certainly not outside the reach of government.

Government busybodies, as always, are running behind technological innovation. So it'll take time to sort all these issues out, with no certainty as to what will eventually happen. What is certain, though, is that P2P interactions can form the basis of a powerful business model, creating a wealth of new jobs – without any helping hand from Washington, D.C.

It's here to stay.

Technological innovation is changing the way the world works far beyond the marketplace. It's given us myriad inventions that make us much more productive and life infinitely more enjoyable. It's made assembly-line workers as obsolete as candle-makers. It's saving the lives of military men and women, who can now control robotic soldiers instead of putting themselves in harm's way.

But perhaps one of the biggest benefits technology offers to mankind is in the medical field, particularly in the realm of cancer research.



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An editor at Casey Research, Doug Hornig’s work can be read in "BIG GOLD" a monthly newsletter which focuses on mid- to large-cap gold stocks; "What We Now Know" – a free bi-weekly e-letter covering trends in investments, geopolitics, the economy, health and technology; and "The Daily Resource" an economy and investment column on A former Edgar Award nominee, finalist for the Virginia Prize in both fiction and poetry, and a past winner of the Virginia Governor's Screenwriting competition, Doug lives on 30 mountainous acres in a county that just got its first stop light. He is an admitted political junkie, but hates all political parties. Doug has authored ten books and has written articles for Business Week, Playboy and more.
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