Gone are the days of phoning for a taxi and waiting hours as they don’t pitch up; or paying ridiculous hotel prices for an impersonal space the size of a box. Through the power of technology, concepts like Uber and Airbnb are transforming our economy into a ‘shared economy.’ The currency of the new economy is trust and, through technology, a market for things that have never had a market has been created. It has enabled cost savings, convenience and environmental benefits on a large scale. The rapid advancement in technology has allowed people to realise the power of technology to unlock the idling capacity of all assets, skills and spaces.
According to Forbes magazine, Uber is doing on average 1 million rides per day and Airbnb is active in over 192 countries around the world. Through technology, traditional industries are being disrupted by ingenious ideas such as Uber and Airbnb. People’s use of technology in their everyday lives have allowed for the concept of collaborative consumption to be born and created an economy of micro entrepreneurs. These micro entrepreneurs have turned idle assets (such as cars and spare bedrooms) from a financial burden into one that creates an income. In a ‘shared economy’ these micro entrepreneurs are able to use underused assets as a means of income. In a time when there is economic struggle, concepts like Uber and Airbnb have created a ‘shared economy’ with mutual benefits for both parties. Home owners with a spare bedroom can earn an income while providing a cheaper alternative to expensive accommodation.
According to Price Waterhouse Coopers, all that is needed in a ‘shared economy’ is lumpiness and technology. For instance, the ‘lumpiness’ refers in this case to a car or house. In the article “Sharing Nicely: On Shareable Goods and the Emergence of Sharing as a Modality of Economic Production” Yochai Benkler, an entrepreneurial legal studies professor at Harvard, used carpooling as an example of large-scale sharing of private goods. Cars, he pointed out, are “lumpy” goods, that is, they have to be purchased in units that exceed the buyer’s immediate needs. People invest in such goods when the lifetime value of the item is greater than its price. But in reality the private car or house sits idle and the economic value unrealised, these goods individuals buy for themselves but actually bring them a great deal of excess capacity. All this excess is what makes the ‘sharing economy’ possible. The reason Uber works is because a lot of people own cars.
But hasn’t this ‘shared economy’ always existed? Go back to the days when we bartered and traded with each other. The concept of collaborative consumption has always existed but what has empowered this new way of doing business is technology. What has made companies like Uber and Airbnb so successful is the technological elements, such as big data analytics, low cost cloud storage, the prominence of social media and the increased widespread use of mobile devices.
In the ‘shared economy’, reputation is your best asset. Due to the fact that technology has allowed users and hosts to ‘rate’ a service so easily (as well as things like Tripadvisor and Yelp). Think of your Uber ride, you will rate the drivers service based on the overall experience of the ride. Ultimately, your rating determines if he will receive other customers. A bad rating will in turn affect his income. Therefore, improved customer service is at the forefront of this ‘shared economy.’
What is amazing is that millions of hosts open their homes to complete strangers while in turn millions of users are prepared to stay in a complete stranger’s home and hop into a car with a driver they don’t know. Virtually all the sharing companies establish trust through crowdsourcing. Online reviews are at the heart of the sharing economy. Through the power of technology, a new business model based on trust has emerged and personal interactions are prominent as opposed to empty transactions. The future will be more like the days before the industrial revolution, more creative, more connected, less impersonal.
Whatever your opinion is of the ‘shared economy’ is, the proof is in the numbers. Airbnb, which started in 2008, now has 550 000 listings around the world and a market valuation of about $10-billion, which makes it worth more than either Hyatt or Holiday Inn. Uber, which had all of 550 employees in January, is currently valued at $18-billion – about as much as Hertz and Avis combined. What makes these shared companies so successful? Airbnb doesn’t own the rooms and Uber doesn’t own the cars. Essentially, they are platforms for connecting buyers to sellers and turning goods into services.