The Sharing Economy

Sharing and collaborating is nothing new. In fact, the human economy has been based on the mutually beneficial exchanges of goods and services since its beginning. The recent transition to an “ownership economy” began with the mass production of goods during the Industrial Revolution over a century ago. This societal model peaked when President George W. Bush was re-elected in 2004 in part by proclaiming an that “the more ownership there is in America, the more vitality there is in America.” Shortly after, however, the 2008 financial crisis occurred and the public accepted that the damage inflicted onto our planet through consumerism is not sustainable in the long run. This, along with the consolidation of Internet technologies, gave birth to a movement that Time magazine included among the “10 Ideas That Will Change the World” and that is seeking to shake the foundations of capitalism as we know it.

The Sharing Economy is a socioeconomic system built around the sharing of human and physical resources. It includes the shared creation, production, distribution, trade and consumption of goods and services by different people and organizations. The underlying premise of this model is that the world is full of under-utilized assets and resources that could be more efficiently utilized by opening access. Indeed, this concept poses the question of whether we truly need ownership of many of the things we deem indispensable (such as tools, parking spots, and even houses and cars) as opposed to on-demand access that allows others to use them as well.

Still in its infancy, some say where social media was 10 years ago, the sharing economy’s size in its most prominent five sectors (peer-to-peer finance, online staffing, P2P accommodation, car sharing and music/video streaming) was approximately $15 billion in 2014 and projected to grow up to $335 billion by 2025. Looking at the data, along with the overwhelming number of successful companies based on this model sprouting in every industry, one can confidently say that the sharing economy is no fad but rather a new way of doing business.

Clearly the idea of sharing is not revolutionary. The one change that is driving this exponentially growing model is that we now have extremely sophisticated platforms that allow us to instantly connect with and pay for goods and services that we desire at scale and without boundaries. Some companies, like Netflix and Spotify, are simply Internet-era upgrades of old video and music rental businesses that pooled users’ money together to provide them with on-demand virtual access to media. Wikipedia is based on the same principle but instead pools together knowledge and provides access free of charge. Meanwhile, at a local scale and in a physical dimension, the Maine Tool Library charges an annual membership in exchange for access to a myriad of tools that people use infrequently (and so have no reason to own), exemplifying the local face of the sharing economy that is often overlooked. The second, and perhaps more widespread category of sharing economy company provides virtual platforms that enable peer-to-peer (P2P) exchanges of goods and services. Here we find some of the big names, like Uber and Airbnb, along with other clever businesses such as DogVacay (home dog boarding), JustPark (rental of parking spots) and SnapGoods (rental of miscellaneous goods). The exciting takeaway here is that the ability to create scalable, global sharing platforms is allowing for the rise of an unexplored part of the economy, driven by tech entrepreneurs and gradually adopted by the masses.

The benefits of this transition from an ownership economy to one based on sharing and collaborating can be divided into three broad categories: economic, social and environmental. During the Great Recession, some of these trailblazing companies allowed people in distress to convert possessions like their houses and cars from financial burdens into unique and flexible sources of revenue. At the same time, it radically increased the supply and variety of cheaper used goods (also increasing competition and further lowering prices) and low-cost alternatives to services such as home rentals and car rides. While it might certainly hurt multinational mass-suppliers, the sharing economy fosters the principle of value creation, production and distribution operating in synergy with the available natural resources, not at the expense of the planet, promoting the sustainability of human life within environmental limits.

The third and most underrated benefit of this model is that, aided by refined review and rating systems, it is reintroducing trust.  In a time when people are connected to their friends across the country but barely know the neighbors down the road, sharing things with random people we have just met online provides us with a great opportunity to make meaningful connections and boost the re-emergence of community. The truth is that despite all the marketing, consumerism does not promise happiness. Trusting and being trusted, on the other hand, are feelings that all humans yearn by nature, and a study by the Center for Neuroeconomics Studies at Claremont Graduate University has shown that indeed it produces a spike of the pleasant neurotransmitter oxytocin. The legal cases against some of these companies for stripping away worker protections, pushing down wages, and flouting government regulation go to show that there are certainly some issues that arise with this business model. These, however, along with concerns related to liability and insurance, are hardly insurmountable and will be dealt with as the sharing economy matures and evolves.

Looking ahead, as people become more connected and more trusting of these services, perhaps through more sophisticated and integrated evaluation databases, the reach of the sharing economy will expand into and disrupt more industries. The job market will become more uncoupled and dynamic, as more a broad range of flexible part-time opportunities arise to substitute or complement traditional full-time jobs. Meanwhile, as the prices of “owned” goods are driven down by competition, these will start to cut into business’ margins, forcing them to open up and begin to consolidate less behind walled gardens and embrace an open, collaborative model. Once companies assimilate to this “Open Brand API” model and start to integrate, the market will become significantly more efficient as users are able to seamlessly book different services in the same marketplace. Some even argue that the sharing economy is ultimately headed towards a model based on block chain technology that gets rid of the middleman, allowing users to capture 100 percent of the value, and that will become self-regulated. While it might be a little bit further down the road, such a scenario would force us to confront some of the most fundamental belief systems our society is built upon, like the role of corporations, capitalism, and regulatory authorities.

Above anything else, what seems clear is that the Internet-led process of exploiting under-utilized resources, both physical and financial capital and human talent, is unstoppable and exponentially accelerating. Consumers can now become producers and should be excited by the new innovations, while corporations face the choice of adapting and disrupting or being disrupted.