This guest blog post was written by Jaclyn Longo, an Analyst at Propel. Propel is located at Western University and is part of the Campus-Linked Accelerator (CLA) program. The centre provides co-working space, mentorship, seed funding, events and acts as an advocate for local youth-based (aged 18-29) startups in the community. For more info, visit the Propel website.
Sharing – it’s a skill that has been engrained in us since kindergarten. At its core, sharing is the joint use of a resource or space. The sharing economy was born out of this very idea. Companies are providing market places for people to rent out or “share” their stuff or labour. These companies connect owners of underused assets with individuals willing to pay to use them.
Companies are creating platforms allowing people to share everything from their homes and cars to power tools and clothing. There is lots of potential in this space and PWC projects an increase in global revenues from $15 billion currently to $335 billion by 2025.
The sharing economy provides the benefits to its users of being cheaper, more environmentally friendly and creates a sense of community. However, there have been some challenges in developing this community. Getting people to trust others enough to rent out their property to them has been one of the biggest barriers many of these platforms have had to overcome.
At its core, the sharing economy is based on trust between users. To overcome this barrier most platforms require users to connect to an existing social network and use a recommendation system to establish trust between users. Through the platform users interact with one another, exchange funds and provide ratings and reviews on each other. AirBnB has been successful in creating a self-policing community through the tactics described above, and has policies and insurance in place to protect both its hosts and its renters.
Sharing platforms are generally set up as two-sided markets and in order to be successful platforms need to attract a critical mass of users on both sides. There needs to be enough users willing to loan assets and users who are willing to rent those assets. In order to be successful, Uber had to develop a community of riders and drivers; ensuring that there would be enough riders making it worthwhile for drivers to use the app, and that a rider would always have a quick, reliable ride available.
The sharing economy is providing those who lend their property with a supplemental income. Generally these sharing economy “workers” participate in the sharing economy to supplement their income, are college students and make around $18/hour. According to PWC, 19% of the total US population has engaged in a sharing economy transaction. Bloomberg has found millennials are more likely to participate in the sharing economy than other generations. Currently, there are ongoing debates as to whether the sharing economy is creating increase wage-earning opportunities to participants or if it is displacing traditionally secure jobs. Uber, particularly, is in the midst of a labour dispute with its drivers.
Uber classifies their drivers as contract workers meaning Uber drivers have no right to the protections of basic labour standards. There are currently court cases in progress to determine if Uber drivers should be considered employees or if they are in fact contractors. The ruling could have significant impact on Uber’s business model as it has the potential to shift capital costs to Uber. Other companies with a similar model to Uber could face repercussions following the ruling in the Uber case and these rules could challenge many companies’ entire sharing models.
Labour disputes aren’t the only challenge faced by companies in the sharing economy. As the popularity for the sharing economy grows it is facing increasing regulatory challenges. As they grow, sharing platforms are pushing back against the regulations faced by the industries they are disrupting. AirBnB, is facing regulatory issues in many of the cities where it operates as many of its sites rentals violate zoning regulations and other laws putting its hosts at risk for fines. Taxis drivers around the world have protested the arrival of Uber and some cities have banned Uber in order to protect their highly regulated taxis industries. AirBnB and Uber are two examples of sharing economy companies currently facing regulatory and legal battles. As new rules and regulations are put into place, time will tell, how this will shape the future of the sharing economy.
Companies that are successful in the sharing economy do these four key things:
1) Build a Community
Companies that are successful in the sharing economy build a community where their users can interact with one another and share their experiences.
2) Establish Trust Between Members
Successful companies establish trust in their community early on and build their platform in a way that provides users with tools to continue to strengthen trust among members.
3) Focus on Customer Experience
Companies that have gained traction in the sharing economy place a focus on a customer’s experience when using their service. They recognize that they are serving a 2-sided market and take the time to understand the value they are adding to both sides of the market in order to ensure the best user experience for both lenders and renters. They listen to feedback from their customers and make changes to improve their service and overall customer experience.
4) Sell an Experience
Increasingly consumers are valuing experiences over products. Successful companies create a human connection and allow users to have authentic experiences by focusing on selling an experience to their users rather than the product.