Digital Economy — Pivotal Role of Shared Economy

PRIMER V

Preamble

A sharing economy is defined as an economic system in which assets and services are shared between private individuals.

It is used as an umbrella term for many different services, apps, and products. These can be divided into three distinct concepts. First, you have the real sharing economy. This is sharing in its simplest form, such as food between a family or household products between flatmates. Wikipedia, for instance, came about as a platform where users could voluntarily contribute and share knowledge.

Secondly, you have gift-giving. You share a product or service — like a birthday cake — in the expectation that others will reciprocate in the future. This concept grew out of the early days of the internet and the open-source movement, where programmers would make software and coding freely available. Napster, the early online streaming service, allowed users to upload their music, in return for accessing other people’s music.

Thirdly, we have the pseudo-sharing economy, which best encapsulates today’s sharing economy. This is the incorporation and monetization of the informal economy — small, unregulated transactions like street food, taxis, or anything that is seen as ‘off the books’. In this sense, many believe the term ‘sharing economy’ to have been misappropriated. The two most prominent sharing platforms — Airbnb and Uber — are very commercial and have very little to do with actual sharing in the sense of solidarity and community.

Why has the sharing economy grown so quickly?

Technology has been the biggest driver behind the sharing economy’s growth. Through digital transformation, corporations have been able to tap into the informal economy and capture some of its value. Micro-transactions and peer-to-peer reviewing have facilitated ease and trust in online sharing. These apps have brought underutilized resources online and efficiently matched them to demand.

It also plays into a culture shift for millennials and Generation Z-ers. People, especially young people, are more comfortable with accessing goods than owning them. Spotify and Netflix, although not strictly sharing platforms, encapsulate the same sense of accessing shared resources rather than owning physical copies. The same logic can apply to anything from belongings on BorroClub to a spare car seat on BlaBlaCar. Big investments have indeed played a part in the growth of sharing platforms. SoftBank invested big sums in Uber and WeWork while they were scaling and attempting to get market share. While these companies still grapple with profitability, and with gaining public ownership, they are as reliant on investment as ever.

Many sharing platforms pitch an alternative to waste, pollution, and excess. But a question mark has been raised over whether they do more damage than good. Bike-sharing apps promise to take cars off the roads and encourage exercise: but photos of bike graveyards, from Chinese bike-sharing app Ofo, show the harm of sharing gone wrong — in their case, fast expansion in an over saturated market.

It is suggested that clothes sharing platforms, like Rent the Runway, are encouraging people to buy more clothes than they ordinarily would in the knowledge that they can hire them out. There is an environmental downside that we try not to think about as consumers. Sharing platforms also pose a threat to local economies. Airbnb has been accused of contributing to rising rent and gentrification. In cities like Berlin, Airbnb has been used to avoid local rent caps, while simultaneously making people dependent on subletting out their rooms to make rent. It profits from growth, while risks and losses are externalized to its environment. Financially, it is still uncertain whether sharing platforms can successfully turn a profit — exemplified by the uncertainty around Uber and WeWork’s failed initial public offerings (IPO). The low number of profitable platforms and the speed with which new initiatives disappear suggests that financial sustainability is mostly not given.

The business model of companies like Uber is self-defeating. What benefits the model is that the more Ubers there are on the road, the cheaper it will be for riders, and the shorter will be the waiting time. If we follow this to its natural conclusion, we will find that it creates congestion, and potentially more empty Ubers driving around.

What is the Impact of the Sharing Economy?

The sharing economy has a history of disrupting traditional business sectors. The lack of overhead and inventory help share-based businesses run lean. The increased efficiencies allow these brands to pass through value to their customers and supply chain partners. Traditional industries are being affected by the sharing economy — and many traditional brands will struggle if they do not adapt to the changing landscape.

Transportation

Uber’s ascension in the transportation industry is one of the best examples to illustrate the effect of the sharing economy in a traditional sector. Uber and other ride-sharing services offer an affordable, safe, and convenient alternative to traditional transportation options such as public transit or taxi cabs. By utilizing an efficient mobile application and network of vetted drivers, Uber satisfies consumers’ transportation demands while providing an arguably better user experience than traditional means. In just New York City alone, there are roughly 4.5 times more Uber drivers than yellow cabs. This has caused the price of owning a taxi cab in New York City to drop from $1 million in 2015 to less than $200,000 today.

Top Sharing Economy Brands in the Transportation Space:

• Uber: $72 Billion

• Didi: $50 Billion

• Lyft: $11 Billion

Consumer Goods

PWC research suggests that 86 percent of U.S. adults familiar with the sharing economy say that it makes life more affordable and 83 percent also agree that the sharing economy is more convenient and efficient than traditional methods. Affordability, convenience, and efficiency are also three of the most influential factors in a consumer goods purchasing decision. Therefore, it is no surprise that share-based brands are also dominating the consumer goods industry. eBay is one of the pioneers of the peer-to-peer marketplace. Their innovative platform allows users to buy and sell used or new items through their interface, and have the goods shipped directly to their home. Consumers can browse a variety of products at custom price points, in various conditions, and with different guarantees. This empowers the consumers and provides them with a more affordable, convenient, and efficient way to purchase goods.

Top Sharing Economy Brands in the Consumer Goods Space:

• eBay: $36.8 Billion

• Etsy: $5.2 Billion

• Rent the Runway: $800 Million

Professional and Personal Services

The benefits of the sharing economy are best illustrated in the professional and personal services space. Professional and personal services are defined by work that requires special knowledge, skills, experience, certifications, or training like copywriters, accountants, or plumbers. Concerning the sharing economy, this is also referred to as freelancing, gigs, and other trendy terms equating to short-term labor. Powerhouses like Fiverr, Upwork, and TaskRabbit create value by providing a fast, friendly, and secure platform on which people or businesses can find contractors for hire. Freelancers can earn extra money sharing their trade skills and expertise — not unlike owners renting access to their home or car owners sharing rides.

Top Sharing Economy Brands in the Professional and Personal Services Space:

• Fiverr: $351 Million

• Upwork: $168.8 Million +

• TaskRabbit: $50 Million +

Healthcare

The healthcare industry is expected to generate annual revenues of $8.7 trillion by 2020. That likely explains why venture funding for digital health startups increased by 45 percent in 2020. Although the sharing economy has yet to take hold in the healthcare industry, many experts suspect it to be the next frontier for collaborative consumption. The limitations of traditional healthcare systems, expenses, and resources are factors that we’ve seen mitigated in other industries through share-based methods. From tele medicine to group consultations, the sharing economy is destined to change the healthcare industry.

For instance, it is estimated that 58 percent of the time, medical equipment sits unused — creating storage and maintenance expenses. Therefore, share-based startups like Cohealo are helping hospitals save money and increase equipment value by developing technology that enables hospitals to share medical equipment with other healthcare facilities.

Top Sharing Economy Brands in the Healthcare Space:

• American Well: $441.5 Million

• Doctor On Demand: $160 Million

• Cohealo: $9 Million +

What is next for the sharing economy?

Technology has helped the sharing economy advance to where it is today — and, the trend should only continue as we become more connected digitally. While we have seen how dominant collaborative consumption can be in industries like transportation, consumer goods, and services, many other traditional sectors will soon experience changes because of the sharing economy.

There is a clear need for sharing economy platforms to change and diversify their revenue, towards more lucrative industries of the future — artificial intelligence and data. Uber’s self-driving car business is already valued at $7.25 billion, while the company is also gathering more data about users’ travel behavior, including on public transport. Airbnb is also partnering with local tourism industries, now offering Airbnb Experiences. Just as large existing platforms are updating their offerings, sharing will likely be applied to new, relevant industries. Construction industry area where tools, resources, and work forces can be shared.

Energy also seems to present a sharing opportunity. Community micro grids enable small-scale access to renewable energy, sharing the cost between users and selling excess to regional or national grids. This small-scale sharing is gathering traction through sharing platform cooperatives. These are putting more emphasis on ownership, for both workers and users. New York-based ride-sharing app Juno, for instance, only takes 10% commission from its drivers (compared to 20–30% that Uber takes), while it gives drivers the option to be contractors or employees.

Time will tell if these present a viable alternative to large sharing platforms, but it is an interesting counter-trend where we’ll likely see much more movement in coming years.

What are the disadvantages of Sharing Economy?

Since the sharing economy launched in the mid-2000s, the traditional way of doing business has changed forever. The shared economy concept has changed the way that people give and receive services. Some critics have claimed that this new business model has caused traditional businesses to suffer over the years.

Privacy or Safety Concerns

The on-demand business model has caused privacy and safety concerns for both customers and contractors. This type of sharing economy requires people to give up some of their privacy. When you request a ride through Uber or Lyft, you essentially request to get a ride from a stranger. When you rent out your house on Airbnb or VRBO, you are encouraging strangers to use your home.

No Guarantee of Service in Shared Economy

When you are sharing a car with others, you should assume the risk that the item you share could get damaged. Ride-sharing platforms possess this risk since drivers are required to have an operating vehicle. The ride-sharing company does not provide vehicles for drivers to use. Riders in your vehicle can cause damage that you are responsible for. You may have to pay an insurance deductible if you own the vehicle, or a security deposit if you rent or lease the vehicle. A security deposit prevents any damage to your vehicle during the agreement. It is refundable if damages are not detected when you turn on your vehicle.

Risk of Fraud and Scams

When purchasing these services online, drivers and riders are not protected from fraud if there is an intent to mislead. Uber and Lyft drivers can scam passengers by requesting cash up-front or charging fees to the rider’s credit card or PayPal account. On the flip side, Uber and Lyft drivers can get scammed by passengers who bring other passengers along, use fraudulent credit cards, or cancel the trip mid-ride. There are times when drivers who spent several hours on the road are defrauded by bogus riders who request a ride and are nowhere to be found once the service is provided. This is also the case through food service apps such as UberEats and GrubHub.

New Version of Capitalism

The sharing economy has contributed to a new form of capitalism. Apps like Airbnb, Lyft, and Uber are making most of the profits. The sharing economy requires the use of a third party to provide services. It should be referred to as an “Access Economy” since it provides a platform for drivers to provide services and for riders to access those services. The ride-sharing companies are the ones who profit the most from these services, not the individuals who offer these services through these mobile apps.

Lack of Customer Loyalty

Consumers no longer feel the need to be loyal to a specific brand. They can jump from one ride-sharing platform to another if they need to do, especially when the outcome of the service is the same and is similarly priced. Many riders have switched back and forth between Uber and Lyft to find the cheapest rate at a given time. The same goes for rental services. Customers can go back and forth between VRBO and Airbnb. There are plenty of foodservice apps such as GrubHub, UberEats, Doordash, and Postmates. If you have a bad experience with one service, you will want to switch to another to see how it operates. There are plenty of service apps to go around. New companies keep popping up in big cities that promise cheap deals and sign-up incentives. The same goes for people who want to work for these companies. Since the sharing economy is built upon independent contractors they do not receive the same benefits as full-time employees.

This leads to another problem when it comes to legal matters. In the event you get injured, you cannot sue Uber or Lyft since their drivers operate as independent contractors.

These companies can maintain overhead costs since they do not provide benefits such as health insurance. The good thing about the sharing economy is that these companies are always looking for people, as contractors do not have to remain loyal to a single company. Most service platforms are often faced with this problem.

Service is often Expensive

Even popular services like Uber and Lyft have a hard time keeping customers. Customer behavior is often episodic and sporadic to determine the revenue goals. You may enjoy Lyft’s service, but how long are willing to pay for their ride-sharing? Many people are glad that such a service exists, but they do not use it regularly because of the rising costs.

CONCLUSION

The sharing economy has many advantages and disadvantages that most people should take into consideration. It has gained popularity over the years due to its convenience. As for its obvious flaws, there is still room for improvement. Everyone needs to make note of these disadvantages of the sharing economy and decide when it is appropriate to use it.