The sharing economy

The phrase "sharing is caring" has never been more true! Sharing is not, of course, a new phenomenon – people have always shared devices, offered their skills and knowledge to society or passed on stories and images to younger generations. But the desire to share has picked up speed again thanks to social networks and mobile internet use, and all of a sudden, everyone has begun sharing with one another.

For some years now, the term "sharing economy" has been appearing more and more frequently. But what does this term mean? Which companies are already successfully making use of the sharing economy and what are the advantages and disadvantages for customers and companies?

Initially celebrated as a new hope and an alternative to traditional forms of economy, it’s now feared by various sectors as an existential threat to their raison d'être. The sharing economy is radically changing entire sectors of the economy and the way people interact with each other and with goods. But what exactly is the sharing economy?

The term covers business models, online and offline platforms, and communities that allow users to share goods, services, or information. Instead of owning something, it’s more important just to be able to use something when needed.

Almost every UK household has a drill, but it’s rarely used for more than a few minutes per year. So the idea is to make the drill available to other DIYers during the time that it’s collecting dust. In this way, products are used in a more sustainable manner and it saves the resources that would be needed for manufacturing countless new drills. Of course, this principle can also be applied to cars, living space, and even media. Borrowing is the new buying – and the sharing economy makes it much easier.

The Internet has fueled the desire to share since the very beginning – Wikipedia, for example, only works if numerous users share their knowledge with other visitors and create new content. However, sharing material and intangible goods only really took off with the arrival of smartphones and powerful mobile data connections. Today, apps make it possible to rent vehicles or bicycles in a matter of seconds, or to find an expert who can help you and is happy to share their knowledge or labour.

The role that companies play in providing services has to do especially with the business model. In the vast majority of cases, they offer the necessary technical infrastructure, such as an app or online platform.

• P2P: With peer-to-peer business models, companies provide the technical infrastructure that those willing to exchange or rent can use to find others.
• B2C: In the case of business-to-consumer, companies use the new technical possibilities to make their own products conveniently available for customers to use.
• B2B: Companies lend production machines or services to other companies via business-to-business. This saves them from having to purchase expensive equipment or hire experts.

The B2C and B2B models have been around for a long time and are merely accelerated and simplified by technical innovations. This is why the P2P model is the most interesting for understanding the new possibilities and dimensions of the sharing economy.

There are now countless companies that offer their users the possibility to exchange, rent, or temporarily use goods, services, and information. While many of them serve comparatively small niches, there are also companies in the sharing economy whose offerings leave established industries quaking in their boots.

Founded in 2008, the marketplace for booking and renting private accommodation has helped countless travellers find inexpensive accommodation in an uncomplicated way. On the other hand, the provider is currently in the headlines since in many large cities, which are popular with tourists, numerous apartments are used for private rent instead of as permanent residences. As a result, there is a shortage of living space in these cities and rent prices are rising.

Airbnb's shareconomy business model is a pure intermediary, i.e. it only handles the booking and payment on its platform. However, the company does not guarantee the reliability of the property owner nor the condition of the apartment. However, it is possible to evaluate tenants and property owners afterwards.

Uber is considered by many to be the epitome of the sharing economy. The company arranges passenger transport by car, similar to a taxi company. The big difference is that private individuals use their own cars. Passengers book a trip via app and are then shown the time of arrival and details of the vehicle. Once the journey has been completed, the transport costs are automatically debited from the passenger’s account. The driver and passenger then have the opportunity to evaluate each other.

The clothes exchange app was founded in Lithuania in 2008. It offers users the possibility to buy, sell, or exchange second-hand clothes. The special thing about it is that before purchasing, potential buyers can chat with the seller about the garments. The payment is also handled via the Vinted platform and the company retains a commission for each purchase.

In just 20 years, Netflix has evolved from a small DVD company to one of the world's largest streaming providers. For a short time, the market value of the US company was even higher than Disney’s. The offer: Instead of buying films or series, users can view them on the provider's website whenever and how often they want for a monthly fee. This is cheaper for many customers than actually buying individual DVDs or Blu-rays. The selection is also significantly larger than any domestic film and series collection – at the same time, the data of the streamed films and series remains with the company, unlike with a download.

The examples of successful companies in the sharing economy already show that the new business models are accompanied by numerous advantages, but there are also disadvantages – both for users and for companies.

The rise of the sharing economy in recent years is mainly due to the fact that users enjoy numerous advantages over established business models such as online shops or long-established service providers.

• Accessibility: Due to the platform’s high user-friendliness, it is quick and easy to use. Above all, mobile availability via smartphone apps makes it possible to access the sharing economy services while on the move.
• Pricing: At the same time, the prices of the goods and services offered are generally significantly lower than those of established competitors. Second-hand items, renting apartments, and private transport services cost less than buying new products, booking a hotel room, or taking a taxi.

• Environmental protection: Conscience is also rewarded – fewer goods have to be produced when vehicles are shared and products are re-used and this saves resources and ultimately protects nature. However, this advantage of the sharing economy should be enjoyed with caution, since consumption or use can also increase as a result of easier availability and lower purchase and usage costs.
• Earning potential: For sellers and service providers, the platforms mean new types of income. Since no special vocational training is required, lateral entrants also have flexible opportunities to earn money in a wide variety of ways and thus increase their income. Many providers even make a living entirely from the income they earn through the shareconomy.

Companies also benefit in many ways from the sharing economy – provided they adapt to developments and are willing to invest capital and labour in expanding or realigning their business model.

• New business models: As the examples of Airbnb, Uber, and Netflix show, the sharing economy offers the opportunity to mix up established industries. If this succeeds, the earning opportunities can vastly increase. But even without this so-called disruption of markets, the shareconomy has the advantage of opening up new economic fields and reaching customers who might not have been interested in the company's products before.
• Efficient technologies: By mediating goods, services, or information via corresponding apps, personnel costs or costs for business premises can be saved. However, developing and maintaining software also costs money.
• Access to user data: Through customers interacting online, companies can collect a lot of valuable data about the platform’s users. This information can be used to further adapt the service to customer wishes and improve it, but is also worth its weight in gold – for example as a starting point to delivering personalised advertising.

Of course, the sharing economy offers not only advantages, but also disadvantages with the new business models.

• Privacy: While collecting data is helpful and profitable for businesses, users should be aware that a lot of information about them is stored, for example, preferences for certain products, but in some cases also detailed movement profiles. In addition, some platforms require providers to make information about themselves or their living environment publicly available on the internet. When renting a room privately, for example, you’re required to upload pictures of your home to the platform for everyone to see.
• Lack of guarantee: Most shareconomy platforms only assume the role of intermediary, but do not guarantee the quality of the goods or services offered. As a result, users must rely entirely on the ratings of other users. They also do not provide a refund if the provider has not delivered as promised.
• No permanent positions: The lack of regulation in the sharing economy also has some disadvantages for providers in terms of the employment and labour law. For example, drivers of transport services are not employed on a permanent basis, but earn their money on a freelance or self-employed basis. That is why they are not subject to minimum wage regulations or protection against dismissal.
• Commercialisation: Many sharing economy platforms are accused of originally converting free services into a chargeable model. However, the balance between commercial and non-commercial platforms often shifts. Couchsurfing, where visitors can spend a free night at the home of anyone that offers, lost many customers due to Airbnb. A similar development can be seen when it comes to car sharing and tool rentals.

Small and medium-sized companies in particular, but also large companies, which refuse to accept the sharing economy or do not have the necessary capacities or financial means to adapt to new business models, are feeling the disadvantages of the sharing economy.

• Suppression of established industries: Through the mediation of cheaper private providers, sharing economy platforms are taking numerous customers away from established industries. For example, the taxi industry isn’t happy about Uber, the hotel industry about Airbnb, and major film distributors about Netflix.
• Fewer sales: Used products are resold, other items are shared, which leads to lower consumption of new goods and therefore to a decline in sales.
• Modified customer wishes: As goods are used for a longer time and more intensively, the ideas about what a good product means also change. Customers increasingly want goods that last a long time and are easy to repair. Disposable products lose their attractiveness as a result, and manufacturing industries have to adapt accordingly to the new ideas of those buying the products. Ultimately, however, this can benefit the environment.

Users benefit from shareconomy platforms, in particular due to easier access to a wider range of products, services, and information, usually offered at lower prices. There is therefore the possibility of a fairer and more environmentally friendly type of market economy. At the same time, the sharing economy opens up new earning opportunities for private providers. However, they should be aware of the risk of being self-employed. The lack of a permanent position can consequently lead to precarious employment relationships. Privacy protection is also endangered by the use of shareconomy offers.

Companies that adapt to the business models of the sharing economy have the chance of achieving high profits at comparatively low investment costs. The digitalisation of customer relationships also makes it possible to collect a multitude of user data and information. Companies that do not adapt to the new market conditions run the risk of being squeezed out – at least in certain sectors. Established business models can become less important, and sales can decline noticeably as a result of changing customer requirements and declining consumption. So it is a good idea to prepare for the sharing economy in advance.