The Sharing Economy

Note to reader: If you’re wondering why this article has a more annoying tone or isn’t as well written, that’s because I am not David Hardage and instead am a lowly guest writer. Please feel free to provide constructive criticism!

The term collaborative consumption – another word for the “shared economy” – makes me think of dirty hippie communes from the ‘60’s. Despite the odd connotations, it’s something that’s actually always secretly been around in the form of community gardens, carpooling for the HOV lane, and asking your neighbor to babysit your kid for some cash.

After our most recent recession, the idea of the sharing economy seems to be slowly entering the millennial consciousness more and more. Companies like AirBnb, Uber, and the Couchsurfing app are increasingly popular these days, and it’s kind of hard to see a downside to making a quick buck on something that you don’t even use. And for millennials, who aren’t ashamed to live with their parents and who are less interested in buying a long term vehicle, sharing seems like a great way to make money. And if someone wants to build a forward thinking, immigrant-loving brand around it, why not? (I’m looking at you, AirBnb).

 

What Exactly Makes a Business Part of the Sharing Economy?

The Economics and Statistics Administration of the U.S. Commerce Department defines this sector broadly, and to paraphrase, breaks it down like this:

  • Use mobile apps and the Internet to facilitate P2P transactions.What is P2P?? I didn’t know either. It actually means Peer to Peer, and refers to sharing production and consumption.Rely on user based rating systems for “quality control” (this also builds trust).
  • Flexible working hours, so you can play Overwatch and drink Mountain Dew by day and drive for Uber at night.
  • “Employees” use their own tools/assets (i.e. you use your own crusty couch for couch surfers)

A Case Study on AirBnb:

After recently raising a paltry $850 million in their latest round of financing, AirBnb is now valued at around $30 billion, give or take, which is up $5 billion from 2015. Should hotel chains be threatened? When the company first started, hotels scoffed at the thought of AirBnb being a potential threat – there was no way one room in Dave’s ugly apartment would be able to compete with an upscale national hotel chain. However, Airbnb is now offering more end-to-end luxury options for the more wealthy consumer. This study done at Boston University found that for a 1% increase in Texas AirBnb Listings, there was a corresponding .05% decrease in quarterly hotel revenues. The results were distributed such that hotels that catered to a lower end consumer demographic (not travelling businessmen and women) were more affected. Overall, the article states that there is a “moderate mitigating impact on hotel revenues”. So I’m assuming if I was a lower-end hotel owner, expecting the sharing economy to grow with the millennial generation, I would be moderately concerned about not appealing to a younger consumer base as much as in prior years. And if I was AirBnb, I’d be over the moon at these prospects of slowly stealing these millennial consumers who simply want a cheap, nice place to stay.

And AirBnb is also a good deal for the homeowner. If Dave rented his spare apartment out for a month, he could get $2,000. If he rented his apartment out for a night, he could make $200/night. In a good location with a 90% occupancy rate, this translates to a surefire way to profit. Just be careful about your city’s laws. All in all, it seems like a win-win-win.

Is the Sharing Economy Going to Keep Growing?

As long as Dave is unlocking value from his unused car, and Betsy the car-renter is benefitting by not paying monthly car payments, this type of shared economy will flourish. Also, any technology that enables this value-creation is poised to do well.

Here is a study done by PWC on what they consider the 5 sectors of the sharing economy. In the next year, they expect P2P transportation to lead the polls in terms of revenue, and on-demand household services to be the fastest-growing.

I wouldn’t get ahead of yourself, though. We have a tendency in this kind of research to overstate and fudge numbers. This article discusses “Ubernomics” and how people who drive Ubers should not expect to make tons more than taxi drivers, just because a Princeton economist says so. It is doubtful that our economy is going to completely fall apart or go through some kind of radical change just because millennials like sharing a little more. It’ll be nice to see if it pans out as expected in the UK, and maybe even the rest of the world.

It will also be interesting to see how existing large companies are going to conform, or not conform to these changes. Colin Strong, former Head of Industry at GfK NOP said it best: “If they do attempt to criticise the business model then they can appear like dinosaurs out of step with the hip new economy. And if they start tinkering with the proposition … it can appear dangerously close to trying to get down with the kids.” Which we’ve all seen and cringed at before.

Should I Love Collaborative Consumption or Hate It?

As you can expect, people have mixed feelings about the sharing economy. Some love itIt’s considered a way to “de-clutter and save money”, and there are plenty of great examples of collaboration. Another reason people love it is because it could be really great for the environment, which it seems people don’t care about unless it makes them money. Shareable has plenty of positive images and headlines about a beautiful future with clean energy and happy people. And lastly, a lot of people love the idea of everyone working together and sharing in harmony. It gives you a warm, fuzzy feeling inside when your Uber driver rates you 5 stars, or you wake up with a hip ache after laying on Dave’s crusty couch for free, I guess.

But also unsurprisingly, there are also a lot of people who hate it. This article talks about Ecmodo, CrowdRent, Share Some Sugar, and a few other failed sharing economy business ideas. There’s a quote from the founder of Neighborborrow, Adam Berk, who used the example of sharing a drill from your neighbor instead of buying one, that made me laugh: “Everything made sense except that nobody gives a s***. They go buy [a drill]. Or they just bang a screwdriver through the wall”. Berk might be right. Maybe nobody cares enough to nurture the sharing economy into a potential threat against capitalism.

Some people take it a step further and are exceptionally dramatic about the sharing economy – it could actually be bad for us. Catherine Rampell cites “income inequality…criminal liabilities…[and] fewer protections” as harmful aspects of business like Lyft and AirBnb. If you ask me, I think everyone realizes there’s a risk to sharing. But there’s inherent risks anytime you think about working for yourself or starting your own company.

Okay..I Guess I’ll Be Indifferent.

Regardless of how you feel about the sharing economy, it’s slowly growing. With the rise of mobile apps and interconnectivity, people are going to be using this kind of business model pretty often in the near future, because millennials are embracing the trend pretty hard. I don’t mind, because sometimes it works really well and makes things really convenient for people who want to save money, go green, or meet Dave and his crusty couch.

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