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The Peer-to-Peer (P2P) revolution is empowering and good business. So why are the biggest winners not the peers, but the founders of Uber, Airbnb and Facebook? Why concentrate money and power in the hands of a few, on the backs of the many?

Startups using online cooperative platforms are challenging this formula, offering ownership and profit sharing to engage community members. Cooperative platforms have the potential to help solve many of the emerging issues of the digital era, namely wealth distribution. They are quite well suited to modern movements like open-source, creative commons, the sharing economy, and social enterprises because they focus on the common good.

Unfortunately, the image of cooperatives rests its laurels on principle rather than business arguments. This is a missed opportunity. Cooperatives are not a panacea for platforms, but in the right circumstance there is a compelling business argument.

What is a Cooperative Platform?

There are many constructions possible, but essentially they are:

  • collectively owned,
  • democratically controlled businesses,
  • with a mission to improve the common good, improve job security and benefits.

 


What if Uber was owned and governed by its drivers?
Neal Gorenflo


The case: for the people, by the people

You would be forgiven if you didn’t think of a cooperative structure for building your community platform. Yet if you faced the dominance of Uber in the P2P ride market, you could then sway potential drivers away from Uber with profit-sharing, improved job security and benefits. Tapazz in Belgium, Union Taxi in Denver, and Modo in Vancouver are success stories, but one in particular highlights the hidden potential: the cooperative-inspired Juno. It positioned itself as a ‘for the driver, by the driver’ service, exploiting the fact that Uber drivers hated Uber. Juno would only take 10% commission rather than the industry standard of 30%, leaving more money for the driver and lower fares for the rider. When asked how he was going to beat Uber, the CEO of Juno replied:

In a nutshell, we’re going to be nice. We’re going to be ethical. We’re going to be respectful of our drivers.
- Talmon Marco, CEO Juno

Unfortunately for the drivers, Juno betrayed them. When they were bought by Gett in April 2017, they didn’t live up to their promise to share 50% of the equity with drivers. After the acquisition, paid-out driver shares were estimated to be worth only 1.5% of the sale valuation. However it is unfair to project Juno’s moral failure on modern cooperatives as a whole. For one, Juno was not a cooperative in the legal sense. But the real insight is the powerful modern appeal of the cooperative structure. Juno’s cooperative allure worked so well they registered 12,000 drivers in NYC in a few months, quickly rivaling Lyft and Uber.

Here are examples where cooperative platforms really work (and look here for more):

  • Fairmondo: a German eBay-like e-commerce platform owned by sellers, who are impassioned to creating a fair marketplace.
  • Stocksy: photographers earn shares and get better pay for their stock photos.
  • Peerby: An Amsterdam-based startup in the share economy, where employees and founders own a majority stake but are both outnumbered by the ownership of the ‘crowd’ having recently secured 2.2 million Euros in a record-breaking crowdfunding campaign.
  • Mondragon: A large Spanish group of 261 companies (about ⅓ are cooperatives) selling everything from kitchen appliances to robots and retail. Managers and employees each have 1 vote in its general assembly, and each cooperative is present at the Cooperative Congress where collective issues are discussed. Members accept salary cuts and transfer money to struggling cooperatives if necessary. There are regulations controlling profit-sharing, for example managerial wages are limited to 9 times that of the lowest earners (in Spain this average is 127:1)


A platform for success

What unites the success stories? Not all platforms are suited to being a cooperative of course, but it seems cooperatives would work best when there is:

  • A desire for ownership: content creators want increased engagement and loyalty in a community, amounting to ‘ownership’. Think drivers for ride-shares, sellers for e-commerce sites, inventors for open-innovation sites.
  • A need for transparency: where blockchain-like agreements, decentralized power or anti-corruption mechanisms are relevant, so too may be cooperatives. Think of distribution of charity funds, monitoring ownership of sensitive data, safeguarding of privacy, and the benefit of assemblies to discuss corporate governance or finance.
  • Balancing value: cooperatives can ensure platforms redistribute wealth proportionately throughout the value chain, irrespective of where it is paid. One of the most common reasons platforms fail is because they inadequately redistribute wealth, according to an HBR article. For example, Covisint’s auto parts platform folded despite 500 million in investment. It forced part suppliers to fight over pricing while disproportionately benefiting the car makers.
  • A focus on the common good: cooperatives are suited to ‘for-benefit’ or ‘purpose-driven’ organizations which emphasize more than profit, as well as protecting employee job security and benefits. Think sellers or producers of fairtrade goods, associations or charities.


A share of skepticism

The example companies are successful yes, but not (yet) the stuff of lore. To reach their full potential, cooperative platforms should fully embrace the digital era (think open-source, open-innovation etc) and the services revolution (people want experiences, not things).

The challenge here is that the majority of people aren’t ready to think of themselves as owners, but rather only as consumers. This will evolve.

More to the point, I believe cooperatives need to be careful with collective decision-making as the interdependencies of strategic business decisions are difficult to interpret for most employees. This makes cooperative business slow and ill-equipped to compete with their capitalist competitors.

But most importantly, I imagine entrepreneurs just aren’t willing to give up the control. It’s hard enough building your own community and then eeking a living off it, scarier still to hand over the governance to the horde.

The adoption of cooperatives is slow because its advocates use principled arguments, rather than business ones. Principled folk tout that cooperatives put the power in the hands of people, democratizes decision-making and prevents ‘evil’ corporations from benefiting disproportionately from the hard work of others. And while this may be true, there are compelling business arguments why cooperatives can outlast and even outcompete their capitalist rivals.

15 Cooperatives Reinier Halbertsma
Image: Reinier Halbertsma

 

The case for cooperation

In business terms, people use P2P businesses because it saves them money, it’s convenient, there’s specialized niche value, and lastly because they feel connected to their peers and a greater good. A cooperative could potentially deliver on all of those.

When Juno connected better treatment of drivers to a cheaper and better experience for the consumer, it successfully balanced both sides of the platform. When Stocksy photographers earn from shares and better rates, they are more loyal to the platform. When Fairmondo created a niche proposition in e-commerce through fair products, it can compete with Amazon.

Finally, a cooperative structure could enable monetization of online communities if they put those interests first (unlike the fate of Digg). The tricky part remains correctly legally structuring profit sharing, asset ownership and decision-making with the best interest of the group, but this is attainable.

Now, imagine an open-innovation platform that would benefit society and reward its inventors proportionately to their impact? Awesome.

Dreaming a little further, cooperative platforms could offer an alternative to traditional jobs lost to AI and automation, honoring the importance of community and capturing the value of sharing.


Article by Reinier Halbertsma, first published on Hubud. Republished with permission from the author and Hubud. 

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