What Is The Sharing Economy And Why Does It Matter? -

What is the sharing economy and why does it matter?

29th January, 2023

The sharing economy has become a prominent part of society across the world. From the buying and selling of used goods, to renting out empty rooms to sharing a car journey, people are beginning to sway further away from traditional elements of travel and tourism towards more innovative means that revolve around the concept of ‘sharing’.

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It was a keynote speech at a conference that I attended back in 2015 that really sparked my interested in the sharing economy. Yes, I’d heard of Uber and I was already becoming a seasoned user of Airbnb, but I was not yet familiar with the concept of the ‘sharing economy’. In fact, I don’t think many people were (and many people still aren’t…. which is perhaps why you are reading this article?).

In its simplest form, the sharing economy is a socio-economic ecosystem that is built around the sharing of human, physical and intellectual resources. To accurately and truly define the sharing economy, however, is a debated and ambiguous task.

Also known as collaborative consumption or peer-to-peer-based sharing, the sharing economy is a concept that highlights the way in which people rent or borrow goods and services rather than buying or owning them. This notion of ‘sharing’ has disrupted many traditional commercial operations, such as taxi firms or hotel chains, as prospective consumers opt instead for a ‘shared’ transaction.

Whilst traditional tourism operators (and indeed those in other industries too) might miss out on business as a result of the growth of the sharing economy, this has opened the door for SMEs, independents ad budding entrepreneurs, who can profit from sharing their services or assets.

According to thepeoplewhoshare.com, the sharing economy is a sustainable economic ecosystem, which is made up of 10 building blocks.

People– people are at the heart of a sharing economy; they are also suppliers of goods and services; they are creators, collaborators, producers, co-producers, distributors and re-distributors.
Production- People, organisations and communities produce or co-produce goods and services collaboratively or collectively or co-operatively.
Value & Systems of Exchange– The sharing economy embraces alternative currencies, local currencies, timebanks, social investment and social capital. It is based on both material and non-material or social rewards and encourages the most efficient use of resources.
Distribution– Resources are distributed and redistributed via a system that is both efficient and equitable on a local, regional, national and global scale.
Planet– The sharing economy operates in synergy or harmony with the available natural resources, not at the expense of the planet.
Power– The sharing economy empowers people economically and socially.
Shared Law– in a sharing economy, the mechanism for law making is democratic, public and accessible.
Communications- Information and knowledge is shared, open and accessible to all involved.
Culture– The sharing economy promotes a WE based culture where the wider community and the greater good are considered.
Future– The economic systembasvd on the notion of sharing is built around a long term vision, always considering the impact and consequences of present day actions on the future by looking at the ‘big picture’.

As Tom Lee discusses in his book What’s Yours is Mine, the nature of ‘sharing’ has developed in parallel to the growth of the sharing economy. With many people realising the economic potential of their sharing behaviours, there has been a movement away from the philanthropic ideals of helping each other out to notions of self-interest and greed.

The growth of the sharing economy can largely be attributed to the rise in Internet usage and applications.

In years past, people would have found and shared services and assets through classified ads, for example in a local newspaper, or by word of mouth. However, the advent of Web 2.0, mobile applications and m-payments, has facilitated the growth for a number of sharing economy platforms; making the possibility of sharing transactions easier than ever before.

Whether you are looking for a babysitter for your kids while on holiday, a shared taxi ride to the airport or a bag of second hand clothes for the kids (because you’re travelling to a hot country in the middle of winter and none of the shops currently stock the clothes that you need- been there done that!), the sharing economy has made it easier than ever before.

Not only has the growth of the sharing economy been fuelled by the Internet, but a significant contributing factor is the change in societal views and behaviours. As pointed out in this Forbes article, it has become less trendy to own lots of stuff and more ‘cool’ to have experiences.

The young adults of today have all too often become disillusioned with consumerism. We are more environmentally conscious, more aware of the impacts of our actions and more sustainable in our ways of thinking. We are tired of giving our money away to large multinational corporations and would prefer to see the tangible benefits of our business by booking a homestay or by organising a private tour with a member of the local community.

Whilst the sharing economy isn’t really a new concept (we’ve been sharing for eternity!), it has developed in a way that has never been seen before. Thanks to technological advancements, big data and algorithm analytics, the size of the sharing economy has increased at an exponential rate. And this growth is set to continue, as outlined in the figure below by the World Economic Forum.

Whilst the growth of the sharing economy is evidence of changes in society, it is important to recognise that the sharing economy is also the causation of change, as Steven Miler explains in his TED talk.

One of the most well known examples of businesses operating in the sharing economy is Airbnb. Founded in 2018 in San Francisco, Airbnb fast became a global phenomenon; contributing significantly to the rise of the sharing economy as a new economic paradigm.

Airbnb is essentially an online marketplace. It provides a platform from which people can rent out their properties or spare rooms to guests. Airbnb takes 3% commission of every booking from hosts, and between 6% and 12% from guests. It also offers a referral scheme if a person introduces a new customer to the platform (which I am a member of- click here for up to £30 discount on your first stay)

Accommodation-sharing platform Airbnb is often considered to be a sharing economy exemplar. The biggest company of its kind, it has gained a reputation on the one hand for helping middle-class residents gain and retain a foothold in expensive housing markets, whilst on the other hand for playing a key role in the gentrification of global cities. Airbnb has led the way in the development and growth of home sharing of this nature and there are now a number of companies offering similar services.

For a more detailed explanation of what Airbnb is, along with the positive and negative impacts that it is associated with, take a look at this post- Airbnb explained: What is it, how does it work and is it safe?

Launched in 2012, Uber has become the most recognised alternative to the traditional taxi. Uber has grown to become a global phenomenon and is available in 633 cities around the world. In fact, Uber is so well known throughout the world that sayings such as ‘I am getting an Uber’ and ‘I am Ubering’ are widely used and understood in a number of different languages.

The concept of Uber is simple. Uber is a charter service, whereby passengers book ad-hoc journeys via their Smartphone app. The company relies on this smartphone technology to dispatch drivers and manage fees.

Unlike taxi services, Uber drivers do not possess special licenses; rather, they use their personal vehicles to offer discounted-fare rides, thus making the industry more accessible to potential workers and helping to company to grow.

As with many aspects in the tourism industry these days, Uber relies on reviews to operate successfully. Passengers will review their driver and the driver will review the passengers. This contributes to the decision to book a journey or to pick top a passenger and helps to withhold high standards of professionalism throughout the business.

Airbnb and Uber are the most known examples of the shared economy, however there are in fact many more companies which operate on the premise of sharing within the tourism industry. Below are some examples, although it is important to note that this list is not exhaustive and that new companies are starting up all the time.

Freelancing

If a business requires some ad-hoc work undertaken, they can easily find freelance workers in the sharing economy. For example, a hotel may wish to hire a website developer or a destination management organisation (DMO) may be in search of a content writer. Sites like TaskRabbit, Care.com and Upwork are becoming very popular for this purpose.

Coworking

WeWork is an example of a company which provides coworking spaces in big cities around the world. Popular amongst a range of professions, freelancers, entrepreneurs, and telecommuters can rent a desk or an office without the overhead and cost of renting an entire building or suite.

Similarly to Uber, companies such as Lyft and Didi allow individual drivers to make an income by driving people to their destinations.

Zipcar allows people to rent or borrow cars for short periods of time.

Services like Getaround provide the opportunity for people to share their cars with those who live close by, making an income from this. Liquid provides a similar service for renting push bikes.

Accommodation sharing platforms, such as Airbnb, VRBO, HomeAway and HomeExchange, connect owners with people who need a place to stay. Couchsurfing is another popular accommodation option, whereby a sofa or other appropriate sleeping area is provided to travellers free of charge.

https://www.instagram.com/p/BxLITDopJDT/

Peer-to-Peer lending

It is now become popular for people to lend each other money, without the high interest rates offered by traditional banks and credit card companies. This benefits both parties as investors make an income and borrowers get more competitive rates. Lending Club is a website which facilitates this.

Fashion

Great for travelling or for a special occasion, you can now subscribe to Le Tote to borrow or rent clothes for a specified period of time.

Also in fashion, there are a number of website that facilitate the sale of nearly new and used clothing, such as Poshmark and threadUP.

Neighborgoods is an example of a website that promotes the sharing and borrowing of resources, such as tools, kitchen appliances or toys.

If you’re considering starting a business in the sharing economy, I recommend The Business of Sharing: Making it in the New Sharing Economy by Alex Stephany, which includes a number of sharing economy businesses examples and tips on how to successfully operate a business in this competitive industry.

There are many positive impacts of the sharing economy. These advantages are evident throughout the tourism industry, but also in other areas of commerce too. There are four prominent advantages: goods and services are available at lower prices, income is provided for people who otherwise may be unemployed or have little money, it has opened up the market to a range of new and diverse opportunities and it has provided an enhanced sense of community.

1. Goods and services are available at lower prices

The sharing economy is built on the premise that the sharing of goods, services, and skills provides a more efficient and effective transaction. Prices are often lower than they otherwise would be (staying in an empty holiday let via Airbnb is likely to cost less than booking a private villa from a holiday company, for example).

By using something or someone only when you really need it means that you often won’t need to deal with the headaches or costs of ownership and employment, such as car insurance or maintenance.

Effectively, the sharing economy cuts out the middle man and provides a simpler transaction that typically costs less.

2. Income is provided for people who otherwise may be unemployed or have little money

The growth of the sharing economy has brought with it huge income potential for people who may not otherwise have many employment opportunities available to them.

It can also help people to bring in a little extra disposable income that they otherwise wouldn’t have. For example, a person choose to use a car that would otherwise be sitting in the driveway or make use of a talent that wouldn’t be utilised in their day job.

The sharing economy can help those involved yield a little additional income or it can facilitate the development of an entire new occupation or business.

3. It has opened up the market to a range of new and diverse opportunities

The sharing economy has opened up the marketplace in two regards.

Firstly, it has provided the opportunity for new businesses to emerge and for people to more easily set up new organisations, sell new products and offer services that may have previously been unavailable.

Secondly, the sharing economy has provided access to a range of products and services that may not have previously been available to particular people. This includes people who live in remote areas or who have limited cash.

4. It has provided an enhanced sense of community

One of the biggest advantages of the sharing economy is the enhanced sense of community that it provides.

Many sharing economy platforms, including Uber and Airbnb, have built-in ratings and reviews that help keep providers and consumers honest. Coworking and freelancing marketplaces are built on the idea of interpersonal collaboration and the sharing of resources. Sharing encourages communication and collaboration.

https://www.instagram.com/p/BqJzh9-FdTt/

As I mentioned earlier, I first learnt of the sharing economy during a keynote speech at a conference that I attended in 2015. What really interested me during this talk was the discussion of the negative impacts of this emergent economic behaviour.

I had stayed in Airbnbs many times, but not once had I ever given a thought to the wider implications that my accommodation choice might have on the society and economy of the area that I was visiting. Nor did I consider the potential safety implications or lack of guarantee. These are issues that the general public have become more aware of in recent times, as explained below.

1. It causes economic disruption

Whilst staying in an Airbnb that is cheaper than a hotel room or booking an Uber for less than a taxi ride would cost is great for the consumer, it isn’t so great for the organisations that are missing out. In fact, there is a wider ‘butterfly effect’, whereby the overall economy is impacted by the growth of the sharing economy.

If you book a hotel room you will likely pay some kind of taxation (which varies by destination). The hotel will pay taxes. Those taxes will be collected by the government and reinvested in the community (we hope). The hotel employs a cleaner to clean your room and a chef to cook your breakfast. Both the hotel and the staff pay employment taxes. The staff spend the money they earn in the local store. And so it goes on…

The problem with the sharing economy is that they money that would be invested into the local economy is no longer there. Furthermore, the very presence of the sharing economy can cause further distortions to the local economy.

One particular complaint is that Airbnb invokes gentrification. When people begin to recognise that they can earn a nice little income from renting out their property to tourists, for example, they may buy additional properties in the area. The increase in demand for real estate then results in increases in prices. This then pushes people out of the area who can no longer afford to live there.

A 2017 study by the National Bureau of Economic Research, UCLA, and the University of Southern California found that on average a 10% increase in Airbnb listings leads to a 0.42% increase in rental costs and a 0.76% increase in house prices. This demonstrates the real life impacts of sharing economy companies, such as Airbnb, and the effects that it can have on grassroots communities.

2. Many people have privacy/safety concerns

Another issue is that of safety and privacy. Many people have voiced concerns or reported inappropriate activities when taking part in sharing economy activities. There are many horror stories on the Internet including people who have found hidden cameras in their bedrooms to Uber drivers who have sexually harassed their passengers.

Asher, a popular travel blogger, discusses some research that he did into horror stories from people who have had bad experiences with Airbnb… and he found 1021 examples!

3. There are no guarantees

Another problem with the sharing economy is that there are no guarantees (well usually, anyway). You may buy a Playstation from a second hand selling site but get home to find that it doesn’t work. The person that you hire from a freelancing website may not do the job as well as they had agreed to or your car share may not take you to your intended destination.

Consumers in the sharing economy have fewer rights than they do in the traditional marketplace and therefore, transactions here do carry with them a certain degree of risk.

4. It relies on cooperation

The sharing economy relies on the cooperation of all parties involved. Passengers should not leave litter in the car that they are taking a ride in, guests should respect the privacy of the owner’s living in the property that they are occupying and workers occupying a cowering space should be considerate of others and keep the noise down.

If everybody cooperates and is considerate of one another then the sharing economy is great, but unfortunately there are all too often some people who let the team down…

As I have demonstrated in this post, the sharing economy has become a prominent and important part of the global economy. Based on the premise of ‘sharing’, the industry has expanded exponentially and now covers a range of sectors including transport, accommodation, coworking, freelancing, peer-to-peer lending and fashion.

Whilst there are many positive impacts of the sharing economy, such as lower prices for consumers and an enhances sense of community, the sharing economy also has disadvantages. Gentrification and the disruption of local economies, safety concerns, a lack of guarantees and the reliance on mutual cooperation all pose problems for the successful operation of the sharing economy.

Personally, I think that the sharing economy has huge potential and I am a big advocate for the use of services such as Airbnb and Uber (find out why I love Airbnb so much in this post). However, there is a need for careful m management, as always, for it to operate effectively.

What are your views/experiences with the sharing economy? I’d love to hear them!

What’s Yours is Mine: against the sharing economy– The author, Tom, questions how did we get from the generosity of what’s mine is yours, to the self-interest and greed of what’s yours is mine?
The Business of Sharing: Making it in the New Sharing Economy– An insider’s guide for anyone thinking of entering the sharing economy and looking to make a profit.
Platform Economics: Rhetoric and Reality in the “Sharing Economy”– An in-depth analysis of policy concern over competition, tax collection, consumers’ protection, privacy, and algorithms transparency, and the future of work.
The Future of Airbnb and the `Sharing Economy’: The Collaborative Consumption of our Cities– a conceptual analysis of the `sharing economy’ and accommodation sector and Airbnb.
Tomorrow 3.0: Transaction Costs and the Sharing Economy– Munger brings a fresh perspective on the ‘sharing economy’, assessing companies such as Uber and Airbnb in relation to economics and transaction costs.

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