PEER-TO-PEER SITES: Swap shops.(Financial report)

From a place to sleep for a night to borrowing cars, gambling and selling vintage fashion, peer-to-peer sites are disrupting established markets as their user communities grow quickly

Ebay, the internet giant built on a simple peer-to-peer retail premise, is the ultimate example of a company fuelled by consumers who buy, sell, recommend and talk to each other. So if peer-to-peer made Ebay revenues of $2.4bn last year, why isn't everyone doing it?

"We provide ecommerce services and ultimately what our clients want to do is generate revenue," says Terry Hunter, CEO of digital agency 2020's technology arm. "At the moment, peer-to-peer is all about brand building, there's no revenue from it. Big brands aren't going to invest in it if there's no revenue."

Certainly some of the smaller startup peer-to-peer sites seem to support this view. Sam Stephens is a headhunter by day, but by runs collaborative consumption website Streetbank. "It started when I got to know my neighbour through borrowing things from him," he says. "Then, when I cycled down the road, I saw someone using a hedge-cutter and thought, I need one of those but only once a year. Wouldn't it be wasteful if everyone in the street had their own cutter but only used it once a year?"

Streetbank offers a kind of hyperlocal sharing hub, a free Gumtree, where you can list things you have and things you need, and arrange swaps in your area. The site also lets visitors list skills they're willing to exchange. However, thus far no money is involved. "We may go down that route or even apply for charity status," say Stephens.

Rapid take-off

For Stephens, who is yet to reap any financial reward, the #30,000 he has invested in the site over the past two-and-a-half years makes this an expensive hobby. However, it also reveals two important elements of peer-to-peer, or collaborative, consumption.

First, there's demand. Streetbank, although a small, local operation with no real PR or marketing plan, has 8,000 members and added 500 in the last month alone. "It spreads itself," says Stephens. "Once you hit 40 or 50 in an area, it reaches a tipping point."

Second, despite Hunter's misgivings regarding investment, peer-to-peer demonstrates to one of the eternal truths of the internet: it takes surprisingly little investment to get a good idea off the ground. But is there no scope beyond small, philanthropic sites? Judging by the slew of recent peer-to-peer startups, it's hard to agree. Airbnb, Crashpadder, Kiva, Landshare, Whipcar and Zoopa are all growing rapidly, and for the most part are significantly monetised businesses.

Not only are these carving a nice niche for themselves, and healthy balance sheets to boot, they're also posing a significant risk to more traditional business as they begin to unsettle the natural order. "That's precisely what we're doing: disrupting the market in the lower price-point hotel chains such as Travelodge or Premier Inn," says Dan Hill, co-founder of Crashpadder.

The site was born when Hill's partner found himself in Sydney looking for a floor to sleep on during the Olympics, when hotel room availability was scarce and those that were available had been driven up in price. Crashpadder was created to marry people who had spare rooms for hire for anything from one night to a month and beyond with people on the hunt for a quick, cheap place to lay their heads. "At any given time, the Government estimates that there are 16m unoccupied spare rooms in the UK," says Hill. "We thought it made sense to fill them."

Crashpadder's USP, according to Hill, derives from the combination of community and technology, which is essential to growing trust between host and lodger. "In terms of ecommerce, the use of credit card verification to confirm the guest is who they say they are is invaluable," he says. Indeed, it's arguably more secure than someone walking in off the street to an established B&B or hotel. "Then we add search technology to the hosting element. The more reviews, discussions and more active people are on the site, the higher they'll rise through its search rankings," he says. "Guests know the rooms that have been suggested most are also the most trustworthy."

One company that has benefited massively from the online community aspect is gambling hub Betfair. Initially a small challenger to established high-street names like Coral and Ladbrokes, it's now a sizeable company, looking to expand across Europe and, eventually, even the online-gambling-averse US. "With 4m customers, 1m of whom were added in the last year, we're the world's largest betting community," says head of corporate communications Jonathan Oates. He believes the site's unique ability to let gamblers trade among themselves, setting odds and events on which to bet, has given it an edge.

Mobile commerce will be Betfair's next big challenge, to capitalise on the immediacy of using a smartphone to text and comment. To this end, the company recently hired Raj Vemulapalli from Yahoo as VP of mobile engineering.

"It's the immediacy and sense of control that drives Betfair's success," says Oates, adding that punters often secure better odds because they engage with individuals with no profit margin to worry about and can bet in real time with the community as they band together.

He even claims the virtual betting space is safer from abuse. "It enhances the traceability for suspicious betting behaviour," he says, noting that recent suspicious betting behaviour in relation to The X Factor had been picked up by the technology, where it turned out staff from a supplier with inside knowledge of voting in real time had been abusing their position. All this clearly adds up: in Betfair's half- year results to October 2010, the company reported its profits were up nearly 50%.

Retail possibilities

So if being a peer-to-peer startup is no barrier to big rewards, are the more traditional companies about to be left out in the cold? Fashion retailer ASOS has brought an element of peer-to-peer to its retail proposition through the introduction of Marketplace, an Ebay- type shop for users to sell clothing. "Marketplace is an important addition to the ASOS brand, providing a self-managed selling platform for smaller independent labels, emerging designers and vintage collectors," said an ASOS source.

By adding a vintage arm - a positive boon to the serious clothing collector - to its mainstream fast fashion site, ASOS has extended its reach in a way that's both sympathetic to its core business and a completely understandable direction for the brand to take. That's not to say the likes of Premier Inn or Travelodge could find similarly sympathetic extensions in launching their own Crashpadder-type sub brands.

While collaborative consumption is relatively easy for a startup to assimilate, established businesses need to ensure it's not just a cynical add-on to counter threats from rivals, or it could prove an expensive mistake. "It'll be interesting to see what's offered in the way of technological advancements for peer-to-peer using things such as the cloud," says 2020's Hunter. "But if a business is looking at issues of cost, security and control, unless it can be proven to have a direct impact on revenue generation, I can see peer-to-peer interactions being qualified out by most established businesses."

Quick facts

* Hyperlocal peer-to-peer networks need just 40-50 interactions for them to gain momentum

* Technology is key to begin the process but not necessarily expensive. It's the idea that needs traction

* Peer-to-peer is as valid in startup mode as it is in an established business, but the brand must have a reason to behave collaboratively

* Search results on peer-to-peer sites aren't just another way to be seen. Appearing high in the results implies you're trusted by the community

Copyright: Centaur Communications Ltd. and licensors