In 2015, the phrase “sharing economy” officially hit the pages of the Oxford English Dictionary. However, a growing departure from traditional business models and the influx of startup companies offering on-demand services has led to ambiguity around the term. The phrases “sharing economy,” “collaborative economy” and “on-demand economy” are often used interchangeably, though they technically mean different things.
Clarifying the definition of the sharing economy is important, as both advocates and opponents are asking for defined regulations in order to protect businesses and individuals alike.
What is the sharing economy?
According to the Oxford English Dictionary, the sharing economy is defined as “an economic system in which assets or services are shared between private individuals, either for free or for a fee, typically by means of the internet.” Traditionally characterized as a peer-to-peer resource network, this model is most likely to be used when the price of an asset is high and the asset is underutilized or is operating at idle capacity.
A common example is someone who needs to drill a hole in the wall to hang an item but does not own a power drill. Considering that the average power drill is used for a total of 13 to 15 minutes throughout its lifetime (making it an underutilized physical asset), the person who needs it would “rent” it from an individual or business who owns one. “Sharing” the asset offers economic benefits for both parties – the owner is compensated for lending an item he does not always use, and the renter is only paying for actual usage of the item.
Taking a closer look at Airbnb, one of the key players in the sharing economy, helps define the boundaries of this model. When a condo owner temporarily rents out his property through Airbnb while he is out of town, the living space is truly shared. However, if the owner permanently lives in a different home and continuously rents out his condo, he is essentially just operating a rental property (a process with an entirely different set of regulations).
This regulatory ambiguity is one of the main concerns about the sharing economy. Companies that provide licensed rental services are typically held to federal, state and/or local regulations. Unlicensed individuals providing rental services may not be playing by the rules or paying the required fees, enabling them to charge lower rates and gain an unfair advantage.
Factors driving the growth of the sharing economy include the flexibility the business model offers and the convenience of online access to shared goods and services. A low barrier to entry for participants and minimal regulations have also increased the number of people opting to leave the traditional workforce and join the sharing economy as a sustainable way of earning income.
While businesses have always worked to provide solutions that simplify customers’ lives, the sharing economy is effective because it promotes frugality and social responsibility. It gives consumers a way to participate in more activities in an affordable and sustainable way.
Sharing economy companies and examples
Here are a few examples of companies successfully operating within the sharing economy:
- Airbnb: Airbnb is a community marketplace for people to list, discover and book unique accommodations around the world – online or from a mobile phone or tablet. Airbnb allows people to monetize their extra space and promote it to a widespread, targeted audience.
- Hipcamp: Hipcamp is an online travel service designed to help people discover and book camping experiences on ranches, farms, vineyards, nature preserves and public sites. It connects landowners who want to keep their land undeveloped with responsible, ecologically-minded campers.
- Couchsurfing: Couchsurfing connects travelers with a global network of people willing to share life in profound and meaningful ways, making travel a truly social experience. Hosts open their homes to travelers for no charge, promoting cultural exchange and mutual respect.
- Lyft: Lyft is a ridesharing network that matches drivers with passengers who request rides through Lyft’s smartphone app. Passengers pay automatically through the app. The company highlights its quality service, prompt on-demand drivers, and affordable rates as competitive advantages.
- Turo: Turo (formerly RelayRides) is a peer-to-peer carsharing marketplace that allows individuals to rent vehicles from local car owners. Drivers can choose from over 800 unique makes and models listed online, from affordable daily drivers to rare specialty cars. Turo customers can either pick up the vehicle or have it delivered to them by the vehicle’s owner.
- JustPark: JustPark is a technology platform that matches drivers with available parking spaces through its website and mobile app. By providing access to 200,000 underused spaces, JustPark provides cheaper, more convenient parking to more than 1 million drivers across the United Kingdom. Drivers can find, reserve and pay for parking wherever and whenever they need it.
- Cohealo: Cohealo helps health systems share medical equipment across facilities so they can optimize spend, accelerate cash flow, and improve access to care. Its solution combines a technology platform, analytics and supporting logistics to make medical equipment available on demand.
Sharing economy companies often use mobile apps to drive the majority of transactions, making the peer-to-peer marketplace convenient and cost-effective. According to a study of the sharing economy done by the Brooking Institution India Center, the sharing economy is estimated to grow to $335 billion by 2025, and it will continue to be fueled by the growing flexible workforce and the appeal of on-demand services.
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