How the Collaborative Economy struggles to prosper

Governments, update your policies and laws.

Kim Gerlach
Aug 9, 2017 · 5 min read

The buzz word Sharing Economy emerged for the general public in recent years and it is promoted as a differentiating feature for both products and services in multiple industries and sectors. This development goes hand in hand with innovation in business models, leading to a renaissance of sharing commonly summarized under the umbrella term Collaborative Economy, following Rachel Botsman and Rogers (2010).

Well known are two successful Silicon Valley born giants, Airbnb and Uber. But there are many more initiatives, struggling to keep up with the complex environment they’re acting in. And we’ll come back to Uber and why not to talk about the big corporate in this context…

What exactly affects the growth of the Collaborative Economy in one urban ecosystem?

Following a traditional economic framework, we have been able to identify both drivers and inhibitors for businesses of the Collaborative Economy (CE). The macro environment can be analysed from multiple angles, using the well-known PESTEL analysis: P olitical, E conomic, S ocial, T echnological, E cological and L egal.

This framework is a useful tool to gain holistic insights on this industry and market. The different perspectives help to understand the struggles but also opportunities businesses face within one city. With the case example of Copenhagen, well known for its openness towards innovation and sustainable change, this study is able to present results to any urban ecosystem striving for sustainable city.

Many within Copenhagen and the greater Öresund area have participated in this study, leading to insights into multiple different sub-categories of the Collaborative Economy, such as food, bike, car and clothes sharing. Although may one think that these businesses face various different challenges which cannot be condensed, similarities have been disclosed. All interviewed parties, including practitioners and researchers agreed on elements that push or hinder these businesses the most.

Less considered: the ecological impact

Despite the fact that the Collaborative Economy is labelled to change current structures in a sustainable manner, ecological influences are considered the least impactful. Evident in theory but little mentioned in the interviews is the ecological impact. The impact of their business on mother earth or the consequences their actions have on nature are mainly left aside.

Most influential are the political and technological environment.

In many cases, the rise of the Web 2.0 initiated sharing on a bigger and even global scale. Some authors argue that the Collaborative Economy was only able to rise due to the easy connection of individuals. Sharing happens virtually between strangers nowadays, not only with neighbours anymore. We book an privately owned apartment at our holiday destination with just an easy click. Businesses often depend on the existance of digital platforms and virtual users. These enable quick scaling through digital word of mouth, if trust has been generated by the platforms. Nevertheless, this technological support is abolished with the difficult political and legal landscape businesses act in. With contrasting positions being taking by the local municipalities or unclear regulations, the political environment has been identified as the most inhibiting dimension of the PESTEL analysis. A big blur exists on how to register a Collaborative Economy business or what taxation is suitable. With diffuse and undefined legislative frameworks for both, Denmark as a country and Copenhagen as an urban environment, businesses and initiatives are precarious on how to manoeuvre regulations.

“Then, being part of the Sharing Economy today, you see how there is a lot of questions about labour rights and taxes. You have to make your line clear how you are not part of making a profit from stealing from public. This is quite important.” (Interviewee, April 2nd, 2017).

And it’s even more complex…

What the traditional PESTEL analysis neglects is the novelty of the whole industry. Additionally to a complex political environment and struggles to distinguish private and public (described further by Sundararajan), most agree on one thing: many are not ready yet.

“We’re in the middle of this. And when people talk about car sharing, no one knows what it is. Is it our service?” (Interviewee, April 3rd 2017)

Interestingly, almost all agreed that the definition of what sharing is and what it’s not is too complex. And coming back to Uber: we argue together with Meelen and Frenken (2015) that Uber shall not be considered as a business of the Collaborative Economy. It is only an on-demand service, not a typical sharing service. Except for UberPool, available in some countries, no Uber service is using idle capacity because the trip would not have been made without the requesting passenger. Solely, the new ordering process differentiates this service slightly from traditional taxi rides.

But coming back to the complexity, the Copenhagen-based businesses identified scalability and lacking venture capital as crucial to their growth. Even though technology enables quick digital scaling, the act of growing and attracting critical masses has not been described as being easily implemented. Quick scaling is a desirable outcome, but nonetheless more complex in practice than theory may suggest. And closely aligned with the growth of a business is the lack of venture capital in Denmark.

Governments, please update your policies and laws.

The results reveal how not only businesses and experts underestimate the blurriness of what sharing is, but how in consequence this undefined grey zone affects governments and policy makers. Organizations don’t even knowing how to define the rising industry, — how should an institutionalized and long-established political construct do so? Hence, recommendations are given to policymakers to interact with the industry in a fruitful manner and define clearly what sharing is, — and what is not.

Copenhagen is doing something though

Although one has to admit that because of it’s future orientation, Copenhagen is a great example on how to grow the Collaborative Economy within a city. The example of Krusågade shows, how the city tests multiple ride sharing options in the neighbourhood of Vesterbro. The municipality took away approx. 20 parking spots, so create a park as well as a variety of ride sharing options. Bikes, station based cars or free floating schemes are tested in this area.

Krusågade Copenhagen. Examples of the Collaborative Economy in the transport sector (picture taken April 7th, 2017)

This article is a journalistic summary of the scholar work of Kim Gerlach and Arne Bachmann. The original scientific paper (“Drivers and Inhibitors of the Collaborative Economy — A PESTEL Framework and Beyond (2017)”) as well as references can be requested via mail (kim.gerlach.kg@gmail.com / arnebachmann@gmail.com).

Kim Gerlach

Written by

Fempreneur, Sustainability Geek and Slow Fashion Lover.

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