No Sharing Economy

Sharing Economy. Also known as shareconomy, collaborative consumption, peer economy or access economy. Is it a dream yet to fulfill or an inflated bubble yet to burst?

Four years ago, I wrote a thesis on whether the idea of collaborative consumption could be something for Estonia. This was also the first time I looked into this glorified idea of sharing resources that aren’t in constant use by their owners:

A bedroom. A car. A drill. A gown. Or simply an unused skillset.

What was the answer? Yes, this is something worth looking into. And many have, e.g. Autolevi, Bondora, Crowestate, Fundwise, Goworkabit, Jobbatical, Rentmarket, Shipitwise, Taxify, Toitla and Wisemile.

But four years later, I’d keep my distance from sharing economy. Not as an user. But as an entrepreneur starting a new company.

What’s collaborative consumption AKA sharing economy?

The roots of it go as far as the start of human race, when there were hunters and gatherers, that consumed their findings collaboratively. Hence the name.

But this idea of sharing economy first started to gain its popularity only in the 2000, after P2P file-sharing platforms, open source code and Wikipedia started to emerge. Next, the spread of social networks only helped along to grow people’s willingness to share.

And then came the financial crisis of 2007–08. This left the public poorer than before, while no one wanted to stop consuming. Thus, the idea of sharing economy started to gain ground and the likes of AirBnB and Uber were born.

Now, sharing economy is divided into three groups: marketplaces for resource reallocation, collective lifestyle and product-service marketplaces. From which I’m mostly focusing on the latter.

What’s needed to make collaborative consumption sustainable?

First step in order to get people share their toys is to dematerialize the concept of ownership to a common cloud. So that the border between mine, yours and ours would blur.

Second step is to get people trust one another. And reputation is the cornerstone for that. This is something new, because our credit history has always been more important than someone’s judgement. But it gets important when choosing who should get a chance to drive you or sleep in your spare bed.

But that’s where companies usually fail. They’re either not able to get people trust each other. Or they don’t find people willing to share their toys fast enough.

Where does sharing economy already work?

We all know AirBnB, which was founded in 2007 and offers people a chance to skip hotel, and sleep in someone’s much cosier home. It’s been rapidly growing, and spectators say it’s mostly because they’ve got the reputation part covered, and have loads of people willing to share their home with total strangers. Of course, having a full insurance covering all problems that might arise only helps.

Even older idea is sharing one’s car via platforms such as City CarShare, RelayRides and Getaround. Every country seems to have at least one of those. And it seems to work as people know their cars usually stay unused and they could earn another full salary just by renting it out. Meanwhile, rating systems and insurance only help their case.

And then there’s many others, such as sharing food, parking spots, skills etc. But there’s one particular type of sharing that needs to be mentioned. The marketplaces for lending or exchanging rarely used accessories, such as bicycles, drills etc. That’s where the idea of collaborative consumption fails. Or at least I’ve yet to seen one marketplace that hasn’t been eventually closed down, e.g. Snapgoods. Neighborgoods. Sharely.

Why I’d recommend against starting any new sharing economy business?

When it comes to collaboratively consuming expensive things such as cars and homes, then yes, this is worthwhile. Because people don’t necessarily have the money to own those things but they still occasionally need to use them.

But it doesn’t work with cheaper stuff, like home appliances and sporting equipment. Although this is where the real sharing should come in.

Why doesn’t it work?

  1. Consumers aren’t willing to drive more than 5-10 minutes to get the item, nor wait for two hours until the owner gets home. We live in the on-demand world, but sharing these things usually isn’t happening on-demand. Especially in smaller countries, where the distance is long and tensity is low.
  2. Owners aren’t motivated to share, as the price people are willing to pay for renting a drill’s less than €10. But the hassle of searching the drill out and getting it to the consumer’s simply bigger. OR they’re afraid people will break their things, and even insurance doesn’t help when your favourite board’s no more.
  3. Platforms, and thus the entrepreneurs, don’t earn real money unless there’s “millions” of transactions happening, as the margins tend to be low. Especially when the prices are also so low.

So what to do if your dream still is to build a company in the sharing economy?

First option’s not to do it.

Second option’s to do it in a tense area, such as metropolitans – London, Hong Kong etc. But even those places have yet to show a marketplace that’s not sharing expensive items such as cars, homes or yachts.

Third option’s to look into on-demand economy instead, and find stores willing to lend out their stock. Get enough stores and put them together with people that don’t want to buy, but want to use, and voila. But still don’t do it in areas with smaller tensity.

Fourth option’s to do it the other way around. Find people that have unused stuff and match them with companies that might not want to own equipment, but need to use it. E.g. people with drills and starting construction companies. Although I’m not sure even this model ends up that viable.

Fifth option’s to go against Airbnb or Uber and build the next marketplace for sharing more expensive stuff. Or challenge Upwork and give people a chance to become freelancers. But don’t do it unless you’ve got a very innovative way of doing it. Moreover, simply don’t do it. The world does not need a next taxi app.

All in all, there are so many more important challenges than reallocating existing resources and fighting against the human nature of owning stuff. Instead, go after them. Or disrupt a market that hasn’t had any major innovation in the past fifty years.

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