The Sharing Economy is NOT Big. Part 8. Sharing Economy Attributes & Conclusion
Updated April 12, 2019
Sharing Economy Attributes:
Collaborative economy companies all leverage some of the below in one way or another.
1. Democratization
2. Distributed trust
3. Disintermediation
4. Collaboration
5. Access vs. ownership
6. Using platforms
7. Excess capacity
Democratization:
Sharing economy platforms make it much cheaper for average citizens to produce goods and services. Media used to be something that only large businesses could afford to do. Now, anyone who wants to broadcast to the masses can. YouTube is open to everybody. If you want to offer professional services you can set up an account on Fiverr without needing to get a job or start a company. If you want to be a micro-hotelier, you can do so on Airbnb.
Increasing the number of people, methods, and forms of economic value is something that the sharing economy excels at. Democratizing the means of production is one of the ways in which this market segment does this.
Distributed Trust:
Platforms have to create a level of credibility and accountability so that people can feel safe enough to let a stranger stay in their house, drive their car, or even hang out with their dog.
Trust — in the context of the sharing economy — means making it possible for complete strangers to transact.
It’s created by the platforms perceived safety, social media signals and reviews, and online rating systems. When you make an inquiry about a house on Airbnb, the landlord can check out your social media pages and have a reasonable assurance that you are who you say you are. Then when you pay, you know you will get what you want because the platform will intervene if there is any fraud.
This trust is distributed amongst users on all active platforms and not concentrated with a central authority. Millions can offer products and services and this is creating an explosion of options.
Increased trust leads to increases in trade. Now individuals and businesses are able to offer their goods to a much wider market. Because strangers are able to transact, normal people and smaller businesses gain access to larger markets and platform companies capture humongous amounts of value at a rate that has never been seen.
Disintermediation:
Technically, disintermediation means removing the middleman from a transaction and creating a direct connection between producers and consumers. There are instances where this happens, like when cryptocurrencies pull dollars away from brokerage firms. But it’s not always exactly a middleman who is disintermediated.
Any traditional business competing with a platform can find itself circumvented whether it’s a middleman or not. And it’s not always exactly disintermediation. Often they’re just outcompeted. The platform becomes a middleman that lets the parties trade with each other directly. In a traditional business, these parties would have no way to interact. Peer to Peer networks are the mechanism that facilitates this.
Using travel agents is becoming a thing of the past. Instead, people go to Travelocity and Expedia. Publishing, advertising, hospitality, transportation, and music have all been disintermediated by platforms to some extent. The same is true of insurance and many other sectors. Everywhere there is an agent, there is an opportunity for a platform.
Agents thrived in the age of information asymmetries. Now that information is readily available, they aren’t needed as much.
Allowing parties to transact directly entirely removes or greatly reduces cost centers that traditional businesses cannot escape. Every platform minimizes some combination of production, management, labor, and recordkeeping. Almost any department can be shrunk or removed on a platform. All while transaction volumes accelerate because of the ease with which both sides of the market can trade.
Collaboration:
There’s no single definition for collaboration. In fact, it’s just a fancy term used to describe people or organizations working together. Because platforms are able to bring more people together than physical spaces can, distributed collaboration has advantages over face to face work.
In the context of tech, collaboration implies improved productivity, efficiency, and effectiveness, facilitated by communications and collaboration technologies.
The power of collaboration comes from its ability to make it more likely that the best solution for any given problem will be found quickly and economically.
The main collaboration technologies are VoIP calls like Skype, video conferencing like Zoom and GoTo Meeting, and document and messaging collaboration platforms like Airtable, Trello, Slack, Dropbox, Basecamp, and Google Docs.
There is a difference between collaboration in the enterprises and the collaboration between freelancers and individuals. Enterprise collaboration accelerates the pace of completing tasks and solving problems, and these efficiencies accrue to the organization.
The benefits of collaboration between people are split between the participants and the platform owner. Platforms, like Twiter, gain a mass of cheap UGC that retains current users and attracts new ones. Users get oceans of information, entertainment and social interactions. This creates opportunities for them to connect with others for business, fun, or whatever they may be into.When human attention is focused en-masses enormous things like the sum-total of all social media content are created.
Crowdsourcing is not usually considered a part of the sharing economy. But they share many similarities. The use of crowds, platforms, and reputation systems are common to both. The term was coined around the time that iStockphoto, a stock photography website powered by amateurs instead of professionals was launched. This site put considerable downward pressure on the price of stock photos, proving that it was possible for amateurs to compete with professionals.
Other examples of crowdsourcing are open source software, Wikipedia, SETI@home, and Foldit. Foldit is a videogame where the player manipulates 3D images of protein to find the lowest energy structure for that amino acid sequence. Researchers then study the top scores to see if any of these configurations can be applied to the real world.
Folding protein is extremely complex. Something only a few experts can do. With this game, people with absolutely no scientific knowledge are able to participate in the creation of real research. The results have included Foldit players outperforming algorithmic results, deciphering a crystal structure that has remained unsolved for 15 years in 3 weeks and creating stable, usable protein structures that do not exist in nature.
Crowdsourcing points to the societal applications of collaboration. Commerce, science, content, software, information, are how it’s being used today. However, there are a lot of problems in the world and future innovators will find creative ways to solve them by designing new collaborative platforms.
Access vs. Ownership:
The sharing economy is redefining ownership. Instead of single person ownership model, a rental model is emerging where a resource is owned by one but used by many.
The two most popular ways of charging for access is per unit of time for consumer products like a monthly subscription or per usage like several on-demand software services.
The benefits are the same for enterprises and consumers. Lower barriers to entry, flexibility, and increased options.
Accessing on-demand software over the web reduces both CapEx and Opex.
On-demand software takes away the need for large upfront costs, gives companies the ability to scale up and down quickly and reduces risk by removing the need for long term commitments that may not work out.
Consumers get the benefits of an asset at a fraction of the cost of ownership. Often, the costs of asset ownership are hidden. Let's look at the example of a car. There is the high upfront cost of purchasing the vehicle. The monthly car note payment. Insurance and taxes. Vehicle repair and maintenance expenses, general upkeep and depreciation. The amount of time money and energy spent on these inflates the price of car ownership beyond what the sticker price would suggest. Compare this to using Lyft, Zipcar and Bird where the cost is per use and there are no commitments.
The end user gets near or equal utility at a fraction of the cost of ownership.
The same cost savings can now be had for self-storage, a variety of services like pet sitting, parking spaces and RV’s.
Using Platforms:
Platforms are a unique configuration of people, resources, and data. For consumers, they are a convenient place to find a variety of goods and services at reduced or zero cost. They are also a great place for earning a living, self-expression, communication, finding information, and exchanging ideas. On average the offering from a platform company is cheaper, cooler, more convenient, easier to use, and offers more options.
Compare Youtube to a cable subscription. Or compare Amazons 500 million SKUs to Walmarts 70 million SKUs. Or the types of spaces that you can rent from Hilton vs. Airbnb’s selection. It’s not hard to understand why consumers prefer platforms.
For a business, it’s a great way to capture massive amounts of value. Any company that achieves a network effect creates a moat around it’s business that is extremely difficult for competitors to usurp. The network effect locks the consumers into the platform by making it almost impossible to switch. This is because there is no alternative of equal quality and or the alternatives do not have enough users to make them worth trying.
Google is a two-sided market. Websites, some of which pay to advertise are matched with searchers. Competing search engines can’t match Google’s ability to return quality results nor do they have sufficient users to challenge them.
Because Google has the edge in quality and number of user it has a more than 90% market share.
All of the things that sharing economy companies do are only possible because they are platforms. Coordinating the resources of multiple markets only happens in these types of businesses. In it’s simplest manifestation it matches consumers and producers. But more sides can be added. Postmates matches local vendors with customers and adds couriers.
Bitcoin is a platform too. There are senders and receivers of the currency and miners. The software is downloaded by every node. In a way, the users are also the platform. The combination of the entire transaction history of the platform being hosted by every node and the fact that the transactions are peer-to-peer allows Bitcoin to operate without any staff, expenses, servers, management or budget.
Cryptocurrencies are the furthest extension of a platform. They show us that this configuration of software can be used to coordinate economic activity in more ways than was previously imagined.
Excess Capacity
The use of excess capacity is how extra economic value is added to the economy. It exists in three forms. Physically dispersed underused resources, labor or skill, and money.
On Neighbor, you can rent storage space from homeowners. On JustPark people rent out parking spaces. All of these work with physical assets when they are not being used and turns them into a tradeable commodity. Since almost every single product is used only some of the time an increasing number of items are finding their way into the sharing economy.
Rover, TaskRabbit, Postmates, and Upwork all take excess labor and offer it as a service. The sharing economy is sometimes referred to as the Gig economy. And it’s characterized by temporary, freelance work instead of full-time employment. On-demand work is one of the biggest parts of this sector. It’s creating a great deal of economic opportunity for the unemployed and underemployed. Increasing amounts of people now have the ability to work remotely or earn a living without needing a full-time job.
Excess capacity of labor doesn’t always manifest as paid work. Much of it is done on a volunteer basis. Facebooks collection of pictures, the largest picture collection in the world and Wikipedia, the largest single source of information in the world were not made by experts. It was the individual contributions of ordinary people that created these highly valuable assets.
The last form of oversupply is that of money. LendingClub takes excess money and turns it into capital and loans. Crowdfunding and ICO’s have created a new source of capital that has never existed before. Relatively small amounts of money from normal citizens, pooled together on platforms, are now competing with remittance companies, banks, and brokerage firms.
Every one of these forms of oversupply will produce more use cases. We can expect founders and hackers to find more ways to connect people to resources that are lying dormant.
Conclusion:
The internet is fundamentally a sharing machine. ARPANET and TCP/IP were the early technologies that became the world wide web. A major early motivation for ARPANET and the early internet was resource sharing. These protocols allowed users on the network to time-share.
In the early days, information sharing for research and education was one of the main uses. It was simple. After the world wide web was invented it grew rapidly eventually becoming the internet we know today.
From the very beginning, sharing was embedded in the DNA of the internet. It has evolved tremendously since then, but this single feature is a big part of what happens over the web.
The internet is by its nature adept at connecting physically distributed value. Early on the main exchanges of value were information and communications. This matured into companies like Google and Facebook. Commerce was added and companies like Amazon, eBay and Alibaba were born. The sharing economy opened up the trading of resources owned by individuals and companies like Airbnb were born. And a new wave of innovation is coming as digital money is added.
At every query, every conversation on a messaging platform, every picture of a meal uploaded to Instagram, every new platform, we see the internet facilitating exchanges and creating new forms of value. Sharing is woven into every transaction and interaction. That’s why I say the sharing economy is not big. It’s not a segment of the world wide web.
