Section 7.4: The “sharing” economy

7.4.1: Sharing economy 101

The sharing economy is a socio-economic framework in which individuals are able to borrow for free, or rent for a fee, the assets or resources owned by someone else.

It builds on the principle of maximizing the value and use from otherwise underused physical assets or services. In other words, a sharing economy model is more likely to take place if the price of an asset is high and the asset is not fully used all the time. A good example of such an asset, especially in Singapore, are cars. Cars are very expensive to buy in Singapore, but most people only use their cars a few times a day. The rest of the time, the car sits in a parking lot somewhere, idle. Enter: Uber.

Communities of people have shared the use of available assets for thousands of years. The development of the internet has made it easy for asset owners (providers) and those seeking the use of those assets (users) to find each other and work together for their mutual benefit.

This framework allows users to get by without having to invest and own expensive items, while creating opportunities for owners to extract additional value from their idle possessions.

By making it easier to share assets on demand, the sharing economy enables different forms of value exchange within a hybrid economy, at the same time increasing resource-use efficiency and promoting sustainability.

Examples of the “Sharing” economy

A) Peer-to-peer lending
Peer-to-peer lending platforms allow individuals to lend and borrow money, without going through a traditional bank entity. Based on the borrower’s credit history, the interest rate is determined and set by the platform (based on algorithms), which acts as the intermediary between the two parties. However, the individual who lends the money bears a high risk.

B) Crowdfunding
Similar to peer-to-peer lending, crowdfunding connects people who need money with those willing to provide it, for certain rewards or benefits. Platforms such as Kickstarter and Indiegogo, enable entrepreneurs, artists, and others to present startups or pitch project ideas to a global community of potential funders. This allows multiple potential investors to study the value of the project/idea and decide if they would like to contribute to it.

C) Apartment/House Renting and Couchsurfing
Apartment/home sharing platforms, such as Airbnb, and Couchsurfing, connect homeowners with people who need a place to stay when they’re traveling. Hosts set the nightly price and specify available dates, typically when they’re not using the property. In preparation for a trip, visitors can browse accommodations in their destination and choose a place that fits their desired neighborhood, amenity needs, and budget.

D) Ride and Car-sharing
Ride and car-sharing offers consumers some of the benefits of car ownership, such as easy access to a city without having to rely on public transit, with a few small drawbacks, such as paying for gas, insurance, and maintenance.

With apps like Uber, Lyft and Grab, individuals can hire private or shared rides from drivers in their personal vehicles. Services like Car2Go and Zipcar, permit the hire of a shared vehicle, owned by a for-profit or nonprofit organization, and pay for the time you drive it. And with newer companies like FlightCar, you can park your personal vehicle in an airport parking lot and rent it out to someone who needs it via a website.

E) Co-working Spaces
Co-working spaces lets you share the cost of office rent, utilities, storage, mail, and office supplies with other professionals. This method of space sharing is especially useful for freelancers, sole proprietors, and very small businesses that don’t have huge inventories requiring lots of storage space. These facilities are set up with all necessary amenities and services, and provide renters with the flexibility to pay only for the time, space and utilities that they occupy and use within the office.

F) Reselling and Trading
If you’ve ever used eBay or Gumtree, you’ve participated in this part of the sharing economy. These online platforms allow users to buy, sell and trade new and used goods without face-to-face interaction. Markets, retail outlets, and manufacturers often sell new items with a significant markup. But when consumers share a physical product on such platforms they are able to cut out the middle man – the retailer or manufacturer – and recover some of the cost they paid for it initially. These online marketplaces for used goods, let sellers extract value from things that might otherwise collect dust and buyers obtain needed items at a significantly lower cost. This arrangement additionally provides a more sustainable alternative to pre-loved items, instead of disposal.

G) Knowledge and Talent Sharing
Traditional jobs may never go away entirely, but for some, talent marketplaces may be a much more enticing form of employment. Talent marketplaces are more flexible than traditional employment arrangements, eliminating the stress and complexity of the hiring process for everyone involved. If you have the requisite skills or knowledge, these platforms allow you to earn money by providing them, often from the comfort of your own home (or at least your own car).

By creating more liquid marketplaces for knowledge and talent, this facet of the sharing economy enables busy people to delegate work on demand – and creates economic opportunities for those willing to do it.

7.4.2: Business and the sharing economy

The sharing economy presents some stark realities and implications for manufacturers, producers and service providers that established their businesses on the previously endless demand for asset and resource ownership. The growth of the sharing economy has introduced the notion of “collaborative consumption”. This trend has disrupted traditional business models by permitting consumers to access assets without the burden of owning or maintaining them. In turn, the overall demand for new purchases of products and services has lowered as they can now be accessed and used communally. The image below summarizes some of the key differences between the two operational business models:

Source: IMD Business School

So what can companies do to remain relevant and competitive?

For one, they may consider the operational benefits of participating in the sharing economy by renting out underused assets like office space and production tools. They may also choose to counter the culture of product obsolescence by designing modular products that are interchangeable and interoperable with other products.

Proactively, some automobile manufacturers have embraced the consumer demands the sharing economy and are adapting by developing wireless entry mechanisms so that owners can rent their vehicle without needing to hand off keys. They have also expanded into after-sales service and care provision by introducing warranties for shared use. To improve their market exposure and competitiveness, other companies have also started developing their own “sharing platforms” in an effort to encourage their customer base to share the use of their products. Ford’s 2011 partnership with Zipcar is an example of an early move in this direction.

It is easy to see that a shift towards the sharing economy requires major shifts in strategic thinking on behalf of companies. The question remains, however, as to whether the sharing economy truly improves sustainability for global economy. What do you think?

Source: RSA 2016

The role of companies in relation to consumers may change in this new economy. Instead of being providers of products and services, there may be opportunities for companies to become trusted advisers with powerful economies of scope: the more they know about consumers, the more they are aware of their needs, the more adaptable they can be, and helpful they can become.

Coordinating the “Sharing” economy

Over the past 7 years, the retail world has seen a shift with the rapid rise of the “sharing” economy. With companies like Uber, AirBnB and Taskrabbit leading the way, it is expected that the sharing economy will easily reach global revenues of $335 billion by 2025. The growth of these new models of business, present opportunities for its participants, as well as governance and regulatory bodies to play a role in guiding and coordinating its progress.

Legislation has the potential to turn the tide on waste and counter obsolescence by encouraging individuals and communities to fix and repair items, instead of embracing the “throwaway consumer culture”. Sweden for example, has announced significant tax breaks on repairs made to clothes, bicycles and whitegoods (fridges, washing machines, dryers). These incentives are intended to reduce the environmental impact of the national population, and influence consumer choice behavior.

National Priority
In 2016, the Norwegian government appointed a Sharing Economy Committee by royal decree and established the Sharing Economy as a national priority. The Committee was tasked with identifying and assessing regulatory provisions challenged by the sharing economy, including regulations in markets in which the sharing economy was especially prominent (ie. transportation); the labor-market consequences of the sharing economy, as well as consumer protection rules and the objective of consumer safety.

Entrepreneurship and Industry Collaboration
In the UK, funding incentives were initiated to encourage companies and research organizations to forge new paths towards embracing the sharing economy. Innovate UK ran a funding competition through its IC Tomorrow Programme, offering 6 businesses up to £30 000 each. Competitors were required to submit proposals on innovative digital ideas with wide appeal to the commercial market, and relevant to the sharing economy. Competition winners were also provided with the opportunities to collaborate with commercial and industry partners to develop their ideas.

Community Driven Initiatives and Grassroots Organizations
Transition towards the Sharing economy can also be initiated by communities and grassroots initiatives. The Repair Café Foundation (Netherlands) was established to reintroduce repair instead of disposal, as part of the local community again. It seeks to promote ingenuity, maintain and spread repair expertise, and to promote social cohesion by bringing together communities and individuals from all walks of life and sets of motivations as part of a sustainability collective. The value of the organization and the demand for its integral role within the global sharing economy has seen grow to 1420 repair cafes worldwide in the span of 7 years.

Similarly, OuiShare is a non-profit that seeks to build and nurture a collaborative society by connecting people, organizations, and businesses, with ideas built around fairness, transparency, and trust. Powered by a network of OuiShare Connectors that lead projects and activities via its 6 operational hubs, the organization connects its global community relevant projects to initiate systemic change and a transition towards a global sharing economy.

Supplementary Resources

The Economist (2013) ” The rise of the sharing economy” 

Varma (2015) “My life in the sharing economy”

PWC “Consumer Intelligence Series: The Sharing Economy”

Wharton Business School -UPenn (2015) “How green is the sharing economy” 

Berg & Fitter (2016) “How brands can take advantage of the sharing economy”

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