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.