Sharing economy shaking up traditional business models
Peer-to-peer (P2P) applications such as Uber, Airbnb and many more are reshaping conventional business models and disrupting the major industries by cutting into their profits. The traditional business model, which has thrived for decades, had clear distinction between companies and customers where purchases of goods and services were facilitated through firms and middlemen. The biggest change the sharing economy has brought is eliminating the need for such companies merely acting as middlemen or facilitators by directly connecting producers with consumers.
With p2p models, the distinction between consumers and service providers is blurred as people share their assets with each other. The sharing economy has created markets out of things that wouldn't have been considered as valuable assets in the past by providing people with opportunity to monetize their free time and under used assets. It has shifted the balance of power to the point where someone with a spare room has the ability to create a peer-powered business with virtually no overhead. P2p models also offer people the convenience to work part-time with flexible hours and temporary arrangements.
There are a growing number of people that are attracted to this p2p model, compared to the traditional businesses, for personal, economic and environmental reasons. They are discovering that sharing economy services are often more convenient and less expensive. Instead of working for a taxi company or signaling for an available cab on the side of the road, people prefer the mutual benefits provided by apps like Uber — people can get a ride by the push of a button on their smartphones with cash-less payment and anyone can offer rides to people when they are available.
The sharing economy challenges traditional notions of private ownership and is instead based on the shared production or consumption of goods and services. There is a new trend with people who don’t want ownership of assets and prefer to “share” assets in an as-needed basis with the convenience of their smartphone or laptop. The value of a product is beginning to be seen in terms of its use, not in its outright ownership, as per traditional consumer models. There is also an increased level of acceptance of used products; due to the popularity of online platforms for buying and selling used goods. Therefore, people are adapting to collaborative lifestyles, in which not only goods are shared but people also share their time, space and expertise.
P2p services also tap into the social aspect of consumerisation, which makes it more appealing to today’s customers. With the popularity of applications such as Uber and Airbnb, it is evident that people like simplicity and personalization. With Airbnb, people get a more unique and enhanced experience staying at others’ home that come with personalized touches and even opportunities to socialize with other guests and owners. These days, people tend to prefer purchasing a product or service from a person as opposed to a large corporate brand. Sharing economy takes advantage of this dramatic shift in consumer behavior over the past few years and has contributed to the success of p2p services worldwide.
The success of the sharing economy has had a negative impact on traditional businesses across various industries that do not cater for these changing trends. Several p2p businesses, particularly Airbnb and Uber, have provoked protests and bans across the world for disrupting the hotel and taxi industries, respectively. Traditional businesses are now concerned and want to address the sharing economy disruptors from stealing their profits. Established firms are fighting to sustain their businesses with conventional business model for its high profitability. Hotels, taxi, and other industries threatened by the competition from the current sharing economy have an interest in keeping barriers to entry high so they can reap extra profit from a more captive market.
Major industries like these are not going to appreciate disruptors like Airbnb and Uber. The incumbents often use political and regulatory associations to restrict p2p businesses and protect their market position. Uber for example, has had regulatory challenges in many cities around the globe where there is a well-established taxi industry trying to protect its market power and profit margins. Similarly Airbnb is constantly targeted by the hotel industry to be taxed in the same way as hotels along with safety and licensing standards to even out the playing field.
But increased regulation and taxes are likely to mean higher prices for consumers, therefore defeating the goal of p2p businesses designed to cut costs and move business away from the hands of overbearing authority and middlemen. With the growing consumer interest in p2p services, it is clear that the sharing economy will continue to succeed along with technological progress. Consumers will continue to want goods and services faster, better and cheaper and grab opportunities to gain value from their existing assets. Therefore, regulations need to be revised to suitably align with changes in consumer interests for the growth of the sharing economy. The change is inevitable and regulations should facilitate increased efficiency for consumers offered from p2p services.
Established industries should learn to evolve or adapt effectively to meet the modern technological realities, or risk becoming obsolete. They need to get on board with the consumer demands for improved services at lower price and move away from the traditional business models in order to sustain their market place and capitalize on sharing economy’s potential benefits.
