The Sharing Economy’s Sharing Problem
It’s time to admit it: The sharing economy has a sharing problem.
Despite the name, the sharing economy is led by companies that aren't the best at sharing — especially when it comes to their users’ reputation data. Most of these companies still refuse to open up their data, even with the very users who it belongs to.
A great example happened only a couple of months ago, when someone wrote a script that gave everyone access to their Uber passenger rating through Uber’s mobile website.
The Twittersphere exploded. It was like a “high school hallway where everybody was comparing their scores,” as Slate’s Jordan Weissmann wrote.
Even worse, the ability to see your data did not last long, as Uber quickly patched its site to stop the hack from working.
But think for a second – isn’t this crazy? A company that is the poster child of the sharing economy causing a stir by sharing your personal data with you.
So far this practice has been acceptable, as the industry was still in its infancy. But as the sharing economy graduates to the mainstream, it’s time for its leaders to take some lessons from kindergarten and learn to share.
Why It Matters
The sharing economy has unlocked massive economic value and given unprecedented opportunity to entrepreneurs. By matching those with under-utilized assets with others who need them, the sharing economy has empowered anyone who owns assets or has free time to become an entrepreneur and earn money. This has spawned scores of digital marketplaces for offline services like Uber, Airbnb and TaskRabbit that enable individuals to exchange value at an unprecedented scale.
However, technology is only part of the reason why these multi-sided markets have been successful.
The secret sauce is trust and reputation. Successful online marketplaces have scaled because they have created well-designed reputation systems that allow users to identify trusted community members to interact with.
Living off Your Reputation: A Brief History
Living off your reputation is nothing new. For thousands of years, people have chosen to do business with those around them who they trust. Historically this network of trust has been limited by the spread of information. Most people based their purchasing decisions on their own experiences and those of their friends or family. That’s why your reputation typically didn’t extend beyond your local environment, usually a town or village. In this local economy, if you had a poor reputation, word traveled fast, and you couldn’t expect to stay in business for long. Reputation was an entrepreneur’s most important asset.
Fast forward to the Industrial Revolution and reputation was taken over by big brands, which helped enable economic activity on a whole new scale. Brands allowed consumers to trust that products would work, even if the consumer wouldn’t ever know how the product was made or by whom. With the rise of brands, there was no good way for an individual to build trust on the same scale that big business could.
The sharing economy has changed all that.
For the first time in centuries, we’re being empowered to trust our neighbors again. Just ask Airbnb CEO Brian Chesky.
“Trust, mediated by technology, is making a comeback,” he says. “It’s what’s motivating millions of people in tens of thousands of cities around the world to book lodging with semi-screened strangers through this service.”
In this new world, reputation is again your most important asset, and it enables individuals to compete in our economy on a scale that’s historically unprecedented.
The Paradox of the Sharing Economy
The new reputation economy has been a boon to individual entrepreneurs, but as the space has grown, one issue still looms large.
No matter how well you do on any one platform, your reputation doesn’t travel with you. If you’re a well-rated host on Airbnb, you can’t bring that information with you to Uber, or even to long-standing platforms like Amazon or eBay.
We’ve now reached the point where many entrepreneurs, both trusted and disreputable, have a different reputation on every platform they use. This fragmentation has some obvious consequences, like the famous Airbnb squatters who had previously swindled Kickstarter to the tune of $40,000. Sharing data between these platforms could have prevented the repeat incident.
For high-quality producers, it also means they’re locked in to specific platforms once they’ve built a reputation there, even if another platform would offer them more work or a better deal. Think of a seller with a five-star rating on eBay or Amazon who also wants to sell on Etsy. You’d have to rebuild your reputation from scratch, even though you can already demonstrate your trustworthiness across thousands of transactions.
This fragmentation hurts consumers, too, by limiting the potential selection of goods and services you have to choose from. You also lose out on a potential treasure trove of information when making purchasing decisions.
Finally, this lack of data sharing hurts the platforms themselves by limiting the potential size of the overall sharing economy.
The irony here is the sharing economy is facing a classic example of what economists call a coordination failure. Many of these companies are hesitant to open up their data because the short-term benefits of locking in their users can be considerable. They believe that the sharing economy is winner take all, and they’re positioning themselves to come out on top. But collaborating and opening up their data in smart ways will lead to more value being unlocked for everyone involved.
Imagine what the credit-card industry would look like if all of your credit data were held in silos like your reputation scores currently are. The industry would certainly be far smaller than it is today, and many of the things you use your credit card for wouldn’t be possible.
Despite all the media hype, the truth is that the sharing economy is still relatively small. Even for sharing titans like Uber and Airbnb, awareness in the general population remains low. A recent study from The On-Demand Economy found that awareness of these companies still topped out at about 25 percent, even in major cities like New York and San Francisco. So despite all the recent attention, the biggest sharing economy businesses still have a lot of room to grow.
That’s why if the sharing economy can learn to share its data, everyone would benefit.
Learning to Share
Just as the sharing economy unlocked major value in assets and services, it now needs to unlock the value in its reputation data.
There are two ways this could work. The first would be for an established platform like Airbnb to create an open API to allow other platforms to use its reputation data. However, this route seems unlikely as it would allow other companies to use Airbnb’s data to “growth hack” its network, without providing any real benefit to Airbnb in return.
A second route seems more feasible: a central repository or dashboard of a user’s reputation data, managed by an impartial third party. In fact, this is already happening with companies like TrustCloud, whose rallying cry is “data for the people.” TrustCloud partners with sharing economy businesses to provide them with trust and reputation management services, such as quality-of-service guarantees. This positions the company well to lead the charge on freeing up our reputation data.
Ideally this third party would bring together most of the major sharing economy businesses and create a platform for users to access their reputation data in a simple portal, or a ‘Reputation Dashboard’ as Rachel Botsman puts it. Think of it as Klout for the sharing economy, or your reputation credit score.
Hopefully TrustCloud, or another company like it, will be able offer these businesses enough value to convince them to open up their reputation data.
Because unfortunately, learning to share isn’t easy. Our parents forced us to go to kindergarten, after all. Maybe this could be the helping hand the sharing economy needs to make it to first grade.
I’m the Director of Operations at Applico, a Platform Innovation Company. Follow me on Twitter and LinkedIn.
This post originally appeared on BusinessInsider.com.
Illustrations by Applico Designer Matt Kofman.