A recent concept that has emerged in the global economy is the sharing economy. The sharing economy is a peer-to-peer business where a peer can offer a product or a service through an online platform. The model is very applicable to items that are expensive to buy such as houses or cars that are widely used by people but often are not being placed into full use. This new economic model, driven by technological advances, allows consumers to interact with each other and share information about products/services. Sharing economy empowers “citizens to get goods and services from each other and to get more out of their own assets and time”.
In the forefront of this sharing economy is Airbnb, a home rental service which is currently valued at $10 billion and it now exceeds the value of established hotel chains like Hyatt. In its website, Airbnb describes itself as “a social website that connects people who have space to spare with those who are looking for a place to stay”. Airbnb has 1,200,000 listings worldwide, a total guests of over 35 million, has booked over ten million nights in over 34,000 cities in more than 190 countries. Airbnb’s attraction is it is less costly than booking accommodations with hotels and vacation home rentals. Moreover, the company offers free membership and free access to list properties. Only when a reservation occurs, will a service charge be made.
Another successful company in the sharing economy is Uber, a ride-sharing service. As of 2014, Uber’s valuation of $18.2 billion has already exceeded Hertz’s valuation of $12.5 billion and Avis’ $5.2 billion. Uber’s tagline sums up their service, “Everyday cars for everyday use. Better, faster, and cheaper than a taxi”. Uber is available in 57 countries. Uber’s appeal is its pricing, reliability and convenience.
There are several reasons why some people consider the sharing economy as disrupting the traditional economy. First, it has a huge effect on the sales of products that are used occasionally like a ski equipment. Whereas before people will buy such equipment, they can now rent it and save on cost. As for Airbnb, it is considered a threat to the hotel business. Some hotels fear that they will be dislodged by Airbnb because of its lower cost as compared to hotel rates.
There are two obstacles that the sharing economy must confront if it wants to realize its full potential. Foremost among these are the regulatory and fiscal issues. The skepticism of government regulators on sharing economy is a major challenge because most of them do not understand the business model. They feel that sharing economy firms are not appropriately taxed unlike the traditional businesses. Furthermore, the giants in the industries being hurt by the sharing economy are using their political and regulatory clout to influence government regulators in controlling the economic phenomena that is, sharing economy. The second challenge is how these firms will be able to maintain their uniqueness and authenticity.
The sharing economy is the answer to what is known as “dead capital”, a term coined by Peruvian economist Hernando de Soto. Assets such as a vacant rest house or an extra car that is not being used becomes productive, instead of being idle and valueless. It becomes a source of income for its owners. According to statistics, the global sharing economy market was valued at $26 billion in 2013 and is expected to grow to $110 billion in the future. How then can an industry as sharing economy be disruptive when it is in fact driving a sluggish economy upward? One believes that the sharing economy is not disrupting the traditional economy, it is a mere “changing of the guards”. It is competition at its best. Sharing economy is making the economy more exciting with more active participants, people who used to be mere onlookers are now productive members of the economy. This industry was unimaginable prior to the age of the internet.
The lure of sharing economy or “access economy” as Eckhardt and Bardhi calls it, “consists of convenient and cost-effective access to valued resources, flexibility, and freedom from the financial, social, and emotional obligations embedded in ownership and sharing”.
Sharing economy is creating new value to the consumer because it is giving them more choices and better value. Many consumers welcome the rise in sharing economy because of the advantages of renting over owning an asset. Others believe that they are able to monetize their underutilized assets. It makes their lives more convenient and efficient. People who love to travel consider sharing economy not only less expensive but a unique total experience because of the local flavor it adds to their travels. For those who rent out their assets, sharing economy presents new opportunities for earning.
The market has become more competitive, to the advantage of the consumer. It is empowering the consumer both as a user of products or services and as a provider of products or services. Sharing economy has given a new role to the consumer; thus, creating more value for them. Consumer behavior is changing and industries cannot ignore this; instead, traditional businesses should learn to be flexible to the changing times. Organizations should try to be more creative and try to capitalize on the new opportunities presented by this new trend. There are inefficiencies which they can explore. They should find ways on how to jump into the bandwagon and participate. Sharing economy is not replacing existing traditional businesses, it is innovating them.
References
Airbnb, Inc. (n.d.). About us. Retrieved from Airbnb.com: https://www.airbnb.com/about/about-us
Brooks, A. (2014, October 17). In the battle between sharing economy entrepreneurs and regulators, I’ll bet on the entrepreneurs like Uber and Airbnb. New York Times. Retrieved from https://www.aei.org/publication/battle-sharing-economy-entrepreneurs-regulators-ill-bet-entrepreneurs-like-uber-airbnb/print/
Cannon, S., & Summers, L. H. (2014, October 13). How Uber and the sharing economy can win over regulators. Retrieved from Harvard Business Review: https://hbr.org/2014/10/how-uber-and-the-sharing-economy-can-win-over-regulators/
Eckhardt, G. M., & Bardhi, F. (2015, January 28). The sharing economy isn't about sharing at all. Retrieved from Harvard Business Review: https://hbr.org/2015/01/the-sharing-economy-isnt-about-sharing-at-all
Finch, J. (2012). Chapter 13 - Marketing challenges in the new economy. In J. Finch, Managerial Marketing (pp. 363-388). San Diego, California: Bridgepoint Education, Inc.
PwC. (2015). The sharing economy – sizing the revenue opportunity. Retrieved from PwC website: http://www.pwc.co.uk/issues/megatrends/collisions/sharingeconomy/the-sharing-economy-sizing-the-revenue-opportunity.jhtml
Stephany, A. (2015). The Business of Sharing: Making It in the New Sharing Economy. New York, New York: Palgrave Macmillan.
Uber. (n.d.). Uber. Retrieved from Uber.com: https://www.uber.com/
Zervas, G., Proserpio, D., & Byers, J. W. (2015, May 7). The rise of the sharing economy: Estimating the impact of Airbnb on the hotel industry. Retrieved from People.bu.edu: http://people.bu.edu/zg/publications/airbnb.pdf
