A Research of Sharing Economy and Its Aspects

The ‘sharing economy’ is a fairly new phenomenon and has rapidly transformed the way individuals commute and shop. Researchers define the Sharing Economy as “people coordinating the acquisition and distribution of a resource for a fee or other compensation.” “Collaborative consumption takes place in organized systems or networks, in which participants conduct sharing activities in the form of renting, lending, trading, bartering, and swapping of goods, services, transportation solutions, space, or money”. This is usually done on an online platform and helps people to share access to assets, services, resources, time and skills. The Sharing Economy “is a large-scale activity that involves millions of users and constitutes a profitable trend that has lured many entrepreneurs to invest in it”. The sharing economy can also be referred to as collaborative consumption, gig economy or peer-to-peer (P2P).

There are five key sectors within the sharing economy including “P2P Accommodation, P2P Transportation, On-demand household services, on demand professional services and Collaborative finance”. The P2P accommodation and P2P transportation sectors consist of individuals who are providing accommodation or transportation services to consumers via digital platforms. The on-demand sectors involve individuals who are offering services via websites like TaskRabbit for household chores or even professional services like engineers or web developers. The collaborative finance sector involves transactions between individuals, this involves loans and crowdfunding.

Few researchers have studied the drivers, but Bockmann states that these are technological, economic and societal. Technology is the major driver, since the development of Web 2.0 consumers have been able to engage and connect with other consumers, which has impacted and changed the way consumers shop. Social networking, mobile devices and payment systems fall within the technological factor. Networks “help to facilitate peer-2-peer transactions by matching up supply and demand” (Constantinides & Fountain, 2008). It is no surprise that the increase in smartphones and devices have benefitted start-ups within the Sharing Economy immensely. Companies like Uber enable GPS-mapping system so consumers can share their location with the app to locate drivers near them to help with Transportation. Without the internet we simply wouldn’t have a sharing economy.

The societal drivers that have an impact on the Sharing Economy, are an increase in population density, drive of sustainability, desire communication and generational altruism. Kriston, Szabo, & Inzelt (2010) state that “high population concentration enables sharing to occur with less friction” this means that due to a significant increase in supply and demand it has become increasingly easier to match a consumers wants and needs with that of someone who is offering. The other major factor is the drive of sustainability. In recent years individuals have become more aware of the impact they are having on the environment due to consumption practices and because of this the concern for the environment has grown. Individuals are aware of the diminishing global resources and therefore P2P sharing within this type of economy is the most efficient method for reducing waste.

Finally, the economic drivers of the sharing economy are Idle inventory, Increasing financial flexibility and access over ownership. If an individual has unused resources in good condition, then these can be used by others and shared amongst the community. Financial flexibility, globalization and global communication has generated a lot of interest in earning money by ownership along with the independence and benefits of non-ownership. Chui says “Owners find possibilities to earn income and gain financial independence. Non-owners gain greater flexibility to invest in different products”. The sharing economy has enabled luxury goods to become affordable and reduce the notion of status.

Since the emergence of the sharing economy established companies have felt the disruption caused by new entrants. In particular Uber has challenged taxi firms and completely transformed the way consumers travel by making structural changes to the industry. Uber operate on an online basis, whereas traditional taxi firms tend to operate offline. Uber follow a modern business model and therefore operate on a card and online payment basis only; they do not allow for cash payments like traditional taxi firms where this is usually the only option (Uber, 2019). Looking at Ubers distribution strategy we can see that they aim to deliver an easy and convenient service for both consumer and providers. Within the business model both the service provider and the consumer are present and active within the service. Uber prides itself on safety and “allows consumers to share their journeys with loved ones, get help at the tap of a button along with 24/7 support within the app, also drivers and riders share community guidelines as well as depend on one another to do the right thing”.

A market leader within the tourism sector of the sharing economy is Airbnb. They are an “online peer-to-peer platform which enables people to rent out residential accommodation, including their own homes, on a short-term basis”. Since their establishment Airbnb has grown immensely, according to their website “The service has enjoyed extremely rapid growth since its inception in 2008, with over 100 million guests having stayed in Airbnb accommodations by the summer of 2016”, “and a growing global inventory of over two million listings”. Airbnb offers a unique business model, as well as extra rooms and homes they also offer unique accommodation like castles and igloos. You can book with Airbnb simply through their site by selecting the location, dates and then browsing through their hosts. “Payments are made through the Airbnb website, with the company charging both guests and hosts a small fee”.

Service distribution is often done through electronic rather than physical channels, especially if it is an informational transaction. For a service to be distributed the consumer doesn’t always have to be present, this is only the case for people-processing services. During service distribution three interrelated flows are addressed, these are Information and promotion flow, Negotiation flow, Product flow. For traditional firms, services are usually distributed using indirect channels or intermediaries. Figure 1 explains the sections of the flow model. The flow model can be applied to the distribution of service firms within the sharing economy and in particular Uber. For example; In the first stage Uber has gained the interest of consumers by using partnerships and ad campaigns. They originally introduced their ‘Get there with Uber’ campaign in 2016, which informed customers that they weren’t just operating as a ‘night out saviour’ but instead could connect you with your city, work and airport. During stage two, once ‘rides’ are purchased through the app consumers can use the service. The third stage is the service is distributed to the customer in the form of a car and driver which picks the consumer up and delivers them to their destination.

Sharing economy services are distributed differently to the traditional distribution model. The sharing economy, business model is made up of a service enabler (Airbnb) which in turn acts as an intermediary between the service provider (host) and customer (guest). “In a traditional B2B environment, there is a dyadic sales relationship between the intermediary firm and the seller (or the buyer), without the need for a direct interaction or transaction between the seller and the buyer” (Kumar, Lahiri and Dogan, 2018). “Partners in the supply chain add value to the product or service as there is a transfer of the product or service in both dyads”. This means that Sharing Economy firms distribute their services themselves rather than involving a third party like other traditional firms do, because of this the consumer has direct interaction with the seller and the service feels more personalised. Intermediaries alter service distribution and minimise the contact between the service provider and the customer.

The delivery aspects of a service fall within a six-option category. The model by Wirtz and Lovelock (2016) can be seen in appendix 3. The model determines the availability of the service outlets and whether this is available at single or multiple sites. This delivery model can be applied to a firm like Airbnb, they fall within the ‘customer goes to service site organisation’ at ‘multiple sites’ categories. Airbnb falls within these particular delivery service options as they operate from multiple sites, rentals and holiday lets are available in a number of cities around the world. The service isn’t delivered to the customer in one specific location. For this particular service, the customer is required to go to the organisation, the provider isn’t able to bring the service to the consumer.

Traditional service delivery providers often deliver the goods from their warehouses to the consumer using their own trucks an employees. However, within the sharing economy this is not the case. Sharing economy firms tend to have an online ordering system where consumers can order things like groceries online. “Instead of building a centralized logistics system, the platform assigns these consumer orders to independent contractors, often called shoppers in this business model”. Sharing economy firms don’t have specified sites. UberEats who are an “expansion service operated by the Uber group since 2014, utilizes part-time deliverers to deliver meals made by partner restaurants to doors in more than twenty countries. Besides start-ups, big companies also enter this industry in the same way”.

International expansion is vital for companies in order to explore new opportunities in new business markets. Generally, when firms enter new foreign markets, they encounter a number of barriers to prevent their entry, however, the sharing economy has impacted how firms enter new markets. Scholars argued that “the Internet offers smaller firms an invaluable resource for internationalisation, as, at a stroke, they have global reach via a website” this type of reach would take traditional non-sharing economy firms years to achieve. Since the rise of the sharing economy, internationalisation has become a lot simple, firms can enjoy “direct and immediate foreign-market entry even for the smallest of firms”. Uber is a great example of this, they have engaged in incredibly swift internationalisation since their establishment and have expanded internationally into 65 countries world-wide connecting over 600 cities. The barriers traditional firms encounter is economic, financial, legal, political or cultural, these firms don’t gain direct and immediate entry like Sharing Economy firms do. Sharing economy firms do however, face customer protection and service standards issues when entering foreign markets. The arguments against service entrants are usually passenger safety, security, and insurance. However, sharing economy companies like Uber and Airbnb have challenged this by promoting the safety features they have.

Considerable interest has been shown in the sharing economy as it is believed to be a fantastic way of promoting sustainable consumption practices. In particular researcher Heinrichs (2013) has praised the sharing economy and said it is a “potential new pathway to sustainability”. He justifies this statement by saying that “the sharing economy enables shift away from a culture where consumer’s own assets (from cars to drills) towards a culture where consumers share access to assets”. This essentially means that waste is minimised as the sole purpose of the sharing economy is to recycle and reuse old assets. By doing this the production of goods has decreased meaning environmental effects like pollution and carbon footprint have reduced significantly, which has a positive impact on both consumers and firms within the Sharing Economy.

The sharing economy provides easier access to capital, previously start-ups encountered many issues, particularly with funding as banks regarded new firms as being ‘risky’. The collaborative finance sector provides a simpler way of raising money through crowdfunding platforms like GoFundme. It’s a great way for businesses to save time and gives them a higher chance at getting the funds than they would from applying for loans through the government.

Another consumer benefit is the development of the sharing economy has instilled a great sense of community trust. Previously communities were apprehensive about having strangers as guests as darkness surrounded this idea. “To facilitate online trust, sharing economy marketplaces incorporate online reviews, similarly to traditional P2P online markets”. Since this development, customers have overcome this and now support Sharing Economy firms as the positive reviews about the services received by other community members has reassured individuals. Firms like Uber and Airbnb have a number of safety features instilled within their service and app which reassures customers. Due to the increase in trust within the community consumers now see one another as equals and a number of relationships have been formed because of this.

Like anything the sharing economy also has its pitfalls one of which is there are a lack of regulations within the peer-to-peer section of the market. According to researchers “Governments are also concerned that many tourism Sharing Economy start-ups bypass government regulations and overhead costs that will have a series of impacts on consumer rights, safety and quality as well as disability compliance standards”. Due to the nature of the sharing economy, current laws and regulations do not match. Existing laws are still trying to understand how the Sharing economy works and this is one of the reasons service firms do not have to abide by these rules. This means that the products and services exchanged aren’t supervised. For a company like Airbnb this means that the apartments aren’t inspected, nor can the quality be assured. According to the same research article “Airbnb has been treated as a threat to safety and affordability of residential communities and more importantly, displacement of long-term tenants and creation of housing shortages”. Although not following current laws enables firms to keep costs down and make them more affordable compared to hotel chains it does however, mean that customers are not getting what they pay for.

Another pitfall is the Sharing Economy doesn’t provide workers with a stable income and living wages aren’t guaranteed. On top of this workers for firms like Uber have to pay for business costs, i.e. insurance and upkeep. Along with this Sharing Economy workers don’t qualify for any benefits for example, Uber drivers are not entitled to sick leave or pension schemes. “If one is simply looking to earn extra money to pay down debt or save for a large purchase, it can be a great way to make some extra cash” (Neuburger, 2019), however if this is a consumers only job and source of income then it can be incredibly taxing. According to the telegraph “Americans who make money from performing tasks on labour platforms such as Uber and TaskRabbit, a marketplace for outsourcing errands, earn an average of $533 (£373) extra each month” whereas “participants who rent assets on capital platforms such as home rental site Airbnb and eBay, can make an additional $314 every month, on average”. As you can see this is not a substantial income and workers would struggle to live off this wage alone.

Uncertainty surrounds the sharing economy as consumers and businesses are still trying to sus it out. Although it has numerous advantages, the sharing economy also has its pitfalls. The lack of regulations has caused a stir amongst users with many believing that it carries severe safety issues. However, the lack of regulations has had a significant impact on service distribution, delivery and internationalisation and made these processes a lot simpler for sharing economy firms. It enables new entrants to enter foreign markets directly and immediately without encountering entry barriers. It also makes the distribution and delivery of services much simpler by cutting out intermediaries, making it a cheaper more convenient way to distribute and deliver services. Looking at the success rates of these sharing economy firms; perhaps traditional firms should alter their business models to align with the sharing economy.