An Introduction to Sharing Economy

© Shutterstock.com | SkyPics Studio

In this article, we explore the 1) what is sharing economy?; 2) the fundamentals of sharing economy, as well as 3) the major players, and 4) the future of shareconomy.

WHAT IS SHARING ECONOMY?

Sharing Economy Defined

The word “shareconomy” is coined from the phrase “sharing economy” which, to this day, remains to be a blurry concept to some, primarily because of how broad the subject is. This new economic model is considered to be a step away from the conventional models, since it focuses not on ownership, but on access to assets or resources. Sure, it tackles issues on production, distribution, consumption, supply and demand of goods and services – essentially what one would normally encounter in any economy.What sets it apart, however, is the emphasis on the concept of sharing and its application to these processes.

In layman’s terms, a sharing economy is an economic model where assets are shared directly by stakeholders, after coordination has been conducted over the internet. Think Airbnb – probably the name most recognizable when it comes to sharing economy. People from practically any part of the world can now borrow or rent beds, rooms, cars, and other assets. And it is all done via communication among the parties over the internet.

Sharing economy, or shareconomy, also goes by other names, such as collaborative economy, collaborative consumption peer-to-peer economy, and relationship economy, to name a few. When the idea first became widely recognized in 2011, it was dubbed by TIME Magazine as one of the “Ten Ideas That Will Change the World”.

A Brief History of Sharing Economy

When eBay was launched in 1995, the world saw a shift in how people gain access to goods and circulate them in the market. The continuous advancement of technologies, particularly those of a social nature, also contributed to the rapid movement of goods and services. The growth was so fast that the market had to find a way to keep up with it. There is also humans’ natural instinct to concentrate solely on their self-interest when it comes to acquiring and using resources. As a result, depletion of these resources is inevitable. Supplies are low, while demand just keeps growing.

The call for action was answered by one simple word: sharing. Collaboration.

In the book entitled “What’s Mine Is Yours: The Rise of Collaborative Consumption” in 2010, Rachel Botsman and Roo Rogers first introduced the concept of shared social and economic activity. According to them, this “social revolution” entails the utilization of “shared and open resources” across “multiple platforms” in order to create or derive value which, in turn, will benefit the community. According to Botsman, this type of economy puts great stock on trust, which is considered to be its main currency. Without trust, collaboration would not be possible, and sharing economy would fail.

It is safe to say that what cemented this new economic model in place is the major leaps and bounds taken by information technology in recent years, providing more platforms for collaborative consumption to take place.

As sharing economy began to take root, it then spread onto corporate cultures, introducing concepts such as connectivity, openness, community and building bridges. Corporations are now recognizing the importance of relationships – and sharing – in how they do business.

THE FUNDAMENTALS OF SHARING ECONOMY

To gain a better understanding of what sharing economy is, it is time to take a closer look.

Principles of Sharing economy

Efficiency in the utilization of resources is very important in any economy, and it is no different in shareconomy. Here are some of the guiding principles of sharing economy that everyone should know about.

Trust is its main currency

Botsman has reiterated on the importance of trust in creating reputation and building relationships in a sharing economy. In short, for a fair exchange to be successful, the parties to the transaction or exchange must be trustworthy. A supplier must be able to trust its consumers to pay and, in turn, consumers must be able to trust that the supplier will deliver what was agreed upon. Failure on the part of any participant to trust the others – and to live up to that trust – will lead to the failure of the transaction or exchange.

Access over ownership

As mentioned earlier, it’s not about owning it; it’s about gaining access to it. A consumer no longer has to limit himself into looking for goods that they can own. For example, instead of buying a boat, he can think about renting or borrowing one. In other words, enjoyment of the benefits of a good or service does not require ownership.

No value is wasted

It has been said many times before that “unused value = wasted value”. Idle capacity means zero capacity. Imagine a car that is used, say, only one out of five days. This means its utilized value is only up to 20%; the other 80% is value that is wasted, since it is not being utilized up to its maximum potential.

Transparency and openness

Mainly, this refers to the sharing of information in order to enable users to gain access to resources. A classic example would be the AirBnB network, which is comprised of providers of homes and living spaces. It has actively initiated openness of data, making its database available to larger communities of consumers looking for living spaces, thereby allowing for more possibilities of connections between service or goods providers and consumers.

Sharing Economy Drivers

Businesses would not adapt sharing economy, if not for certain forces that drive them towards making the shift. Here are some of the reasons why more and more organizations are getting in on the shareconomy bandwagon.

  • Rapid population growth. It’s a two-pronged fork. As the population grows, demand for goods and services also increases, so there is a need to look for alternative ways to address the increasing demand for these resources. On the other hand, the increase in the population, which is at a fast clip everywhere in the world, also opens more doors and presents more opportunities for sharing and collaboration to take place.
  • Rampant spread of poverty. Various crises taking place all over the world inevitably contribute to the rising poverty rates. These resulted to corresponding increases in unemployment and underemployment, as well as inequality in income and purchasing power of consumers. In order to adapt, there is a need to come up with alternative business models and economic structures.
  • Rise of information technologies. The increase of smartphone users is just a small portion of what is now known as the rise of information technologies. Aside from mobile technologies, the huge popularity of social media, and how it figures greatly in consumerism, is also a major driving force of sharing economy. Certainly, it is now easier for people from different parts of the globe to communicate and transact directly with others.
  • The unstoppable growth of sharing economy or participants in collaborative consumption. This is a classic case of “everyone else is doing it, so why shouldn’t we?” To date, thousands of organizations and companies on a global scale are getting a piece of the shareconomy action, realizing large profits and revenues, and still growing at a fast rate.

Sharing Economy Models or Structures

When adapted to various organizations and business, sharing economy does not have a single model. In fact, shareconomy allows more room for flexibility, so organizations and business could customize its processes. Here are some of the more common business models adapted in shareconomy.

Service Fee model

Quite possibly the most common form of sharing economy structure, this business model entails the organization or the company acting as a matchmaker, matching consumers or buyers to sellers or service/goods providers, for a certain fee for their matchmaking services.

Example: AirBnB and HomeAway both match guests to hosts. For every reservation booked via AirBnB or HomeAway, a service fee ranging from 6% to 12% is charged. The hosts are also charged a service fee of 3% of the total price, as payment for AirBnB’s efforts in connecting them to guests.

Freemium model

In this structure, an organization or company offers a service, platform or app for free, but only up to a certain extent. Users are then given the option to upgrade, this time, for a fee.

Example: Swap.com, an online service for swapping, trading or simply giving away pre-owned items within the United States offers its basic swap services free of charge. They even offer free storage of items being traded for a period of up to 9 months. When the 9-month period lapses, however, there are several options – with corresponding service fees – that are available to users.

Re-Cycle and –Sell

Also referred to as On-Sale model, this model has a company that directly acquires goods from customers, and then resells them for a higher value, after recycling, enhancing or improving them.

Example: Gazelle.com is a company that accepts trade-in cell phones and electronics for cash. They purchase gadgets from customers, recycle them, and sell them again. They make it easier for users to get their hands on smartphones at lower prices, while helping out other customers to get rid of their unwanted gadgets, and get paid for it!

Advantages or Benefits Derived from Sharing Economy

  • Circulation of resources. And not just circulation, too, since it also encourages recirculation. This is certainly welcome news especially to concerns regarding the depletion of resources.
  • Full utilization of resources. Thanks to sharing economy, there are no idle capacities or wasted resources. Resources are maximized and unnecessary waste and consumption are minimized and even eliminated.
  • Development of a culture of trust. Companies are now recognizing the importance of building bridges – yes, even among and between competitors. Since shareconomy is founded on trust among and between the stakeholders and participants, this economic model will strengthen relationships further.
  • Increase in product or service variation. As more and more are in the act of “sharing”, there is a need to remain competitive. This will then encourage businesses or organizations to come up with variations on their product or service offerings. What sets them apart? What makes them the better choice? What value do they offer that similar companies do not, or could not?
  • Evolution of the role of organizations or companies. In the past, a company probably only had one identity: as a service provider. With shareconomy, it can further expand its role and become a trusted advisor. Take AirBnB, for example. It could simply be a service that matches guests to hosts. However, it now takes on the role of an advisor, providing additional service to help guests make the best choice and get great value for their money. Sharing economy also brings organizations closer to their target market, which is one of the cardinal rules of marketing: knowing who your customer or market is.

Disadvantages or Risks Posed by Sharing Economy

Of course, sharing economy is not without its disadvantages or risks.

The biggest disadvantage, by far, also arises from its biggest advantage: since it’s about sharing, the issue on responsibility or accountability, as well as security, will be raised.

  • Security issues. This has partly to do with the element of trust. If one party fails to deliver or keep its end of the bargain, there are serious consequences that must be dealt with. The fact that the platform used is the internet also poses some security risks, particularly in the utilization and sharing of information. Remember that it’s not just payment details (e.g. credit card information, bank details) that will have to be revealed by users; personal identity information will also be involved.
  • Accountability issues. This risk is higher in companies that act as third parties or intermediaries in two-party transactions. There are still possibilities that some accidents or incidents might occur. For example, two apartments were trashed, leading to safety issues and criticisms, and AirBnB, where the host apartment was booked, did not fully take responsibility for the incident. Issues regarding insurance coverages will also come into play, since most companies will naturally want to distance themselves from such occurrences, thereby avoiding liability altogether.

In the case of AirBnB, it was apparent how, although it put in place a $50,000 insurance policy against theft and acts of vandalism leading to property damage, any personal liability was excluded.

MAJOR PLAYERS IN SHARING ECONOMY

This time, let us take a look at two of the biggest names or leaders when it comes to sharing economy or collaborative consumption.

Sharing Economy in Europe

© Flickr | Mila Europe

AirBnB

AirBnB calls itself an “online marketplace connecting people looking for unique accommodations to people who provide them”. It currently has listings in over 192 countries all over the world.

  • Service / Product:

To connect “hosts” or people who are renting out their homes or living spaces to “guests” or people who are looking for accommodations or places to stay for specific periods of time.

  • Market / Users:

Seasoned and budget travelers, couchsurfers

  • How it works:

Hosts provide information or details on spaces they want to rent out, ranging from single rooms to entire houses, to AirBnB, who will then include it in its database as listings. Information provided include, but are not limited to, the property or room type, price or rates, location, facilities or amenities, and any other additional services provided by the host.

Travelers or guests have to sign up with AirBnB, browse the listings, and book reservations of their listing of choice. Payment details will also be submitted, since payment will be done through AirBnB’s secure payment system, through various modes of payment.

AirBnB charges the host a 3% fee as processing fee, and 6% to 12% service fee charged to the guest.

ZipCar

This company, which is dubbed as the largest car sharing and car club service in the world, offers a “smarter way to get around the city” by providing cars and vans to those who need them. It provides and alternative to the conventional method of renting cars.

  • Service / Product:

Instead of purchasing a car or going to a car rental, customers can now book and drive cars and vans of their choice.

  • Market / Users:

Customers who are in need of modes of transportation but are not keen on purchasing their own car or be saddled with poor or limited choices offered by regular car rental businesses.

  • How It Works:

Customers must be members of ZipCar, paying as low as $6 per month. They will then get access to a listing of thousands of cars, vans and similar vehicles in various cities or locations around the globe. They will be issued their Zipcard.

Customers get to decide whether to rent the cars by the day or by the hour and, best of all, they can have their pick from the many types of cars.

Once a choice has been made, it is as easy as booking a Zipcar for the period desired. Aside from booking online, the service also allows booking to be done using their mobile app.

All it takes to have control over the Zipcar is to tap the Zipcard to the windshield.

Zipcar offers various rates and plans to suit users’ every need (and financial capability). Membership starts from $6 per month, while driving rates could go from $8 to $10 per hour. The rates already cover expenses for gas and insurance.

SHARING ECONOMY AND THE FUTURE

At the moment, sharing economy is still not fully accepted by everyone, since there are still issues that need ironing out. Still, technology is bound to make more advances in the future, taking shareconomy along with it. Already, there are more and more names pitching in and making its presence felt in the shareconomy playing field. Even governments are joining in on the revolution.

Naturally, the risks and challenges are also bound to be bigger. Innovators and brilliant minds have to be on their toes constantly, coming up with ideas that will maintain the balance of supply and demand in the marketplace.

One thing is for sure, however: sharing economy is not just a fad or a passing trend. It is one that is sure to stay for years – nay, decades – to come, and we can all expect to see it evolve. We actually look forward to see how it will change over time.

Image credits: Flickr | Mila Europe under Attribution-ShareAlike 2.0 Generic.

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