Younger generations prioritize experiences over assets and quality over quantity in many areas of life, and technology has evolved to help fulfill their desires. That's the position of Arun Sundararajan in his book The Sharing Economy: The End of Employment and the Rise of Crowd-Based Capitalism. According to Sundararajan, these young people do not want to be burdened with owning unneeded things.
Notice these demand changes:
- Young people don't want to stay at a high-rise hotel. They would rather rent on peer-to-peer accommodation platforms like Airbnb.
- Fewer young people are interested in full-time work and needless commuting to isolated office cubicles. They would prefer working at an internet-based freelance or gig job, working anywhere they choose.
- Young people are turning away from owning and storing things they use only occasionally. They would rather create sharing communities that offer item access, virtual currency exchange, and flexible on-demand services when needed.
With new technologies becoming available, this new lifestyle is becoming more achievable. It is a future in which peer-to-peer exchange becomes increasingly prevalent, and the crowd replaces the corporation at the center of capitalism. The sharing economy, as Sundrararajan defines it, is similar to Jeremy Rifkin's Collaborative Commons, as described in The Zero Marginal Cost Society: The Internet of Things, the Collaborative Commons, and the Eclipse of Capitalism. However you define it, these are growing communities aligned with the principles of open organizations.
Sundararajan calls the sharing economy "crowd-based capitalism" and identifies its five characteristics:
- Primarily market-based: It has potentially higher and broad levels of economic activity.
- High-impact capital: It opens new opportunities for assets, skills, time, and money to be used at levels closer to their total capacity. It puts idle assets to work where, in the current system, they are wasted.
- Crowd-based, non-hierarchical networks: Capital, assets, and labor come from decentralized crowds of individuals rather than centralized corporate or state sources. They are governed by distributed crowd-based marketplace systems or platforms rather than by centralized third parties. Distributed control ensures that value is prioritized, not just profit gain.
- Blurring lines between roles: Distinctions like personal vs. professional and producers vs. consumers are less meaningful. Sharing that used to be personal is becoming semicommercial. One can be a producer and consumer simultaneously, supplying newly discovered excess wealth-producing assets.
- A changing work environment: The differences between fully employed and casual labor, independent and dependent employment, and work and leisure are less clear.
These characteristics illustrate why terms like the "collaborative economy," the "gig economy," the "peer economy," the "renting economy," and the "on-demand economy" are part of the sharing economy. The sharing economy has commercial characteristics, but there is also a gift economy that serves both an economic purpose and social and cultural functions. For example, Collab Fund is a fund that invests almost exclusively in the sharing economy. All investors are angel investors that believe in the purpose of the investment.
Sundararajan maintains that the twentieth century was defined by hyperconsumption, whereas the twenty-first century may become the century of collaborative consumption. Hyperconsumption differs from collaborative consumption in four ways:
- Buying individually on credit vs. collaborative joint purchasing, sharing, and trusted community building
- Mass advertising vs. community interaction
- Individual ownership vs. sharing access to assets
- Global and regional syndication vs. local and virtual face-to-face networking
These patterns fit nicely in situations where open organization principles can play a major role. The sharing economy reflects a shift away from faceless, impersonal twentieth-century capitalism and toward exchange that is more connected and more embedded in a community with a purpose. Within the sharing economy, there are social cues to the importance of trust, reputation, and a digital community facilitating service to others. Exchange includes a gift factor that promotes a feeling of reciprocation and connection. These elements lead to a human bond between the two exchange parties.
This cohesion is central to the sharing economy. It embraces exchanging services and value with others even though payback is not clearly defined. Sometimes, the joy of giving and the good feeling of being generous to a stranger are enough.
Expanding the transaction-to-gift spectrum
Sundararajan writes, "Gift exchange tends to be an economy of small groups, of extended families, small villages, close-knit communities, brotherhoods, and, of course, tribes." Today's sharing economy scales behaviors and forms of exchange long familiar in such communities to a broader, loose-knit digital community of semi-anonymous peers. These exchanges are on a continuum between the gift economy and a market-transaction economy, with very few at the ends of the spectrum and many more at some point in between. Consider the Couchsurfing platform. You join this platform by setting up an account; to do that, you must verify your identity. Once becoming a member, you can sleep on other members' couches, and they can sleep on yours. There is no financial exchange. No one monitors whether you offer your couch or use other members' couches more.
Users say they are attracted to this platform primarily by the opportunity to meet people or make new friends—a representation of the open organization principle of community or network building. Finding a place to stay is of secondary value. Hospitality and a desire to connect with other human beings drive the Couchsurfing platform. Sometimes a Couchsurfing member contacts another member in a strange city just to socialize without a stay, simply to interact with a local person within an unfamiliar community. This human interaction results in positive experiences, resulting in favorable reviews, which could result in finding accommodations more easily in the future.
Expanding the sharing business model in the future
What social factors promote sharing? One is the continuing growth of the global urban population. People are physically becoming closer and, therefore, can more easily share underused assets. There will be continued growth of megacities with a population of over 10 million worldwide. Forecasts suggest that all future population growth will be in urban areas, particularly these megacities. Consider: People in cities share public parks, transportation, and apartment buildings without a thought. No one would consider purchasing and individually owning any of these public assets. The more densely populated an area is, the more sharing will happen naturally. Furthermore, with less space, people will not want to fill their space with things unless those things are in great need and regular use. These factors lead to more peer-to-peer sharing and less individual ownership.
In the book Peers, Inc, Robin Chase gives many examples of how the supply of many goods and services that used to come from corporations and the government may come from peers in the community. Chase writes that emerging practices such as the sharing economy, crowdsourcing, collaborative production, and collaborative consumption create more peer-to-peer, peer-to-business, and peer-to-government projects, and more small-business-to-big-business interaction. With this growth, open organization principles will become increasingly important.
All the above will improve the Human Development Index, which measures factors like global education and health. Worldwide, people will be able to buy goods and services they could never have afforded before. Prices will become lower than the market requires. People will have more disposable income. Platforms will be able to match product features to exactly what users need and want, so they needn't buy a lot of add-on features. Skills and tasks are already being performed more efficiently through platforms, so you can buy the specific task instead of paying randomly assigned hourly rates.
Platforms' importance in the growth of sharing projects
Durable goods for short-term use have mainly been provided by rental or leasing equipment companies. The problem for rental companies is they may not want to purchase something if there is not strong enough continual rental demand. Durable goods that last a long time are likely to have idling capacity. Anyone who owns them can get into the durable goods rental business if the transaction and marketing costs are low enough. Consider camping equipment, like tents, camping stoves, or sleeping bags. These could be rented out when not needed if the effort required were easy enough.
This is where platforms come in. A person could buy more than enough camping equipment for the family with the idea of renting it out when not used themselves, using a particular platform. This strategy could be financially rewarding and, more importantly, could build a friendly camping community. This could also apply to skills: A person's low utilization day can support another person's overly high utilization day. One person keeps busy while pressure is taken off of an overworked person.
Regulation and consumer protection
Peer-to-peer platforms create new and different regulatory challenges. Standardized regulations may make sense on a large scale but are not suited to small person-to-person arrangements. The question is, can trust and consumer protection be established and enforced without putting too much restriction on small, vulnerable microentrepreneurs? One approach is to form a guild within the community that can act as arbitrators of disputes. These guilds have experts and experienced members who can fairly address most issues. They can act as third-party mediators. Peers.org is a collective action platform that can start petitions and collective actions when there is improper behavior in private or public institutions. A platform like this could monitor and respond to digital, virtual, and physical issues within a given community.
Left alone, market practices can produce inefficient, inequitable, or insufficient outcomes, which economists call market failure. This can happen when there is an imbalance in knowledge between provider and user. Sundararajan offers three suggestions to mitigate this problem:
Recommendations, referrals, suggestions, and product reviews among third-party peers are compelling. They can build or destroy a business's reputation and social capital. A sharing community sets standards and works collectively to ensure those standards are maintained. With today's technology, a platform can develop the appropriate community and regulatory framework. eBay has its Power Sellers, for example, and BlaBlaCar offers an explicit certification of trust based on driving reputation. In microfinancing, your reputation can substitute for credit history. Yelp started as a restaurant rating platform but now rates many things. Third-party certification can also help maintain acceptable standards. Furthermore, to build a trusted business relationship early, paying more than the market requires and keeping early transactions small enough to avoid heavy losses might be wise.
Platforms want to reduce market failures that would create a bad reputation and deter people from using their services. In response, they create platform volunteers that educate and inspect the activities of people using it. Profiles on platforms like Facebook and LinkedIn can also form a digitally verified ID. Some websites also offer criminal background checks and driving histories. These could be voluntarily provided if there is a concern.
Furthermore, self-regulation could happen through building coalitions (self-regulatory organizations or SROs). Coalitions can be like self-governing bodies or guilds. They define standards, monitor them, and govern specific industries or professions, not just individuals. They rate each agent and determine trustworthiness. Within the sharing economy, Sundararajan believes these guilds must:
- Establish credibility early
- Demonstrate strong enforcement
- Be perceived as independent
- Take advantage of participants' reputational concerns and social capital
Community trust can be built to form long-term relationships. More than one transaction will be required for a lifetime career. The successful completion of one transaction leads to future transactions. The community must have communication networks that monitor successful transactions. Lastly, consideration must be given to those that don't use the service, like an Airbnb host's neighbors. It may be wise to join local co-op associations, condominium boards, or homeowner associations.
Regulation through data
Technology can provide governance, from simple devices like taxi-metering equipment to advanced algorithms. Many websites mine data from their users, which must be carefully used with both the suppliers' and users' permission. If they grant permission, communities can monitor much information about satisfaction. In addition, digital security systems can detect and block fraudulent activities swiftly. Even cameras that detect repeated lack of smiles can identify signals to point out concerns.
Sundararajan does not argue that government safety laws and regulations are not required. However, community-based and internal regulation is more powerful in many countries than existing laws. Governments will have to play a supporting role in making this business model more successful: Legal standards would be helpful, and industrial guidelines and inspections could make these services more reliable.
The time to start is now
This article, and earlier articles in the series, illustrate how the sharing economy can do a better job of putting to greater use what is now available, including our skills. The sharing economy is here to stay. Anyone able to develop platforms should consider sharing economy ideas very seriously.