Better for now, worse for the future!
In this blog post, I argue that the sharing economy benefits both consumers and providers, only in the short run, while it brings more harm than good in the long run, mainly affecting the social and economic factors. This blog post will analyse the factors that allowed sharing economy to fit in today’s market, critically evaluate both the positive and negative sides of the Sharing Economy together with theoretical ideas and concepts, and argues how it is not, or not yet good enough to enter or replace the current traditional business models in the economy.
The sharing economy is said to be a socio-economic ecosystem that is built around the sharing of human, physical and intellectual resources by ThePeopleWhoShare. It often serves as a peer-to-peer platform in the free market and encourages collectivism by setting up communities, and enhances interactions between strangers through exchange of goods and services with money, where real value is created. Consumers in the sharing economy are not looking for social value out of rental exchanges with strangers, but rely on small bits of exchange rather than immense, long-term relationships. These small bits of exchange thus rely heavily on trust and goodwill exchange, and creates a movement in a society. Despite using the same term of ‘sharing economy’, businesses are diversified and serve consumers in different ways. Some examples can be seen through Uber (transportation), Airbnb (accommodation), TaskRabbit (freelance labour), etc. Todayonline also argued that while services such as Uber or Airbnb garner the most attention, the Sharing Economy now consists of a larger variety of services such as ‘Rent Tycoons’ (household items rental) and ‘Hcook’ (home cooked food for sale). They do have one characteristic in common; fully utilising the mobile technology platform to meet the needs and demands of the market in a flexible and affordable way.
The word ‘sharing’ means ‘the full or proper portion or part allotted or belonging to or contributed or owed by an individual or group’ on dictionary.com, the sharing economy contains the same meaning, just that monetary exchange is involved as well. We shall move on to investigate further on how this concept came up, and what brought opportunities into it.
What factors allowed the Sharing Economy to fit in the market?
With the advancements of technology, the sharing economy allows individuals and groups to utilise their assets, and at the same time, being able to generate revenue from the transactions or service they provide. However, this wouldn’t work if the factors mentioned below didn’t exist:
Growing digital infrastructure
Technology is creating opportunities for future growth in almost all sectors, regardless of business, household, government and even tourism. Take the Internet for instance, as of March 2017, it has a global usage by 3,731,973,423 people, 49.6% of the total world population as shown by Internet World Statistics. Burrus mentioned that this allowed the sharing economy on feeding into our desire for instant gratification by fulfilling wants and needs immediately. Furthermore, convenience transactions online through mobile applications such as ‘PayPal’ enhanced the experience and minimizes the total transaction cost.
Millennials VS previous generations (changing preferences)
Millennials are highly adept at using technology and social media such as Facebook and Instagram, which influence many of their purchases. Growing up in the recession and having entered a struggling job market, they prefer to spend on experiences rather than owning it. A research done in the UK has shown that 64% of millennials would consider renting products and using services in the Sharing economy, compared to 30% over 35-year-olds. In the past year, the research has also shown that 53% of the millennials have used a sharing economy business such as Uber and Airbnb, compared to only 16% of over 35-year-olds. This correlates to certain economic factors, such as current housing crisis which is causing more people, especially the millennials, seeing the prospect of home ownership out of their reach. It is estimated that less than half of the people born in 1990 will be homeowners by the age of 40.
In addition, a report by PwC (2013) has shown that millennials want shift hours and occasionally work from home, instead of bosses dictating goals and deadlines. In the aspect of flexible work hours, successful giants in the sharing economy such as Uber and TaskRabbit are offering this, which most of the traditional business models are not, thus attracting more young people to be part of the sharing economy labour force.
Increasing trend of minimalism
Minimalism, which simply means ‘Less is More’, is currently on a rising trend. Robin Lewis, a retail expert, mentioned that this is largely due to the millennials’ generation, which is bigger than the boomers in population, but with smaller wallets, who are more into the style of life than the stuff in life. The reduced need or even ability to own goods has eventually redirects their money towards non-material pursuits, from goods to services (renting instead of owning).
Huge financial support
As reported by Bloomberg, a total of US$17.9 billion have been invested by venture capitalists in 2015, despite little evidence of progress towards profits. Successful firms in the sharing economy are going through many rounds of fundraising, with no shortage in financial support; Uber with a valuation of US$62.5 billion, Airbnb with valuation of US$30 billion. Their capital typically creates start-ups by accelerating ideas out of corporations and universities and into the market (Chesbrough, 2003). This shows that the sharing economy is growing and with the financial support, it is closer in reaching its full potential.
Bright side of the sharing economy:
(Chesbrough, Vanhaverbeke and West, 2006) defined open innovation as ‘the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively.’ He added on by saying that ‘firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as they look to advance their technology.’
A comparison of a Closed (left) and an Open (right) innovation model are shown below:
The sharing economy achieved this by disrupting further than just one concept (Uber with Uber x and Uber XL, then Uber Eats, Airbnb started selling tour packages and experiences in the late November 2016). This overall provides the market with more choices to choose from. (Meltzer, 2016)
The Internet (acting as a complement)
The Internet serves as a mode of entry for businesses who intend to internationalise their concepts, and in addition for the Sharing Economy, it plays an important role of a primary channel in information sharing. This has also enabled it to operate on a multi-sided platform which creates more value on the products or services by reducing the overall transaction costs; low search costs, bargain cost and enforcement costs. Although traditional business models such as hotels and taxi companies are already using the Internet as one of their channels in sales, they often consist of many hidden or third party costs through websites such as ‘booking.com’ or ‘agoda.com’.
Public reviews act as a marketing strategy and is also able to create a network effect, which adds on to the network growth through first-time users, as well as by the word-of-mouth from previous users. In the long run, this feedback system acts as a filter; good ones grow while the bad ones are eliminated by the ‘invisible hand’ in the market. This requires collaborative efforts of the public (through ratings and reviews), which again relies heavily on trust between strangers. In addition, it also encourages businesses in the sharing economy to compete fairly, and through the reviews, businesses can see clearly for themselves on how their products and services reflect on their consumers, and consistently improving themselves to achieve a competitive advantage in the intensified market competition.
Transparency enhances trust
By using a peer-to-peer platform, transactions and information through reviews are more direct as compared to traditional business models, thus allowing its stakeholders in gaining a better understanding, assuring them through low bargain cost; prevents scam and unregulated pricing, therefore attaining their trust in the long run. Furthermore, consumers could also be a provider, vice-versa, in the sharing economy at any point of time, which in return promotes equality.
The flexible working hours in most of the sharing economy providers not only attracted millennials, but people who are unable to commit to a 9-5 job such as a homemaker or a part-time student who wishes to work in order to minimize their student debts. This creates fair opportunities for the society regardless of status.
From the traditional business model’s perspective, this serves as an awareness to their HR department in improving their employees’ working hours, welfare and salary pay.
With lesser supervision and restrictions, people working in the sharing economy can decide and make choices more freely through creativity with no fear or need of approval. In the long run, they would climb up the pyramid and self-actualise their potential. This also creates opportunities for workers with resistance or retrenched workers (Castor, 2014).
Whilst many more benefits (such as network effect, low fixed costs) can be seen and understood very well on the surface, the dark side of the sharing economy are often not shown and realised. The issues on the sharing economy has been the debate of many bloggers, columnists, politicians, public, educational institutions like us, and the business model is often seen as a threat to traditional businesses. This is mainly because most huge successful companies in the sharing economy like Airbnb and Uber, serves the same objective compared to the traditional businesses, without value-added services, thus eating up their market share. However, the threat does not seem to be only affecting the economy. Is the sharing economy better than traditional business models? Is it sustainable in the long run? Is it indeed for the greater good?
Dark side of the sharing economy:
Flexibility comes at a great cost
Like part-time jobs, workers in the sharing economy don’t get to enjoy much welfare benefits from it. This is mainly because according to gov.uk, they do not fall under the employment status of a ‘worker’. Although they do get more chances of achieving self-actualisation, other aspects in the Maslow’s hierarchy of needs are often neglected; no job security (psychological needs) as it depends on the demand in the market.
The sharing economy offers people with flexibility, but often unknowingly trading off what they never considered to be important in the long run, especially those who quit their 9-5 jobs; human interactions with its colleagues, company welfare, pay increment, gaining a reputation in their profession).
Limited opportunities for individuals
Sharing economy allows self-selection, implies that an individual assess her own expertise to do a job. In the short run, people do get the flexibility and more rights to choose what they want and are confident in doing, thus benefiting both the client and provider, creating a win-win situation. However, providers’ skills are often limited, and are unlikely able to gain new knowledge, compared to traditional corporations whereby they have resources, established brand and network in the industry to gain a steady flow and loyal customers, and at the same time train their staff (eg. sponsoring them for a course or exchange programme).
Millennials might fall into this trap due to the competitive job market. As their expenses increase when they grow older (i.e. starting up a family), they might regret the decisions which they could have made better in learning more skills to elevate themselves during their younger days –sharing economy does not educate them or provide much opportunities for the young people to grow, but only creates short term incentives with a small possibility in nurturing their skill set.
Threat on traditional companies and country’s economic growth
As more people are attracted to being part of the labour force in the sharing economy, many companies are losing their human resources. It would also greatly affect a country’s economy, such as Hong Kong and Singapore, which relies heavily on human capital for its growth in financial markets, thus unable to fully utilise them.
The stagnant income from the sharing economy, in contrast to a pay raise from a traditional company, might also reduce consumer spending, thus affecting government’s budget. This imposes a potential risk to a country’s economic progress in the long run.
Shared economy but ‘shed’ responsibility
Sharing economy has unleashed the new potentials of different industries and in different markets. While allowing the communities to fully-utilise their assets, are the players, even the established ones, in the sharing economy willing to share the responsibility when issues arise?
The answer is a big NO.
The table below shows a few supporting evidences.
|Uber||1) Launched self-driving cars without proper permits and ignored demands to halt the program despite violating traffic rules, putting the public at risks
2) Management and HR department ignored formal complaints of harassment and threatened to fire a woman for speaking up
3) Denied fault when an Uber driver killed a six-year-old girl while using the Uber app and looking for rides
|Deliveroo||1) no sick pay if you get knocked off your bike as the company says riders are freelancers, therefore responsible for their own insurance|
|Airbnb||1) inefficient way of handling issues and no guarantee as it is ‘based on their discretion ‘|
It is extremely weird when these companies are valued millions and billions of dollars with massive investments, yet refuses taking responsibility in their labour force (their main source in profit making), instead spends on their expansions. These reports have clearly shown their ‘pattern of arrogance’ when a start-up grows too big. This is no different to child labour exploitation in the fashion supply chain. Can communities and crowds still rely on trust and goodwill exchange? Will this change the society’s perspective and put virtue at stake?
Is sharing economy really ‘sharing’, or business as usual?
Contradiction often happens in businesses, as to what they portrait to the media differs as what they do. The sharing economy is one of them as well.
Take Uber for example: Uber started off with the main objective to cut congestion by connecting people through the sharing economy. However, Uber offers car rentals as part of their expansion plans, which contradicts their initial idea of utilising unused capacities and reducing the number of cars on the road. Instead of a peer-to-peer platform, Benkler mentioned that Uber uses a hierarchy and increasing rents to maximise returns for its investors.
In the aspect of reviews, although it gives the user more voice on the platform (to complain and be heard), its competitors can manipulate that thus causing it to be inaccurate. Big corporations could use their resources to tarnish its competitors such as by creating fake news.
Sharing economy is not a ‘one size fit all’ business model.
There are still many other worrying issues such as tax implications, no concrete regulation and weak unions in the sharing economy that require time to build up and strengthen.
The government, traditional businesses and the sharing economy should work together in creating a greater good for the society. Regulations might restrict creativity and innovations but an economy based on free-market, capitalist principles will always be able to re-invent itself. Entrepreneurial spirits will always find new ways to generate revenue. It is necessary to protect the economy regardless of a shareholder or stakeholder.
Who knows, the sharing economy business model might be able to replace the current one someday in the future? But as of now, it is just not ready yet.
Bibliography (excluding hyperlinked):
Chesbrough, H., Vanhaverbeke, W. and West, J., 2006. Open innovation. 1st ed. Oxford: Oxford University Press.