The Sharing Economy: What is it?

Photo: http://knowledge.ckgsb.edu.cn/2014/10/08/marketing/sharing-economy/

The sharing economy is a new economic model most accurately described as the business models of companies such as Uber and AirBnb where customers pay for the right to access goods or services that traditionally one would have to purchase outright. More simply put, it is the shift from preference of ownership to access. Doctoral coordinator, Arun Sundararajan, at the New York University Stern school of business defines the sharing economy as, “crowd-based capitalism since there is a transfer of ownership through on-demand access”. PwC (Pricewaterhouse-Cooper) reported in 2015 that the sharing economy was worth $15billion and that valuation is projected to skyrocket to $335billion by 2025.

The model is made up of a three-part system:

1: Service Providers.

These are the uber drivers, the owners of the apartments, homes and the occasional castle rented out on AirBnb, or the individuals contracted to clean homes on TaskRabbit.

2. Service Enablers.

This is the platform that enables the exchange to happen. Uber, AirBnb, TaskRabbit, DogVaca, etc fall into this category. They are the connectors that allow customers to connect with providers for their requested good or service.

3. Customers.

The Uber rider, AirBnb guest, the consumer in the traditional sense.

Now, you may be thinking “Amazon and eBay follow this business model as well, why aren’t they counted as a part of the sharing economy?”. Great question, to understand why these companies are categorized as a traditional capitalist business rather than sharing comes down to the nature of the exchange. Sharing in an of itself implies that the good or service is rented or otherwise a temporary condition of ownership. eBay and Amazon may serve as the connectors between their customers and manufacturers but the nature of their platform is to permanently transfer ownership of the product from the manufacturer to the final customer. The distinction between temporary and permanent ownership is important to determining whether a platform is a part of the collaborative economic environment.

An easier conceptualization may be to view the sharing economy as the social media platforms of the entertainment industry. Historically speaking, we would get our entertainment via the TV or Hollywood productions in a one-to-many environment where unform content is available for all users. In the social-media era, we get our content from a wealth of users we can choose from and contribute to the platforms content ourselves. Social media has lead us to become prosumers, meaning we produce and consume media simultaneously whereas typically we would have a separation of producers and consumers.

The emergence of the sharing economy is significant for more reasons than the market value alone. Most notably perhaps is that it is the newest economic model to surface since the advent of capitalism and socialism during the 17th century, further; it shows no signs of content with its current share of the world economy. Analysts attribute the success of such a system to the reduction of an individuals environmental footprint and the underutilization of resources in the economy that come from a one-to-one ratio of ownership in our traditional capitalist economy. Sharing-platforms are likely to become more common as the population becomes more and more environmentally conscious and the desire to reduce ones environmental footprint increases.

Supplementary Reading (and photo source): http://knowledge.ckgsb.edu.cn/2014/10/08/marketing/sharing-economy/

PwC (2015). The sharing economy - Consumer intelligence series. Retrieved from http://www.pwc.com/us/en/industry/entertainment-media/publications/consumer-intelligence-series/assets/pwc-cis-sharing-economy.pdf.

Sundarajan, A. (2016). The sharing economy: The end of employment and the rise of crowd-based capitalism. MIT Press.