The Sharing Economy is NOT Big. Part 1. Introduction: Platforms

Tala
Tala
Aug 22, 2016 · 5 min read

This is the first section of an article series about the sharing economy. The rest is coming soon!

The collaborative economy is a broad term that describes a lot of different but related behaviors. Another popular phrase is the sharing economy. I’ll use them interchangeably in this case study. There are a lot of arguments about what’s sharing and what isn’t. But taking these terms literally is a mistake. The most important features of sharing economy companies are…

  1. Access not ownership.
  2. The platform company does not create or own the exchanged product. It facilitates a transaction and gets a fee.
  3. The exchanged product is physically dispersed and or an underutilized resource connected by an internet connection.

The sharing economy phrase was first used in the open source community in the early 2000’s. Not everything covered by this term is sharing as we were taught in kindergarten. But it does include activities like disintermediation, on-demand services, peer-to-peer networks. The markets are multi-sided. Like Uber with two groups of customers, riders and drivers. But what they all have in common is that trust, production, consumption, and finance are shifted from a centralized institution to decentralized networks and communities.

Sharing information facilitates the renting of excess capacity. This democratizes access to goods, tools, information, capital, and the means of production.

Platforms

Platforms are where this information is shared. Every single successful implementation of a collaborative economy business or initiative happens on a platform. According to Rachel Botsman, an expert on the collaborative economy, a platform is “the network, marketplace or other digitally-enabled mechanism used to facilitate an exchange.” Sangeet Paul Choudary describes it saying “The platform business model enables interactions between producers and consumers of value.”

The platform owner manages engagement with interaction architecture, interfaces and the terms and conditions. The goal is to advance organizational objectives, which are always platform liquidity and the network effect. Platform liquidity is the minimum amount of renters and rentees that are necessary to run a sustainable marketplace.

This is not a comprehensive list of collaborative economy businesses or business types. It’s an analysis of the breadth and scope of the collaborative economy using the most important examples.

Any startup that’s looking to create massive value in a relatively short amount of time has to create a platform. If they do they will find themselves in an extremely lucrative and defensible position. Think Uber, Airbnb and Amazon. Amazon is a partial sharing economy business because they have a peer to peer marketplace. Non-platform startups or non-liquid platforms that compete against a platform that’s achieved liquidity tend to not stand a chance. Think Nokia, Blackberry, Windows phone and Amazon Fire.

When a platform gains liquidity — enough supply and demand — it’s a formidable force. For Uber, more drivers means more people can catch a ride when they need one. This makes more riders join the platform and more drivers join because they’re more likely to get fares. This is a virtuous cycle.

Last year Uber crossed the $50-billion-dollar valuation in five years. That’s two years faster than the previous record holder, Facebook, which is also a liquid platform. Massive value at a breakneck pace is what a well-structured platform delivers.

Collaborative Economy Platforms are a Blessing of Unicorns

A group of unicorns is a blessing. And as of the beginning of this year, there were 176 platform companies worldwide worth a total value that exceeds $4.3 trillion. Many of the biggest success stories of the internet of the past decade or so have been collaborative economy platforms. These include…

Uber, currently valued at $62.5 billion.

Didi Chuxing $28 billion.

Air BnB is at $25.5 billion.

WeWork $16 Billion.

Lufax 18.5 Billion

China Internet Plus Holding $18 Billion

Flipkart is worth $15 Billion.

DJI Innovations $10 Billion.

Spotify $8.53 Billion

Lyft is valued at $5.5 Billion.

Ola Cab $5 Billion

Instacart is worth $2 Billion

Prosper peer-to-peer lending is worth $1.9 billion

Trademe is worth $1.9 Billion.

Etsy 1.1 Billion.

Transferwise $1.1 Billion.

Funding Circle $1.1Billion.

LendingClub despite their problems is still well north of a billion-dollar valuation.

Public companies that are platforms or have strong platform features

Apple $597 Billion — Platform features: App market place

Alphabet $515 Billion — Platform company: Website owners and website searchers

Amazon $356 Billion — Platform company: Peer to peer retail

eBay is valued at $35.5 billion —Platform company: Peer to peer retail

And there are many others that are close to billion-dollar valuations like Freelancer and Quora. This is an extraordinary amount of billion-dollar companies that are all collaborative economy platforms. There’s something going on here. Almost every single major b2c startup success of the last decade has been part of the sharing economy or has significant sharing economy features.

Seventy percent of all startups on CBI Insights 2015 list of Unicorns were platform companies.

Now I’m sure some would argue that companies like Alphabet and Apple predate the sharing economy, and don’t count. But what makes a company part of the sharing economy is not just peer to peer rentals, like Uber and Airbnb. Any company that has an API is partially part of the sharing economy because developers are matched with consumers. This is true even if the core service is not part of the sharing economy.

Companies like Facebook and Apple have powerful collaborative platforms through their developer networks. In its most basic form, you have app developers leveraging the API of the platform owner to create apps that the eco-system owner would not have made on their own. And then there are the app users, who get a wide variety of useful apps created by the developers. Apple is not creating all of these apps, instead, they are managing the interactions between the developers and the consumers. We can say that they own a collaborative economy platform, whereas TaskRabbit is a collaborative economy platform.

Another example is Google. Google is under-appreciated as a platform company. Google Ads is a two-sided marketplace. People who create websites pay to advertise. Consumers looking for content — products or information — see ads. Google facilitates this through PPC.

PageRank also has platform like features. Sites that provide high value to searchers/customers get more eyeballs by being prioritized higher in the search results. Searchers get improved results or better sites. Website owners give Google more of what it wants — desirable content. On PageRank, the exchange is between the site creators and Google and what is being exchanged is better content/services from site creators for more user attention as directed by PageRank algorithms.

Lastly, Google owns almost none of the content it displays. It’s a platform where people come to view content created by others. The websites it indexes are user-generated content.

Many of the startups and tech firms that are going to be mentioned here are usually not listed as collaborative economy businesses. I shine a light on them because they possess important collaborative economy features that help illustrate the breadth and workings of the sharing economy.

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