The sharing economy - dream or nightmare?

We have been taught since childhood that a willingness to share is a good thing. However, until relatively recently sharing was an unusual business strategy. But the internet – arguably the ultimate shared resource – has changed all that. New technologies have enabled the development of ‘sharing economy’ business: online platform-based organisations that allow end users to participate in shared business activities, to share the use of assets and to share in the benefits generated through this activity.

A precise definition of a sharing economy business is difficult to pin down, but generally they use online platforms and apps to make resources created or owned by some platform users available to other platform users. Many sharing economy businesses claim they perform specific functions in a ‘better’ way than previously possible, usually by making it easier for end users to use a service and/or to access a broader range of assets than would be available otherwise. Some also claim to deliver environmental or social benefits.

The sharing economy includes not-for-profit businesses and organisations (see The ‘Real’ Sharing Economy, below), but this article is focused primarily on profit-seeking concerns. These include, for example, transport services such as Uber or BlaBlaCar; food delivery platforms like Deliveroo and Just Eat; accommodation services, such as Airbnb or Vrbo; or clothing rental businesses such as By Rotation and Bundlee.

Some have caused significant, headline-grabbing market disruption. But what further effects are they and their business models having on economies, other businesses, the people who work for them, society, or the environment? The development of these platforms is certainly enabling and inspiring entrepreneurship, but is it also exploiting workers and contributing to over-consumption and waste?

Juliet Eccleston is CEO and founder of AnyGood?, a sharing economy platform providing employers with personally recommended candidates for specific jobs. She is also chair of Sharing Economy UK, the trade body for sharing platforms, which now operates as a council within the Confederation of British Industry. She believes sharing economy businesses can deliver multiple social, environmental and economic benefits.

“Often, sharing economy businesses are born out of a desire for change,” she says. “That may mean a change that leads to a more efficient process, environmental change, or social change. Many of our platforms have links to the circular economy, highlighting a desire to make better use of resources.”

As examples of the good that such businesses can do, she cites services that enable sharing of car parking spaces (for instance, mobypark in France, the Netherlands and Belgium); and platforms that seek to boost sustainbability, such as By Rotation. Then there’s PiggyBee, which links travellers to people who want goods delivered to the traveller’s destination, so reducing the frequency and demand for international freight journeys.

For Arun Sundararajan, Harold Price Professor of Entrepreneurship at New York University and author of the book The Sharing Economy, it is the redefinition of responsibilities for and ownership of the processes involved in delivering goods or services that is the most important difference between business models in the sharing economy and those used by conventional businesses.

“The sharing economy redefines who owns what and who is responsible for what between the business – now often a platform – and an individual who is now not an employee, but somewhere between an independent contractor and a small business owner,” he explains. He calls this business model “crowd-based capitalism”, based on “the observation that platforms were allowing individuals to run tiny businesses and enabling them to reshape economies.

“I think [the effect of the sharing economy on the wider economy] is getting more significant each year, and the pandemic has exacerbated that,” he says. “The sharing economy as a business model has really only been present for less than a decade, but for many of the world’s largest companies in a given sector, it is unclear to them whether their prior business model is going to survive.”

Eccleston highlights some more benign impacts on existing businesses. “We find that as the ecosystem grows and evolves, both kinds of businesses can form part of it,” she says. “There’s a lot of cooperation and collaboration.”

As an example, she cites how her own business works closely with recruitment companies. She points out that the sharing economy can also help create commercial opportunities for other businesses. For instance, major clothing retailers have now formed partnerships with rental services, and IKEA has begun to buy back and resell its furniture.

Sundararajan believes that the sharing economy creates opportunities for entrepreneurs who can use online platforms to reach larger audiences, such as small food businesses that sell goods online. It means entrepreneurs can now create new ‘restaurants’ that are really just kitchens producing food for delivery.

“The scale at which you can run a business like that has become a lot smaller,” he says. “You just need to rent some space and create a brand and you’re in business, without having to put in the capital and risk associated with starting a conventional restaurant. I’m seeing an explosion of entrepreneurship in the food space. We will start to see that innovation in other sectors touched by the sharing economy.”

But 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 April 2021, Deliveroo’s debut on the London Stock Exchange was marred by more than 200 Deliveroo delivery riders joining a demonstration in central London to protest at their treatment by the company. Yet a long-running legal campaign they are fighting has so far failed to win the concessions they seek: in June 2021 the Court of Appeal unanimously ruled that Deliveroo riders should be regarded as being self-employed. The value of Deliveroo shares jumped by 9% following the ruling.

By contrast, 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 the lawyers representing them.

Steven Kane Curtis, an academic researcher currently based in Sweden who helps businesses implement sustainable business models, has studied the sharing economy for some years. He believes that the treatment of employees represents a major practical and reputational problem for these businesses.

“It’s one of my biggest concerns about how the sharing economy is seen by society,” he says. “It leaves the labour market ripe for exploitation. The problem needs to be addressed at policy level.”

But he also thinks that in the age of social media and public awareness of and concern about companies working to deliver social or environmental improvements, users of these platforms could have a significant influence on regulation or legislation to control such businesses, as well as the ability to set public expectations for their behaviour.

Some sharing economy businesses have tried to tap into disquiet among the public (including potential workers) in order to create commercial opportunities. For example, another ride-sharing service in the US, Juno, had a policy of only taking a 10% commission from its drivers, compared to the 25% taken by Uber, and actually offered drivers a choice between being self-employed contractors or employees. (The service was acquired by another ride-sharing company, Gett, in 2017, but was then declared bankrupt in 2019.) Lyft, operating in the US and Canada, takes a lower commission (20%) than Uber; and both firms now offer drivers a wider range of rewards and benefits including shopping cashback offers (Lyft) and access to health insurance and gym membership (Uber).

“There’s obviously a challenge around platforms providing flexibility for people working on them, but it being less secure in terms of benefits,” Eccleston explains. “But from speaking to a lot of platforms, it seems that the people working for them are looking for flexible work. We need to make sure that it’s fair both for the person earning money and for the platform.”

The claim that sharing economy businesses can generate environmental benefits is often based on the premise that they are introducing the possibility of reusing existing assets. Some sharing economy businesses are also designed to address environmental issues directly, by reducing waste, or improving the efficiency of energy use.

Eccleston believes the changes driven by the sharing economy in sectors such as fashion have been positive, by changing expectations about the reuse and recycling of resources (about time, too – according to the Waste and Resources Action Programme, every year Britons throw away about £140m of wearable clothing.)

But it is fair to say that sharing economy business models have a mixed environmental record. As Kane Curtis points out, car-sharing schemes can lead to people making journeys by car that might otherwise have been made on foot or by public transport. Then there’s the food delivery services, which may use single-use plastics instead of recyclable or reusable packaging.

Any platform that entails the creation of new assets, such as bicycles for a bike-sharing scheme, involves an extra environmental cost. There is also some anecdotal evidence that the success of platforms enabling people to offer their own belongings for hire can encourage consumption of goods to be used for those purposes.

The success of accommodation services such as Airbnb might mean that fewer new hotels are built – and hotels can be environmental disaster zones, swallowing huge amounts of energy and water – but the chance to find cheap accommodation easily may also incentivise some journeys that might not have been made otherwise.

“In order to achieve the sustainability potential that the sharing economy could offer, you need to make sure these business models enable access to an existing stock of shared goods,” says Kane Curtis. “The sharing economy is not positive, from a sustainability point of view, unless it is a genuinely two-sided market that leverages the idling capacity of an existing stock of goods and strives not to encourage more consumption.”

He believes discussion of this subject should encourage business leaders, entrepreneurs, policymakers and the rest of us to think more carefully about the impacts any business can have on economies, individuals, societies and the environment. “Consumers, business leaders and policymakers need to be involved in a discussion of how we design an economy that works for citizens, the environment and the economy,” he says. “At the moment, we’re prioritising one of those more than the others.”

He also reiterates his belief that pressure from consumers and other service users to change practices in the sharing economy could have a big impact on setting expectations for the conduct of all businesses in relation to each other, end users, society in general and the environment.

“I don’t want to place the responsibility to act on to consumers,” he says, “but I think they don’t realise often enough the huge potential they have to influence business models.”

For Eccleston, the fundamental benefit of the sharing economy is that it allows access to and use of “resources that were previously unavailable or too expensive. The sharing economy does promise to deliver significant benefits,” she says, “but you need to step up to deal with the challenges it creates as things change.”

She is correct: the sharing economy is here to stay and is likely to have both positive and negative effects on your industry soon, if this has not already happened. In the years ahead, businesses, consumers and policymakers will all share the task of ensuring that the economic, social and environmental benefits of the sharing economy will outweigh its costs. If they do, it will be hard to argue against this form of sharing in business being a good thing for all of us.

Box one - What’s next for the sharing economy?

We will undoubtedly witness the emergence of many more new business ideas based on sharing economy principles during the next few years. Both new and existing platforms will probably try to find more ways to monetise the vast quantities of user behaviour data they gather.

They may also be keen to use technologies such as artificial intelligence, blockchain and virtual or augmented reality to enhance their services – particularly in a world where the presence of COVID-19 seems likely to continue encouraging even more time spent online, for work and leisure.

The drive towards sustainability and net zero is likely to be of growing importance to both individuals and organisations in the near future. So we may see the development of more energy-sharing services, building on progress made by projects such as Brooklyn Microgrid in the US, enabling households and businesses to improve energy efficiency.

It’s also possible to see how platforms such as TaskRabbit, for example, which can be used to access a wide range of jobs you need doing or want to do, from handyman work to delivery, logistics, personal administration and event organisation, could be extended to offer more B2B services.

“As the sharing economy matures, there will be a growth of B2B sharing platforms, which will result in the ability to rapidly scale the industry,” says Juliet Eccleston, CEO and founder of AnyGood?. “With this maturity will come continued innovation, not only through combining new technologies with sharing platforms, but also [through] collaboration of forward-thinking [businesses] with sharing platforms.”

Box two - The ‘real’ sharing economy

Besides profit-seeking businesses, the sharing economy includes not-for-profit organisations that could be described as the ‘real’ sharing economy.

Examples include Olio, an app that allows people to share unwanted food with others, with volunteers transporting the items. A partnership with Tesco announced in September 2020 has helped to drive significant growth in use of the app, which has risen from two million users worldwide at the start of the COVID-19 crisis to more than four million today.

The platform has also launched a new service, Borrow, that allows people to borrow low-value tools and other items from each other. The same concept is already used by the Dutch local lending/sharing platform Peerby; examples are also appearing in other countries.

Other services that could be classified as ‘real’ sharing economy entities include the social enterprise Liftshare, which has been running since 1998 and cites reducing carbon emissions as one of its key aims; or Freecycle, which reported a doubling in posts advertising unwanted items during the 2020 COVID-19 lockdowns, as people sought both to clear out unwanted belongings and to help meet others’ needs.

There has also been an increase in the use of services such as Nextdoor and its UK Help Map, in part as a means of sharing resources for caring and support within local communities.

It’s good to see that at least some of the predictions for how the internet could act as a unifying force in communities are finally coming to pass.

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Further reading on the sharing economy is available through the articles below.