Over the past few years, we have seen an emergence of peer to peer “rental” sites that allow people to rent out their belongings to others looking for short term use of that asset.  Users can log on to relayrides.com to share their car, airbnb.com to share their house, or zilok.com to rent just about anything else.  Additionally, we have seen an exponential increase in the success of multi-sided e-commerce websites that connect sellers and buyers from around the world to facilitate global commerce.  Alibaba.com, Tradekey.com, and globalsources.com are a few of the sites that are attracting hundreds of thousands of users and million dollar valuations.

The single biggest threat to these business models, as I see it, is a loss of trust between the two parties.  The fundamental issue here is the balance of power – the perception that one side has a lot to lose while the other side has little risk in the transaction.  To explain:  In the peer to peer sharing sites, the lender risks renting to an irresponsible renter who trashes his or her valuable property; for the e-commerce site, the buyer risks paying for an item only to be delivered an inferior product, or, even worse, delivered nothing at all.

To further illustrate this point, two examples have appeared in the media recently.  Their potential to undermine the business models serves as a warning to this fledging industry.

Airbnb came under attack this summer when a renter nicknamed EJ lent her apartment to a vacationer, and returned to find it vandalized and ransacked.  EJ described the experience in a blog post that went viral, garnering the attention of Techcrunch, USAToday, and CNN.  She writes, “[the renter] and friends had more than enough time to search through literally everything inside, to rifle through every document, every photo, every drawer, every storage container and every piece of clothing I own, essentially turning my world inside out, and leaving a disgusting mess behind.”

Airbnb isn’t the only site where a breach of trust occurred between its two parties:  in February of this year, Chinese police arrested 36 people accused of fraudulent practices on Alibaba.com.  These “business people” are accused of scamming buyers out of an estimated $6 million by taking payments for items that they never actually delivered.  The event was made even more scandalous by the fact that these sellers were granted “Gold” supplier status by Alibaba employees who were allegedly aware of the scam.

Despite the verification systems that were in place in each of these cases, people still got burned.  Such examples bring the reputation of the world-wide, multi-sided platform business model into question.

So, what needs to be done to ingrain the integrity of the business model?  Below, I offer some advice on how to build trust between the parties:

1.    Take responsibility:  It’s not enough anymore to simply build a site that facilitates transaction.  Users expect more.  Perhaps expectations have been set by industry trailblazers like eBay, which acts in a no nonsense manner when dealing with questionable or suspect transactions.  Both buyers and sellers risk removal from the site if practices are called into question.  Multi-sided platforms need to protect both sides from the risks inherent in the transaction, through tools like insurance policies, escrow accounts, and post-transactional feedback tools.

2.    Find out what’s broke and fix it, immediately:When Alibaba discovered that its own sales staff had been involved with some or all of the 2,300 cases of fraud over the last two years, leaders were held accountable.  The company’s CEO and COO removed themselves from the organization after the fraud was uncovered to take responsibility for the “systemic breakdown.”  This, combined with their public admission of guilt, has gone a long way in keeping down bad press and building user confidence.

3.    Be proactive:  Rather than waiting for an unfortunate event to occur before acting, anticipate the risks and protect your users.  Relayrides, for example, holds a $1 million supplemental insurance policy for its car renters and installs an immobilizer on the vehicle to prevent cars from being started without a reservation.  It is necessary to implement stringent requirements for both sides of the platform – be it mandatory compliance to a legally binding Code of Conduct/Ethics or compulsory screening of rental properties and manufacturing sites.

In summary, there is value created for both sides using these platforms.  If a platform wants to remain a viable business, however, they must invest in security measures to protect their customers and be prepared to take responsibility when something does occur.  Building trust, taking responsibility and underwriting a product or service are just good and basic business practices.

How much would you charge somebody to rent your apartment? What about your car? At the moment, you can find a general insurance adjusted market price for renting your apartment on Airbnb.com and your car on several websites, including Relayrides.com. In the 1990s Enron created a platform that leased excess energy capacity to companies whose energy demand exceeded their organic supply. Other companies, like Rent-A-Center, have leased appliances and home goods to low-income Americans and generated healthy economic returns for years. But what if you could rent anything to a customer? What if a platform enabled you to rent any underutilized asset to other people for any amount of time?

Rental markets have been successful for decades in markets that have transparency. Due to the manner in which social networks have engendered trust amongst strangers and to consumers’ increased propensity to conduct e-commerce, I posit that a peer-to-peer rental platform for all products could be highly successful. Particularly given the recent explosion of specialized rental websites like RentTheRunway.com and BagBorrowOrSteal.com, it is safe to say that there is demand in the marketplace for an increasingly larger mix of rental products. To capture this latent demand, a platform could be created that would charge lessors a variety of fees to advertise items (as small as paperclips and as big as airplanes) that lessee’s could either bid up or make a flat payment to rent.

If a platform were to exist, it would need to focus on three key aspects – lessor and lessee mobilization, identification of key platform features that drive the network effect, and determination of a flexible insurance scheme.

The website would first have to focus on mobilizing lessors and lessees. To attract users to the platform, the website operators would need to get enough risk capital from VCs to sustain a marketing campaign. The campaign could be focused on a small U.S. region with a high population density. Lessors might also be convinced to join the platform by offering discounted access to the platform for a few months.

The second priority would be to create and identify platform features and events that generate and sustain a network effect. Accordingly, the platform would need to enable lessors and lessees to build their reputations and participate in community boards. Heavy users would also be encouraged to meet in person. At its inception, eBay.com encouraged users to participate by hosting in person seller workshops. Such events enabled fans of the platform to meet, exchange ideas, and reinforce their commitment to sustaining the community. Similarly, Yelp.com hosts parties for its top reviewers.

Finally, the website would need to determine an insurance scheme that is flexible enough to apply to the variety of rental items while also minimizing adverse selection.

So, the next time you walk through your house or apartment, examine all of your possessions that are collecting dust and ask yourself if somebody somewhere would rent it from you. When was the last time that you actually used your blender? What about your mini-fridge from college? Or what about that space heater? In the near future, you might be able to rent those underutilized assets and generate some income.