Aug 01, 2014

The Sharing Economy

Last month we wrote about the growing popularity of Everything-as-a-Service (XaaS) and discussed companies that are delivering every function as a service, such as Airbnb and Uber. This month we look at another trending term for this slew of Internet business opportunities from – the ‘sharing economy’.

The sharing economy is an all-purpose term for peer-to-peer firms that connect people for the purposes of distributing, sharing, exchanging or reusing goods and services. Market Revolution describes the sharing economy as “a set of practices and models that, through technology and community, allow individuals and companies to share access to products, services and experiences.

It’s reinventing an already existing model. This is essentially what “as-a-Service” is, where companies extract value from a physical or intangible asset they already have by dividing it into space and time and offering it for consumption as a service.

The Growth of the Sharing Economy

The Growth of the Sharing Economy

Source: Nielsen & Mashable

The Benefits of the Sharing Economy

Sharing services helps to eliminate waste, improve efficiency, and connect people. Since most of these services are hosted on the cloud, technology has reduced transaction costs, making sharing assets cheaper and easier than before.

The Appeal of the Sharing Economy

The Appeal of the Sharing Economy

Source: CampbellMithun

The income benefits of the sharing economy are substantial, with U.S. sharers estimated to have made $3.5 billion in 2013. According to an article by Jaime Contreas in MIT Sloan Expert, the sharing economy is the next big trend in social commerce and collaborative consumption, and is a potentially $110 billion market. Meanwhile, an AirBnB national survey found that “the sharing economy has an estimated $26 billion value, including online platforms that make it easy to do everything from renting out spare rooms in your house (AirBnb) to carsharing (Zipcar), clothing swaps (ThredUP), even sharing extra portions from homecooked meals (Shareyourmeal, of course)”.

“The revenue flowing through the share economy directly into people’s wallets will surpass $3.5 billion this year, with growth exceeding 25%. At that rate, peer-to-peer sharing is moving from an income boost in a stagnant wage market into a disruptive economic force.” ~Forbes

Why is this Applicable to Companies?

Currently, much of the sharing economy is centered on consumer-driven initiatives, such as hotels and cars. However, the opportunities for application to business are large.

“Collaborative consumption is not a niche trend, and it’s not a reactionary blip to the recession. It’s a socioeconomic groundswell that will transform the way companies think about their value propositions – and the way people fulfill their needs.” ~ Harvard Business Review

Many large companies are already embracing the sharing economy. Home Depot now has a unit that rents out products and tools. And General Motors in 2011 invested $3 million in RelayRides with the homes that they could incentivize sale that a new car could come with a rental income stream attached.

In terms of the workforce, there are interesting applications available. For example, companies often want to try out new management teams to see if a new perspective will bring about a different result.

Sharing executives could allow skilled managers to swap companies and share fresh ideas.

Looking at crowdsourcing from a different perspective, it’s essentially a way of sharing a task. When a task is broken down into multiple components, multiple workers are responsible for completing a micro-task, building to the completion of the end goal.

Some argue that those who provide sharing services – such as Uber drivers who give rides – are essentially independent contractors paid a fee for a service they provide. A phrase gaining momentum that encompasses both the related collaborative economy and the sharing economy is the “gig economy”, where a worker provides and is paid for services on a project-by-project basis.

“There needs to be a third classification that eases the transition between being a freelancer and being an employee.” ~Denise Cheng, Research Assistant at MIT Center for Civic Media

Measurement and Regulations

The rise of the sharing economy is causing confusion for both economists and regulators. Economists are unsure how to measure this activity and its impact.

“We’re going to have to invent new economics to capture the impact of the sharing economy.” ~Arun Sundararajan, Professor at Stern School of Business at NYU

There is also concern from a regulatory standpoint. Issues that need to be resolved include working out how these services are taxed and whether customers and workers are protected sufficiently against liability and fraud. Just recently, Uber Technologies Inc. was sued for exploiting its drivers. The lawsuit claimed that the company had misclassified its drivers as independent contractors to avoid paying them the same as employees with benefits.

“A lot of immigrant drivers embrace their independent contractor identity. I think this is why Uber and Lyft are so much more appealing on an individual level, even though it’s worse from a regulatory standpoint.” ~Veena Dubal, Labor Researcher with National Taxi Worker Alliance

“We’re moving from a world where we’re organized around ownership to one organized around access to assets.” ~Forbes