Comprehensive Guide for Sharing Economy Business Model
The sharing economy is one of the most fascinating economic phenomenons we have seen in recent history. It is one of the most powerful business models out there and we are going to guide you through it to make the most out of it for your business growth.
What is the sharing economy?… And how does it work?
A sharing economy is defined as an economic system in which assets and services are shared between private individuals. It includes the shared creation, production, distribution, trade, and consumption of goods and services by different people and organisations. These systems take a variety of forms, often leveraging information technology (particularly digital platforms) to empower individuals, corporations, non-profits, and governments with information that enables distribution, sharing, and reuse of excess capacity in goods and services. There are two main types of sharing economy models:
- Non-profit, usually based on the concept of book-lending libraries, in which goods and services are provided for free (or sometimes for a modest subscription).
- Commercial, in which a company provides a service to customers for profit.
In private circles, the sharing economy is often referred to as a ‘gig economy’ or uberisation of the economy, a term used to describe an “Uber-like” model. For those unfamiliar with how the model works, customers are put into direct contact with the provider of the service, and the Ubers or the eBays of the world are merely a platform for the transaction to take place; thus, eliminating the middleman from the transaction. This enables a more transparent marketplace based on flexibility and customer experience, where customers can also rate the service provider for future customers.
The sharing model can be applied to a wide range of different industries, but so far is particularly known for disrupting ride-sharing, crowdfunding, co-working, P2P lending, and trading. With the use of these apps, the sharing model eventually becomes a lifestyle and not just a tool, reinforcing a collaborative mindset.
In the UK, The Sharing Economy UK has been working closely with the government and policymakers, lobbying for changes that will protect both consumers and the growing number of sharing economy businesses. Members of the SEUK (including Gumtree, Airbnb, and Task Rabbit) have signed up to a central code of conduct, in which they must maintain a high standard for staff training, safety, and complaints procedures.
Sharing economy statistics
- The UK’s Sharing Economy is expected to be worth £140 billion by 20251 and represents many of the best of British digital SMEs.
- In the UK alone, sharing economy usage has risen by 60% within only 18 months after the first survey was conducted in January 2016. This may not be at all surprising to the 18–24-year-olds, 78% of whom are using sharing economy services.
- 62% of the UK population has participated in the sharing economy, with 73% of those who do use multiple platforms, and 23% of the UK use sharing economy services more than once a month.
(Environmental) Benefits of sharing economy
The sharing economy has positive environmental impacts, through a reduction in the total resources required and it helps reduce pollutants, emissions, and carbon footprints. In the transportation sector, vehicle sharing behaviour can have a positive environmental impact by decreasing the number of kilometers travelled. Economic benefits are also worth mentioning – through renting out a spare guest room on Airbnb, or becoming a driver with Uber, more and more people are becoming freelance workers. Freelance work allows more flexibility for workers, as people can pick and choose the time and place of their work. Other benefits include:
- Strengthening communities
- Providing people with access to goods who can’t afford to buy them or have no interest in long-term usage
- Accelerating sustainable consumption and production patterns
- Increased flexibility of work hours and wages for independent contractors of the sharing economy
- In 2015, Uber generated $6.8 billion of consumer welfare in the United States.
- New jobs are created, and products bought, as people acquire items such as cars or apartments to use in the sharing economy activities.
Examples of successful sharing economies
Airbnb: With over a million listings, there is so much variety in price and location. If you are visiting a small suburb, you may be limited to cheap motels or old bed and breakfasts. But with Airbnb, there is sure to be nearby places listed on the site.
Uber: People use Uber because it’s much easier calling a ride on the Uber mobile app and knowing exactly when an Uber will come than trying to hail a taxi outside or speaking to a human dispatcher. This model allows drivers to have complete flexibility, which makes Uber great at matching spikes in demand with increased supply.
Responsibility and risk
Still, sharing economy businesses have also had negative impacts. In some cities, the use of lift-sharing services has been blamed for an increase in traffic congestion and reduced use of public transport. Airbnb has been blamed for swiftly rising property prices in some cities, making certain areas unaffordable for local people, particularly where professional ‘hosts’ buy up multiple properties.
There has also been a small number of horrifying stories illustrating the risks that can be created when a company delegates aspects of responsibility for the safety of its service users to external, non-professional people. In particular, Airbnb has suffered some reputational damage as a consequence of guests being robbed or even subjected to sexual assault at properties where security has been compromised by previous guests or other individuals.
Some sharing economy businesses have also been criticised for their treatment of the people who work for them. Workers have sometimes found themselves in very insecure, intermittent employment, where their earnings fluctuate dramatically and they are treated as self-employed contractors, rather than employees, so cannot access basic benefits such as sick pay, paid holiday, or pension contributions.
In February 2021, the UK Supreme Court ruled that Uber drivers should be treated as workers, not self-employed contractors, meaning they should be paid at least the minimum wage plus holiday pay and can ask the company to make pension contributions. In March, Uber responded by announcing changes to working conditions for its drivers, but its interpretation of the Supreme Court’s ruling and the way it is calculating back pay being awarded to drivers have been questioned and criticised by unions, drivers, and lawyers representing them.
What's next for the sharing economy?
There is a clear need for sharing economy platforms to change and diversify their revenue, towards more lucrative industries of the future—artificial intelligence and data. Just as large existing platforms are updating their offerings, sharing will likely be applied to new, relevant industries. Energy seems to present a sharing opportunity. Community microgrids enable small-scale access to renewable energy, sharing the cost between users and selling excess to regional or national grids. This small-scale sharing is gathering traction through sharing platform cooperatives. These are putting more emphasis on ownership, for both workers and users. New York-based ride-sharing app Juno, for instance, only takes 10% commission from its drivers (compared to 20-30% that Uber takes), while it gives drivers the option to be contractors or employees.