Centralization has been the norm of business. By this, it means that businesses with means of production produce goods and services. The companies own the process and the finished products. Workers and consumers have no role in contributing or sharing the value from the final products. However, liberalization is coming to the business arena.
With the internet and technological innovations, many individuals are embracing decentralization. This aspect is inspiring the rise of new business models to replace the old ones. Peer-to-Peer or P2P is among the latest models based on the decentralization concept. But what does it involve? Keep reading to learn more.
What is the Peer-to-Peer Business Model?
P2P is a business model where individuals – which can be businesses or people – transact with each other directly. The process is free from a third party and involves minimal intermediary. Unlike the traditional approach, this model comes with decentralization. The individuals taking part in this model own their tools and means of production.
Also, it involves the use of individual or private contractors who deliver service to customers. The model involves a platform that acts as the matchmaker enabling the two parties (seller and buyer) to meet. The platform also facilitates the fulfillment of the buying and selling process. Hence, the P2P model connects sellers with buyers directly without involving brokers and third parties.
How Does It Work?
Like other models, it is essential to understand how the peer-to-peer business model works before considering it as an entrepreneur. The P2P model involves sellers and buyers transacting with each other without having an intermediary. The facilitation happens through an online platform.
Unlike in the traditional approach, where firms own the factors of production and the finished products, this concept changes that idea. The approach focuses on the distribution of value across the production line through enhancing its decentralization. This means that both parties in this model own the tools and production resources.
Individuals can transact with both businesses and their colleagues. In other words, customers can offer value to other customers or sell their products to companies. For instance, individuals can lend money to each other without requiring a bank to facilitate the process.
Car owners can lend their cars to colleagues who need to use them without needing a taxi company managing the process. The same case with house owners can rent out their extra space to campers or people seeking accommodations without involving real estate agents. So, it is possible to have suppliers and service providers who do not participate in the production process.
Examples of Peer-to-Peer Business Model
Many online marketplaces apply the P2P business model in their operation. These marketplaces make it easy for sellers and buyers to meet and transact without involving a third party.
eBay is an excellent example of businesses using the P2P model. This online marketplace allows sellers and buyers to meet transact business with each other. The platform does not manage the production of the items sold. Its role is to match a buyer with a seller offering what they want.
Fiverr is another example in this category. The online platform connects freelancers and clients seeking services in different fields such as digital marketing, graphic designing, content writing, programming, web designing, and many others. The platform charges a fee for the connection service and facilitates the transaction process to ensure each individual fulfills their role.
Tripping also applies this model. This company enables property owners to monetize their available spaces and rooms to people needing accommodation. The company gets some fee for facilitating the process while both parties get value and connection. Other businesses operating through this model include Airbnb, Lyft, Upwork, and Guru, among others.
Pros and Cons of the Peer-to-Peer Business Model
A P2P model is an excellent approach enabling individuals to earn value from products and services they offer. For this reason, many individuals and experts are considering it as a way of monetizing their resources and skills. Nonetheless, it has its fair share of benefits and downfalls. Here is a number of them:
Pros
Cost reduction
The P2P model enhances cost reduction for the producers. Initially, the producer had to bear the production, marketing, distribution, and transportation costs. These costs made it hard for many players to join the industry and reduced the profit margins.
With P2P, producers connect with their buyers directly. They do not need to spend marketing, insuring, or distribution costs. Through the P2P platforms, sellers and buyers can search and meet each other. The producers meet people who need their products or services without incurring numerous expenses. Hence, the reduction in these costs leads to increased profits.
Boost specialization
The P2P model offers individuals an opportunity to do what they know best. Experts do not need to perform other commercialization tasks. Their role is to concentrate on their skills and invest time in improving them. This way, the model improves specialization and delivery of high-quality results.
Enhance user data access
Through the platforms, individuals can access and learn the customers’ needs by analyzing user’s data. This aspect helps you to create and offer products or services that align with the market needs. As well, you can use that information to perform personalized marketing.
Cons
No guarantee on quality
Unlike the traditional models, there is no guarantee of the quality of products and services you receive. The P2P platform owners do not have any role in the production process.
So, users rely on the providers’ ratings to make their purchase decisions. The ratings can be fake aimed at deceiving the customers. The case can be even worse when a platform does not offer an option for refunding the amount paid.
Conclusion
In a word, the P2P business model is changing how people do business. The model allows you as an individual to do business with your peers without involving a third party. This aspect is enhancing specialization. Experts need to focus on sharpening their skills and no other commercialization activities.
Also, it lowers the cost of doing business as one does not need to invest in the complex production and distribution process. However, it has some setbacks like a lack of guarantee on the quality of service and product delivered. Despite this aspect, the approach is enhancing the distribution of value across the business processes.
