Friday, 24 July 2015

Will Sharing Economy Ended Up Like Another Capitalism?

These days, the sharing economy phenomenon is escalating across the globe. Feel unfamiliar with the term? What about Uber, Airbnb, Etsy, or perhaps the infamous Indonesia based startup GO-JEK? Those are the well-known examples of sharing economy practice. This article will not be able to accommodate a comprehensive explanation about sharing economy; however, I hope readers will be able to conclude the essential points from my page. Benita Matofska, a worldwide expert on the sharing economy, defined the sharing economy as a socio-economic ecosystem built around the sharing of human and physical resources which includes the shared creation, production, distribution, trade and consumption of goods and services by different people and organizations. Sharing economy is also known as collaborative consumption which can be categorized into three types of systems as stated by Rachel Bostman, a collaborative economy expert. First, Product Service Systems. Share or rent goods which are privately owned via peer-to-peer marketplaces. Consumers are paying for the benefit, instead of the product. For example: Zipcar, a car sharing service. Second, Redistribution Markets. A collaborative consumption system which is based on the recycle method. The used goods are being passed on to the new owner, in the same time; redistribution markets help the environment to reduce waste goods and also stretch the product life cycles. For example: Swap.com, an online consignment service. Third, Collaborative Lifestyles. People who share similar needs or interests band together to share and exchange less-tangible assets such as time, space, skills, and money. For example: Airbnb, provider of unique accommodations around the world.

The concept of sharing (barter) itself had existed perhaps since our ancestors started to live in a community. Human exchanged goods and services long before we acknowledge the concept of money. However, the sharing economy has grown from a community practice into a profitable business model in these past years. Social technologies and people needs are triggering startups which enable the peer-to-peer exchanges through technology. eBay was the one who initiated online peer-to-peer model back in 1995, it has influenced many other peer-to-peer models that existed until now. Following eBay’s pathway, there are Craiglist in the late 1990s, Zipcar in 2000, Airbnb in 2007, and many more.

There are three main forces behind the rise of sharing economy businesses. First, Information Technology and social media; people and organizations are able to conduct a direct transaction without the friction of share based business and organizational models via smart phones, social media, and open data. Second, market instability; there are pressure for traditional manufacturers to operate without harming their production costs and projected expenditures. Sharing economy helps them to spread the best practices and increase beneficial collaborations. Third, sharing economy is highly profitable; the revenue flowing through the sharing economy is significantly growing. In 2013, the revenue growth exceeded 25%.

Another encouraging factor behind the sharing economy is because of economic dissatisfaction among the society. According to the American Psychological Association, in 2013, 73% of Americans claimed that they are financially insecure; 85% are concerning about their bills; and 25% claimed that they didn’t trust the companies they work for. The rise of peer-to-peer economy is useful for the part-time workers, the unemployed, stay-at-home parents, people within the job transitions, and other people who are not being able to take a full time job anymore.

Sharing economy allows people to take idle capital and turn them into revenue sources, as stated by Christopher Koopman, economist from George Mason University. Since people who owned excess goods can instantly become entrepreneurs, therefore, the increase of productivity, individual innovation, and entrepreneurship will stimulate the economic growth.  However, behind these positive impacts, there are some protests toward the peer-to-peer startups in several countries. These hype businesses have been debated whether it will destabilize the conventional jobs.

In the US, the Uber app has proven to provide the customers many advantages and lower prices compared with the conventional taxi cab dispatch system, resulting in high demand for ride services and drivers with certain skill set. However, there is an assumption that the jobs that offered flexibility to the independent workers provide no benefits and might lead to the exploitation of workers linked to the “zero hour contracts”. Make sense, since Uber, Lyft, and other ride sharing services startups didn’t have the same taxes and employee protection laws as the conventional taxi companies. In 2014, the New York State Attorney General stated that 72% of the Airbnb rentals are violating state zoning regulations or other laws. Even Berlin has banned regular short term rentals who didn’t own prior permission from the authorities. Paris has also passed a law for city inspectors to check rental homes who renting their houses illegally. Uber and Airbnb cases are just a glimpse of examples of the tension between the rising economy, the government, and the conventional businesses.

Since the friction is inevitable and it affects the economic activities in several countries, there should be a legally binding law that able to regulate these escalating businesses to minimize the friction all around the globe. Especially for the reason that some of the collaborative economy companies are reluctant to be regulated like other conventional corporations which caused the confusion in terms of types of taxes and other legal regulations they need to obey. There is also another concern about these sharing economy businesses which are suspected to drift away from its initial mission of this movement into the monopoly practice in a sharing economy industry, indicated with a billion US dollar Silicon Valley investments that boosted companies to scale at highly fast rates. The sharing economy industry is somehow potentially able to be the next traditional capitalism.

But what makes collaborative economy is so special for their customers? People, especially millennial are so into these whole collaborative economy things. It is because of the sense of belonging; they like being connected with another people who share similar interests. It is more than just sharing goods or services, they shared moments. Customers are also sensing a strong aspect of trust; without hesitation they are willing to share their rides, goods, rooms, and other services with total strangers. Some customers are even expecting to build a new connection with their new acquaintances. Collaborative economy is fast, easy, even cheaper, and anyone can participate in offering services or goods. Everything you need, you can reach them all via your smart phone and other social technologies. Thus, sharing economy is all good as long as the companies are running the sharing economy fairly, in line with prior policies, treating their employees and customers right, and helping the economic growth. 


Sources:
Uber, Airbnb and consequences of the sharing economy: Research roundup
http://journalistsresource.org/studies/economics/business/airbnb-lyft-uber-bike-share-sharing-economy-research-roundup#sthash.o2HlBWK8.dpuf
What is the Sharing Economy?
http://www.thepeoplewhoshare.com/blog/what-is-the-sharing-economy/
What Collaborative Consumption Means for Marketers
http://bbh-labs.com/what-collaborative-consumption-means-for-marketers/
We-Commerce: The sharing economy's uncertain path to changing the world
http://www.techrepublic.com/article/we-commerce-the-sharing-economys-uncertain-path-to-changing-the-world/