What is the Sharing Economy?
The sharing economy (also described as the peer economy) utilizes technology to sell and purchase goods or services based on in-the-moment needs. Through it, one can hire a driver in a moment’s notice, rent a room or home, or even hire a freelancer to perform a multitude of tasks – all through easy-to-use apps and websites.
This form of collaborative consumption isn’t new, but its growth in popularity is worth watching. PwC predicts that by 2025, sectors encompassed by the sharing economy will see a revenue opportunity of $335 billion globally. These numbers aren’t too surprising when considering modern economic and behavioral trends.
Along with the tech and gig economies, the sharing economy is significantly changing the global marketplace.
How was life before it?
The integration of technology into daily life makes it possible to purchase only what one needs without obligation or excess. This is especially appealing to younger generations whose financial realities and subsequent priorities differ from previous generations.
For baby boomers at the same stage of life as current Millennials, participation in the economy was enthusiastic. Overall, their relationship with ownership was positive, confident, and normalized, a symbol of healthy finances among the middle and upper classes. However, this is changing as newer generations set the bar for what constitutes status. Technology, shifting values, and concern for resources are all contributing to a more minimalistic view on wealth. Possessions aren’t as revered as experiences, lifestyle, or health.
How did it start and gain popularity?
The sharing economy as we know it started to gain popularity in the early 2000s with the rise of technology alongside economic instability. App technology that helped users pair with each other without the overhead of a staffed agency or company allowed people to directly sell goods and services to one another instead of using a corporate broker. People with items or services to sell could use the app to find customers as easily as customers could to find sellers.
With the prevalence of smart devices, innovators are now able to release their products on a global scale directly to the pockets of consumers, and companies that are working within the peer-to-peer economy are able to address the growing need for convenience while preserving resources.
Resource allocation is becoming a powerful benefit of this principle. Current environmental and economic climates are forcing consumers to consider the global implications of their spending more than ever before. One could argue that the companies that are changing with the values of the market are the ones promising goods or services without the need to produce new items on a large scale. If trends are any indication, the need for this ability is only going to increase.
Where is it popular today?
Peer-to-peer businesses are gaining global popularity, but some countries are seeing this more than others. China, for instance, is seeing a huge surge in the industry. According to the World Economic Forum, 600 million people in China reportedly took part in the sharing economy – a number that has risen by 100 million since 2015.
China is an ideal spot for a few reasons. With a current population of 1.379 billion, China is not only dense but technologically innovative. Their cities are bursting with tools like bicycle renting, peer-to-peer lending, quick charging and even basketball rental. In fact, the Beijing-based ride share company, Didi Chuxing, is now the largest ride sharing company in the world, completing 20 million rides a day among the 400 Chinese cities in which it operates as of October 2016.
China’s 980.6 million mobile phone users are also the largest users of proximity mobile payments – a method of payment that allows users to use mobile devices to pay for goods online and in person. Through apps like WeChat, consumers can make payments by transferring funds through QR codes.
The Chinese market is an enthusiastic demographic of early adopters, and one of the greatest real-world examples of the sharing economy today.
Why is it becoming popular?
Other common consumers of technology, Millennials, are also embracing this platform. Creature comforts like transportation, room rental, and even food delivery are all available with the ease of an app, negating the need for expensive agencies or time-consuming methods and middlemen.
It is widely accepted that Millennials carry the burden of growing up in a particularly difficult economic environment. Consequently, their spending habits are shown to be intentional and reflective of their values instead of tradition.
According to research done by Goldman Sachs, where previous generations secured for their financial future through large-scale investments, Millennials prefer to invest in the short term. With less money to spare, they are choosing to partake in a system that allows them to pay for only what they need in one area while simultaneously spending on items or work that align with their values. For instance, an online global study by Nielsen reported that 66% of those polled said that they were willing to spend more on goods that come from socially and environmentally friendly companies. Sharing economies are inherently disruptive of traditional industries, and Millennials are attracted to the way that they cut out wasteful and possibly problematic “big” companies whose main concerns are with their bottom line.
Can it work?
In countries that have embraced the sharing economy early, we’re now able to see where its pitfalls lie. Similar to the gig economy, exploitation of workers and brutal market competition is a real threat without popular management. Safety also continues to be a concern as more and more people jump into the industry without proper vetting. In order to grow, research and regulations based on market and behavioral trends is a must. Given its economic potential, some governments agree.
Countries across Asia have already started undertaking issues like public safety and exploitation. In an effort to preserve neighborhood integrity and avoid unfair rent-spikes in Singapore, it is now illegal for homeowners to rent out their property for less than six months without planning permission from The Urban Redevelopment Authority (URA). Meanwhile, in the Philippines, the government is working with companies like Grab, a ride-sharing app, to procure traffic and GPS data – information that they believe could be used to benefit their citizens.
Without effective laws, there is a risk of worker and wealth inequality. The very thing that makes these businesses so financially appealing to its users can contribute to an unstable, low paying workforce.
Public safety is another topic. Social policing and professional vetting are carried out to protect all parties, but it isn’t always enough. There have been numerous reports of violence occurring in face-to-face platforms, and while companies like Airbnb are dedicated to ensuring a thorough verification process, sometimes it’s ineffective.
Convenience and natural human tendencies are also subjects to be tackled. China-based umbrella sharing service, E Umbrella, is an example of how businesses just can’t compete with basic human behavior. Within 3 months of opening their business, E Umbrella lost a majority of their 300,000 umbrellas because they did not provide an easy method for returning the rentals, nor did they provide penalties for late or unfulfilled returns. Similarly, Wukong Bicycles, a bike-sharing company based out of Chongqing, was the first of its kind to close up shop after losing 90% of their inventory to theft due to insufficient locking mechanisms. Unfortunately, collaborative consumption cannot necessarily depend on proper behavior from consumers.
Even with the apparent pitfalls, there are plenty of businesses that are thriving. Although they’re not without their criticisms, the following companies are prospering under the sharing economy. What makes them successful varies.
How does the sharing economy affect businesses?
Traditional companies no longer have the benefit of relying on their business models to fulfill customer needs. Organizations that thrive in this peer-based economy can pinpoint the drawbacks of conventional establishments and address them with their own solutions. For instance, companies like Uber, Didi Chuxing, and Grab tackle the inefficiency of transportation while Foodpanda promises easy food delivery from an array of local restaurants. More companies (especially startups) enjoy a coworking space that provides all the necessary facilities at the fraction of the cost.
In essence, the new sharing economy splits management from what would traditionally be the resources (human or otherwise) of a company. The organizer takes on the role of management while avoiding the need to have traditional human resources (beyond the administrative aspects of the business) and the need to have the material resources (beyond those needed for the administrative aspects).
Technology is integrating more and more into daily human life. The more we use it, the easier it becomes to rely on it. Collectively, we’re getting used to the abilities that these platforms provide, and as they become more normalized, consumers will begin to expect a certain level of convenience in the market. This demand for ease has shown no signs of letting up, and the industries affected could see a rise in technological unemployment.
While there is an argument to be made that technology creates more jobs than it takes, this is not without an adjustment period. As Millennials come of age, the sharing economy, like the gig and tech economies, are shaping the spending habits of this generation. How we respond now could make a difference in the safety and effectiveness of the global economy in the decades to follow.
Examples of Businesses thriving in the sharing economy
Ride, Car, and Bike Sharing:
Service or Concierge:
Peer to Peer Rental:
Peer to Peer Lending: