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Boom or bust: what next for the sharing economy?

By Ian Lavis on behalf of Praxity

After their meteoric rise, Uber and Airbnb are bearing the brunt of a backlash against unregulated practices in the sharing economy. Is it just a blip or are there troubled waters ahead for the digital disruptors?

From bikes and taxis to holidays and car rentals, the sharing economy has revolutionised the way consumers access goods and services in recent years. 

This is just the beginning according to some analysts. Credit Suisse appears to predict global revenue from the sharing economy will reach $335 billion by 2025. Others are more cautious, citing huge start-up costs, low profits and regulatory problems.

What’s all the fuss about?

The concept is simple. Companies disrupt a traditional market sector by launching a digital platform that allows consumers to access personal items and services with just a few clicks of a mouse. Sharing economy ventures either own and share, or own and lend out assets. By sidestepping traditional forms of ownership and regulation, the digital disruptors driving the sharing economy can offer lower prices than their competitors. At least that’s the perception among consumers.

In Uber’s case, the taxi rental company provides an app for consumers to access a network of local, apparently self-employed, non-regulated taxi drivers at ultra-competitive fares. Similarly, Airbnb provides a platform for consumers to locate and rent holiday accommodation in owners’ homes, often at significantly lower prices than hotels. 

Uber and Airbnb – recently valued at $70bn and $30bn respectively – represent the tip of the iceberg. More than 600 million people are believed to be involved in the sharing economy in China alone. There are more than 40 bike sharing companies in China and market leaders Mobike and Ofo offer 50 million rides per day, according to the New York Times. Other fast-growing ventures around the world include Turo (car sharing), Airtasker and Taskrabbit (outsourcing of everyday tasks).

As the sharing economy continues to grow, so too does the intense scrutiny of how these disruptors operate. Uber and Airbnb have been accused of having an unfair advantage over competitors in the standard retail market. Uber recently lost a case against the European Court of Justice (ECJ) requiring it to accept stricter regulation and licensing in the EU. Meanwhile, Airbnb has had to negotiate with several cities to pay hotel taxes and avoid being shut down. 

Barriers to success

Pressure is mounting worldwide on sharing economy companies to be seen to be operating on a level playing field to traditional businesses and to offer workers more rights and protection. The problem is how to regulate e-commerce companies effectively. In its legal battle with the ECJ, Uber claimed it was a computer services business and not a transport services company. The ECJ disagreed.

There is also a question mark over profitability. The Financial Times last year claimed Uber was the most lossmaking private company in tech history, after the sharing economy venture recorded losses of $3.3bn. Airbnb at least is profitable, but many companies in the sharing economy are struggling to balance the books.

Michael A. Cusumano, a professor at the Massachusetts Institute of Technology (MIT) Sloan School of Management says the sharing economy is far from the path to riches that many digital start-ups and investors believe it will be. In an article published for Communications of the ACM in January 2018, he says “most sharing economy ventures seem to be small, losing money, and surviving on venture capital”.

The professor, who is founding director of the Tokyo Entrepreneurship and Innovation Center at Tokyo University of Science, says the problem for sharing economy ventures is they must spend more than their revenues on subsidies and marketing to get users and providers. Consequently, many may run out of venture capital and eventually shut down. He adds: “Meanwhile, the bigger Uber gets, the more money it loses. Its business model does not bode well for the future of the sharing economy.”

A positive future

As the sharing economy evolves, a new trend is emerging which some analysts say will lead to wider benefits for society through a redistribution of power and profit. 

Peter Baeck, head of collaborative economy research, and Alice Casey, senior development manager, both of think tank Nesta, predict the sharing or collaborative economy of the future will be driven by collective action by workers and members rather than centrally-governed platforms.

In an article published by Nesta in January 2018, Baeck and Casey explain: “Instead of focusing on creating profit for shareholders, a cooperative model focuses on distributing income generated in line with members’ wishes. These innovative organisations are increasing in numbers and testing a range of operating models.”

Examples of this new type of venture include: Taxiapp, founded by black cab drivers in London, where each driver has a stake in the company; Stocksy, a Canadian stock photo agency structured as a co-operative and which offers industry-leading royalties; and CareShare, a co-operative which matches the needs of those in care with caregivers who can be self-employed or pay into employee benefits.

Useful links:

The Sharing Economy Meets Reality

Disrupting the disruptors

China’s revealing spin on the sharing economy