Sharing is Suddenly a Disruptive Idea

Technology is making sharing things with strangers easier. However, interfering regulators and learning to trust strangers are obstacles

By Shamindra Kulamannage.

Published on December 03, 2014 with No Comments

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A vehicle owner will worry her car could be used as a getaway vehicle in a bank heist, be entered in a road race or used to haul a herd of goats, should she rent it to a stranger. These outcomes are very real because in real life the devils can’t be identified by their sinister grins and horns.

Loaning to a friend you trust is not about to rob a bank isn’t as vexing a decision as loaning it – even for a fee – to a stranger. People have been mitigating these risks by obtaining insurance, enforcing rental agreements and vetting potential customers, before loaning their vehicle. So sharing assets even with relative strangers has been happening for ages but the issue of trust has limited how widely people were willing to share. Sharing stuff for a fee allows those who own these expensive assets, which they aren’t using much, to make some extra money. It also allows people who want access to these assets to save money. It’s less expensive than buying an asset or renting it from a company.
The sharing economy, the peer economy, the asset light lifestyle or collaborative consumption as this trend is now being referred to, is unique because of the use of technology to reduce the transaction cost of renting or sharing things from other people over the internet. Cars and homes – where people have most of their equity tied up in – are the most shared things.
There have long been sharing companies who would, for instance, buy a fleet of cars and put them on the street for people to share them, for a fee. This new phase of the sharing economy however has taken that to the next step, allowing people to rent from each other. The risk of buying a fleet of cars in the first place is eliminated.

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Internet enabled matching of owners and renters is now becoming ubiquitous. Firms as varied as Uber, Snapcar, Getaround and Lyftin for car sharing, Airbnb for home sharing, Krrban online flea market, Kickstarter for funding creative projects, Angellist allowing someone to become an investor in a company, Micro-loan sites like Kiva and Etsy to buy from someone manufacturing by themselves. There are hundreds of other such firms helping people share everything from camping spaces in Sweden to human genome sequencing systems in Australia.
Established companies are also joining in by sharing their excess capacity but the sharing economy is most exciting and holds the greatest potential for people renting things from each other.
Sharing a car is not the same as participating in a car pool. Because technology has reduced transaction costs making sharing assets with strangers easier and therefore possible in a much larger scale.
New York University, Stern Business School’s Professor Arun Sundararajan says it’s too early to know how ramped up sharing will impact the economy in the long run. However besides the reduction in transaction costs he also identifies better use of financial capital, the positive effect of increased economic activity, greater productivity from capital assets and the variety that new consumption options bring as some of the benefits. The company uses a smart phone application to connect passengers with drivers of vehicles for hire.
The service is available in 45 countries in over 100 cities and growing rapidly. Many drive for the service part time, for a few hours a week after their regular job and during the weekend. Because pricing is demand driven it makes sense to make the vehicle available at rush hour when fares are likely to be higher. A registered driver with a service like Uber can start accepting hires by simply logging in to the company’s smart phone app, the same one that customers use to find an available taxi. By allowing the market to determine fares Uber is chipping away at transport inefficiencies. In San Francisco, Emiliano, a first generation immigrant to the United States drives his small Hyundai SUV for Uber for three hours in the evenings on most weekdays. “It pays better than my other job, and I get to decide when I work,” he says. Cabs are harder to come by in downtown San Francisco compared to most other US cities, so Uber drivers have it even better than usual. Emiliano says he drives four days a week for three hours at a time excluding the dinner break.

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Before the internet and smart phones, Emiliano couldn’t have so easily put his car up for hire. But when he and hundreds of others put their physical assets – cars in this instance – for hire, it creates a marketplace.
Uber and most other similar car share schemes also charge the customers’ credit card after a ride, eliminating the hassle of cash transactions. In New York Uber takes 20% to 28% of the fare.
As with most new services, users were apprehensive about sharing stuff with strangers at first. However since around 2012 this internet empowered version of the sharing economy has accelerated rapidly in the US and elsewhere in the rich world. Online sharing markets are also entering emerging economies. Uber is already available in four Indian cities Delhi, Mumbai, Bangalore and Pune. On its global website is an advert to fill a position in Colombo, indicating a launch in the city may be around the corner. Uber declined to disclose when its services will be launched in Colombo.
Many asset owners are worried about security in the sharing economy. In hindsight handing over the keys to your residence to a complete stranger who contacted you on the internet might appear to be stupid thing, if that person burns down the place.
While some platform firms provide insurance to cover the risk to asset in someone else’s use the more effective tools are the background checks by the platform, user reviews of previous transactions by both parties, and social media profiles. It’s similar to the apprehensions that people had about ecommerce a decade and a half ago. But these apprehensions faded as people started buying low value items and had a good experience. They then purchased something a little more expensive and still found it worked fine.
The trust issue however is still glaring. Firms like TrustCloud have stepped in to this space providing independent scores gleamed through first checking that a user exists and then looking at the background, behaviour and transactions that person has done. This is then distilled down to a points score, somewhat like a rating.
Despite the trust apprehensions travellers in particular are warming up to renting someone’s spare bedroom or house because it’s often cheaper than a similar quality hotel room. At its peak recently 465,000 people stayed in Airbnb, a platform that links renters with travellers, in one night versus the 625,000 hotel rooms the largest global hotel chain has, according to Arun Sundararajan. He predicts Airbnb will soon be bigger than any hotel chain. In June 2014 Uber raised $1.2 billion that valued the firm at $17 billion. Other sharing economy behemoths are also seeing similarly high valuations. Planned Airbnb employee stock sales may value that firm at over $13 billion. It raised $500 million in April 2014 at a $10 billion valuation.
Arun Sundararajan has been studying how the digital economy is transforming businesses and society. He identifies two fundamental changes the sharing economy may drive. Firstly he says it will challenge the model of consumption predicated by exclusive ownership. “It could be because we are human beings we want to own stuff. But maybe also there weren’t many ways to use things without ownership.”
Secondly, he says, the model of commercial transactions before these changes was that commercial transactions were with large companies because of their scale, brand ownership and organizational capability. “The sharing economy is breaking both of these assumptions. There is s shift towards sharing instead of owning and secondly a move beyond dealing with the big corporations.”
The trade off is that the efficiency of mass production is high. Sundararajan thinks however that economic activity will – over time – move from the company to the individual and to the peer-to-peer level.
New York’s Fiscal Policy Institute’s main research interest is employment and issues related to that State. Its economists think that sharing economy firms pushing prices down may impact working conditions at other companies it upstages.
It points out that car sharing has been disruptive on the taxicab industry since wages of drivers are low. At a time when US economic growth is experiencing an extended lull they fear disruption will be particularly damaging.

U3However Wrede Petersmeyer from Airbnb’s New York office highlights that the marketplace the firm has created is attracting a brand of travellers looking for a unique experience and isn’t cannibalizing existing ones. “These are not typical resort hotel stayers,” he says. “We are not hurting the hotels, we are bringing incremental traffic.”
Successful sharing economy players like Airbnb are seeing a backlash from the organized sector whose view of them has changed from mere upstarts on the fringes to major competitors. Most sharing economy firms don’t have the regulatory burden and costs strapped on to large businesses.
An app Monkey Parking that allowed people to find public parking spaces has been shut down by San Francisco. As part of its business model the app allowed those looking for a parking space to bid for ones that other users were holding but were expected to be available soon. Its founders argue that the peer to peer app helps reduce congestion by limiting the time people spend driving around looking for a parking spot. However the city authorities didn’t still warm to the idea that public parking spots could become the monopoly of a few. Monkey Parking founders are looking for a way around the impasse.
Some car sharing marketplaces have been banned in Europe and various conditions and taxes that apply to large hotel chains have been imposed on apartment sharing services in some US and European cities. Legislators are generally uncertain about how to deal with these sharing economy firms, which reduce costs of services for most consumers but threaten major disruptions.
Some cities would like to regulate peer-to-peer apartment rentals, as they were a hotel. They would like to charge tourism taxes, and implement other safety requirements that already apply to hotels. Taxi services have come under fire from regulators and taxi drivers who want to protect their monopoly.
These fights are happening because the sharing economy is no longer a fad on the fringes but a big enough target, it’s seen as being worth fighting against.

Shamindra Kulamannage was part of a US Department of State’s Foreign Press Center reporting tour.

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