Education

Understanding the Sharing Economy

A sharing economy is a collaborative economic model wherein goods and resources are shared amongst individuals and groups via online platforms or a shared marketplace. The platforms are used to facilitate the temporary utilization of assets and services without transfer of ownership. There exists a disconnect between people in today’s world on the back of rapid urbanization, and it stands as an obstacle to public services and community building. Hence, there is an absolute need for sharing and combined utilization of resources. This necessity has been addressed by digital technologies enabling people (buyers with sellers and vice versa) to connect directly with the elimination of mediators. Technology advancement further helps to transform asset-heavy generation to asset-light generation.

The sharing model is not a new concept—as many rural communities thrived off the same idea called bartering. However, thanks to the accessibility of the Internet and mobile technology, managing share-based transactions has never been easier. Technological advancements remain the most significant growth driver and the backbone of sharing economy while also providing a culture shift for the millennials and the generation-Z. Earlier, the idea of ownership was fundamental to success in life, and the idea of the ‘sharing economy’ has now replaced this. The dynamics of working and living have taken a complete turn for the nomadic millennials and revolutionized over many years. On the flip side, these sharing economy platforms are disrupting the traditional business sectors and industries as well as the local economies of a place. The sharing economy has been sparked by and has led to drastic changes in consumer behavior. It has been a buzzing topic of conversation, and now, some of the biggest and most successful companies thrive using the dynamic sharing model. This model has ventured its way into various industries such as hospitality and tourism, transportation, e-commerce, commercial office spaces, among many others.

What Makes a Business the ‘Sharing Economy’ Model?

The sharing economy is seen as an essential building block for transitions towards sustainability. Although the sharing economy concept is used extensively, it is necessary to comprehend what makes a sharing economy business model. Hence, some identifiable features are provided below.

Monetary benefits – The benefits are driven by demand from consumers who enjoy a plethora of options to choose from; consumers also enjoy a more personalized experience over traditional business models.

Access over ownership – The sharing economy model promotes utilizing existing assets instead of purchasing new ones while benefitting both the consumer as well as the provider. The consumer can simply just rent the product or service they require, and the provider can simply just rent out their underutilized resources.

Targeting the right audience – Usually, there is an online platform through which the demand for specific assets or services amongst peers is matched with other peers’ ownership of those assets and services. Therefore, the process of matchmaking plays a crucial role.

Customer experience holds extreme value – Sharing economy models pay high importance to constant improvement to reach the customer’s expectations and provide them with an unforgettable experience. This is primarily done through customer feedback or ratings.

Highlighting the purpose of the business model – Not all companies are profit-driven. Therefore, the sharing economy business model must shed light on whether its focus is mission-based or absolutely for-profit while aligning benefits for the users.

Community-driven approach – The sharing economy business model promotes building communities both online and offline. Entrepreneurs and individuals come together to address similar interests and different concerns. There are various community groups such as producers, consumers, geographical, relational, and value-based.

Job creation – The emergence of the sharing economy model has made the road to self-employment easier, and more people are turning entrepreneurs. The on-demand technology platforms are creating massive employment opportunities for delivery associates, data collectors, sales agents, among many others.

Road towards sustainability – The sharing economy business model aims at collaborative consumption and emphasizes reusing rather than owning. This creates greater efficiency and has a favorable impact on the environment, and reduces wear-and-tear on public infrastructure for a better tomorrow.

Airbnb and Uber are the two most prominent examples of how to apply the platform business model to the sharing economy are acknowledged in the next segment of this article.

How Airbnb Reinvented the Hospitality Industry

The American company, Airbnb, was founded in 2008 when two designers, who had space, hosted three travelers who saw a hard time finding a place to lodge in San Francisco, California. The hosts came up with the idea of turning their living room into a bed and breakfast by just placing a couple of air mattresses there. The hosts eventually ended up advertising through a website. They invited many more customers, and the site’s content had expanded from just air beds and shared spaces to a variety of properties, entire homes and apartments, private rooms, and many other properties. Airbnb is a community built on sharing and is based on an aggregator business model under the sharing economy. An aggregator business model is a network model where the company collects the data about specific goods or service providers, makes the providers their partners, and sells their services under its brand. People having vacant space at their homes and willing to earn extra money can list their rooms on the website and earn additional money.

What differentiates the Airbnb model from the traditional hotel industry is that they sell an unforgettable experience rather than just a space to lodge. Airbnb gives utmost importance to customer feedback, ratings, and reviews while helping travelers make a well-informed decision about the hosts and their offers. On the other hand, hosts can also choose and decide whom they want to rent out their homes and spaces to. This helps to build trust and status in the community. Additionally, the Airbnb business model under the sharing economy helps in job creation for a vast network of freelance photographers all over the world. Therefore, Airbnb is considered one of the best sharing economy business models and has promoted itself as helping middle-class residents gain and retain a foothold in expensive housing markets.

How Uber Created a Low-Cost Taxi

The world’s largest ridesharing company, Uber Technologies, was founded in 2009 when two friends were unable to find a taxi and thought to each other if the whole process of finding a cab was available at the click of a button. The thought of using a mobile phone to order a ride to the exact location you were standing was radical. People would not have to wait for a longer time, hoping for a car to pass or walk the streets searching for one. This idea seemed to please many people, as Uber quickly became popular in big cities like San Francisco and Paris. Eventually, the company added another aspect to their existing business model to reduce the overall costs for an individual passenger. This was called UberPool. Riders headed in the same direction were now able to share a ride and share the cost, an idea that could help roads become less congested and less polluted with every ride. In addition, transactions are performed electronically (except for some countries), so passengers can travel without cash or cards. Users can check the driver’s profile before selecting them and give their feedback rating after the ride. This is a way to protect the rights and interests of the consumer since they would be riding the car of a completely unknown driver. Whereas the driver also gets a chance to rate the passengers and comment about his experience with them. The Uber sharing economy business model points out that they also provide community building and benefits to consumers and never claim that this is their principal mission. They have always made clear they are a for-profit business. Therefore, Uber is one of the most successful sharing economy players. Uber is an example of a company that completely disrupted the taxi industry, managed to raise significant revenues, brought new customer benefits, offered new pricing models, and penetrated various vital markets.

A decade ago, no one would have believed two startups with limited capital, and near non-existent assets would become billion-dollar companies. Today, companies like Uber and Airbnb are seen as role models to aspire to. The concept of sharing economy business models gave rise to companies like these and many more, allowing their rapid and tremendous growth.

COVID-19 Reshapes the Sharing Economy

COVID-19 pandemic has disrupted the economies around the world. The economic fallout from preventive measures such as lockdown was enormous and had had massive repercussions for the sharing economy. Thousands of people have become unemployed, the overall value of sharing economy companies has dipped, and several service providers have no other option but to put a hold on operations. The lockdown has dropped down demand for sharing rides, homes, skills, electric bikes, or scooters, but on the flip side, home delivery services of food, groceries, and other essential goods seem to survive. The whole industry has since taken measures to restore customers’ confidence and emphasized the preventive and precautionary steps to bring safety in their services. Implementing and promoting the changes is the need of the hour Airbnb has advised hosts on how to clean rooms between guests properly and has introduced a (non-mandatory) 24-hour vacancy period between bookings. Uber started checking if drivers were wearing a mask when working via the Uber app. Although consumer sentiment may seem a little weak right now, data illustrate that these companies are trying to get back on track. Customers regain the confidence to use apps to order rides or stay in unknown homes for long weekend getaways as more and more people are getting vaccinated. One of the best ways is to adapt and reinvent revenue streams according to the current demand levels. Therefore, new strategies and measures must be taken to bring in more efficient yet productive, innovative, practical, and buoyant sharing economy business models.

– Aishwarya Lalchandani (Student of MA in Applied Economics at Christ University, Bengaluru)

Picture Credits: knowledge.wharton.upenn.edu



Most Popular

To Top