22.09.

2021, 17:44 What Is the Sharing Economy - Example Companies, Definition, Pros & Cons

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Economy & Policy

What Is the Sharing Economy – Example Companies,

Definition, Pros & Cons

Brian Martucci

Some call it the gig economy. Others call it the peer economy. Others, the collaborative
economy, or “collaborative consumption.” Still others, the sharing economy.

Tomayto, tomahto. More important than what it’s called is what it is.

As Fast Company contributor Rachael Botsman points out, the sharing economy has long
lacked a shared definition, and it’s probably more accurate to break it into several related but
distinct realms.

These realms form the wireframe of a highly flexible economic network. The network – we’ll
call it the sharing economy, for simplicity – allows people to exchange tangible and intangible
with one another at scale. These exchange relationships often undercut traditional retail or
employment arrangements, generally by reducing transactional friction or looping
middlemen out altogether.

You can now get an unsecured personal loan directly from your peers, share the same office
space with dozens of different companies, and stay at a stranger’s house instead of a hotel
when you’re traveling out of town.

By making it easier to exchange resources on demand, the sharing economy increases

efficiency. In many circumstances, it allows participants to get by without owning valuable
items, such as cars, while creating opportunities for others to extract value from idle
possessions or talents.

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It wouldn’t be possible without technology. Virtually all forms of collaborative consumption

use the Internet to connect providers with customers, whether they’re renting a house
through Airbnb, sharing their car on Turo, or renting out your extra space through
Neighbor.com.

Anyone can participate in the sharing economy. In fact, whether you realize it or not, you
probably already do. And, if you don’t yet, you probably will soon enough.

Examples of the Sharing Economy

1. Peer-to-Peer Lending
What It Is: Peer-to-peer lending platforms allow individuals to lend and borrow money
without going through a traditional bank. Based on the borrower’s credit history, the interest
rate is typically set by the platform, which acts as the intermediary between the two parties.
However, the individual who lends the money bears the risk. Though the most common type
of peer-to-peer loan is an unsecured personal loan, offered on such platforms as Lending
Club and Prosper, platforms like SoFi offer student loans and mortgage refinancing loans as
well.

What It Challenges: Traditional institution-to-individual lending is not an option for many

would-be borrowers. With more liberal lending standards than most traditional banks, P2P
lenders offer opportunities for a wider range of borrowers. Over time, this could
compel banks to be more accommodating.

According to Sebastian C. Moenninghoff and Alex Wieandt, business experts at the Otto

Beisheim School of Business, peer-to-peer lending is driven by the “emergence of the
Internet, ongoing innovation by startup companies, and increasing financial regulation of
traditional banks.”

Basically, technology makes it easier and safer for individuals who have money to find people
who need money. Since the platforms themselves don’t have to worry about absorbing losses
from failed loans, they can be much leaner than traditional banks.

Though this creates risk for individual lenders who lend via peer-to-peer platforms, it also
allows them to put some of their capital to use without researching stocks and funds or
settling for meager interest payments from a savings account. Also, it provides capital to
borrowers who may not be able to find a traditional loan at an affordable rate (or at all) due to
a shaky credit history or a stingy bank.

2. Crowdfunding
What It Is: Like peer-to-peer lending, crowdfunding connects people who need money with
those willing to provide it. On platforms such as Kickstarter and Indiegogo, entrepreneurs,
artists, and others present startup or project ideas to a community of potential funders, and
then set a target fundraising amount and date. Dozens, hundreds, or even thousands of
individuals can contribute to a single campaign. This makes crowdfunding doubly potent as
a top small business fundraising option and a brutally effective way to cut small business
expenses.

However, unlike peer-to-peer lending, the recipients aren’t always expected to repay the
funds. Some crowdfunding campaigns function like grants, where individual lenders give
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money with the understanding that they won’t get it back. (Recipients sometimes offer
rewards, such as merchandise, to encourage this type of funding.)

Others are more like capital raising rounds, where startups or small businesses solicit
investments (typically in minimal amounts) in exchange for equity in the company. This is
known as equity crowdfunding, and it’s become far more common in recent years thanks to
legislation such as the JOBS Act and regulations such as the SEC’s Regulation A+.

What It Challenges: Traditional business financing can be difficult to attain, as can grants.
However, crowdfunding may make it easier for businesses and projects to obtain financing.
For banks with strict lending standards, many startups and even established small
businesses are too risky. For creative types, using a crowdfunding platform is less time-
consuming – and offers a better shot at success – than applying for grants through
government or nonprofit arts organizations.

And for those who contribute funds, the rewards can range from the emotional satisfaction of
supporting something they care about, to an equity stake in a potentially successful venture.

3. Apartment/House Renting and Couchsurfing

What It Is: Apartment/house sharing platforms, such as Airbnb, Vrbo, and HomeExchange,
connect homeowners with people who need a place to stay when they’re traveling. Hosts set
the nightly price and specify available dates, typically when they’re not using the property. In
preparation for a trip, visitors can browse accommodations in their destination and choose a
place that fits their desired neighborhood, amenity needs, and budget.

Some platforms address the potential security issues of sharing your living space with a
stranger by putting security protocols in place. For instance, Airbnb’s Verified ID program
requires hosts and visitors to provide detailed information about their background before
using the platform. Vrbo encourages owners to collect a deposit from renters and draw up a
rental agreement that specifies the rules that renters must abide by (such as quiet hours and
whether guests are allowed). However, due diligence still ultimately comes down to the
homeowner to properly vet potential renters.

What It Challenges: The traditional hospitality industry focuses on hotel rooms as opposed

to entire suites, apartments, or homes. But these can be cramped and often lack amenities
that make a longer stay more comfortable, such as a full kitchen. Previously, when you were in 
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an unfamiliar place and needed a bed (or a couch) to sleep on, you had to check in at a hotel
or motel. However, now you can now find people willing to share their entire home and all the
amenities that come with it – often at a lower cost than traditional lodging.

And if you want to explore the lesser known parts of a new town, platforms such as Airbnb
offer an opportunity to stay in neighborhoods far from touristy districts where hotels tend to
cluster.

4. Ridesharing and Carsharing

What It Is: Ridesharing and carsharing offer some of the benefits of car ownership, such as
easy access to a city without having to rely on public transit, with few of the drawbacks, such
as paying for gas, insurance, and maintenance.

With apps like Uber and Lyft, you can hail a ride from drivers in their personal vehicles. With
services like Turo and Zipcar, you can commandeer a shared vehicle, owned by a for-profit or
nonprofit organization, and pay for the time you drive it. And with newer companies like
GetAround, you can rent privately owned cars by the hour or day when their owners don’t
need them.

What It Challenges: Taxi and rental car companies have become antiquated. Ridesharing has
forced these players to adopt technological solutions, such as smartphone apps, and may
result in lower prices over time. Though taxis and rental car companies have been around
almost as long as the automobile itself, the sharing economy dramatically undercuts their
business model.

Depending on the location, rides with Uber, Lyft, and other ridesharing companies can cost
half the amount of an identical taxi trip. Since carsharing companies like Zipcar mostly charge
for the time (minutes or hours) and distance you drive, they’re much cheaper than rental car
companies, which typically charge by the day. GetAround translates low overhead costs into
savings, with rates starting at $5 per hour.

5. Coworking
What It Is: Coworking lets you share the cost of office rent, utilities, storage, mail, and office
supplies with other professionals. It’s particularly useful for freelancers, sole proprietors, and
very small businesses that don’t have huge inventories requiring lots of storage space.

Many cities and university towns have at least one coworking hub, such as Minneapolis-St.
Paul‘s Fueled Collective, Chicago‘s The Coop, and Austin’s Link Coworking. These facilities,
stocked with coffee and connected to the outside world with phone lines and WiFi
connections, typically feature large, bullpen-style space with office suites, conference rooms,
and common areas. You pay a weekly or monthly fee based on your space requirements and
the amount of time you spend at the office.

Depending on the coworking hub’s policies, you may also need to pay to for conference room
time, storage lockers, P.O. boxes, and other perks. But these costs are likely to be significantly
lower than what you’d pay for even a small office space, especially in the bustling districts
where coworking hubs are usually found.

What It Challenges: Traditional workplaces can be expensive, but coworking allows

freelancers and solopreneurs to work in a dynamic office environment at relatively low
cost. Coworking doesn’t just spread overhead costs among hundreds of workers in dozens of
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professionals who have complementary talents. This makes forming mutually beneficial

partnerships easier for all.

For instance, a lawyer I know by association (a one-woman operation focused on intellectual

property issues) rents a desk at three Fueled Collective outlets in my area. She spends one
day a week at each and generates the majority of her business through referrals and informal
contacts there. She spends the other two weekdays at home or at a coffee shop, working
furiously on projects for them. Until recently, a lawyer without an office was unheard of.

6. Reselling and Trading

What It Is: If you’ve ever used eBay or Craigslist, you’ve participated in this part of the sharing
economy. If you haven’t, take a moment to check out our comprehensive guide to selling on
eBay, Amazon, Craigslist, and more.

Behemoths like eBay and Amazon let you buy, sell and sometimes trade new and used goods
(and, in Craigslist’s case, pretty much anything else you can imagine) without face-to-face
interaction. Other sharing economy platforms focus on specific niches. For instance, Kidizen
is an online marketplace for used childrens’ toys and clothing.

What It Challenges: Markets, retail outlets, and manufacturers often sell new items with a
significant markup. But when you share a physical good, you cut out the middle man – the
retailer or manufacturer – and recover some of what you paid for it.

As popular marketplaces for used goods, eBay, Craigslist, and Kidizen let sellers extract value
from things that might otherwise collect dust and buyers obtain needed items at a lower cost.
As lower-cost, human-scale alternatives to traditional retail and rental networks, these
options turn normally impersonal, potentially expensive transactions into rewarding
experiences you can feel good about. And the arrangement is more sustainable than buying a
new item and throwing it away when you no longer have use for it.

7. Knowledge and Talent-Sharing

What It Is: Do you have a skill or knowledge base that you’re not using in your day-to-day job?
The sharing economy can help.
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If you’re a handy person, or don’t mind menial work, platforms such as TaskRabbit and Zaarly let
you offer your services in niches like housecleaning, building furniture, tending gardens, or running
errands.
LivePerson brokers connections between you and people who need more advanced services,
such as psychological counseling or technical support.
Freelancing websites such as Fiverr and UpWork let you share a wide range of skills with multiple
employers, eliminating the need to rely on a single source of income.
With online task marketplaces such as Mechanical Turk, you complete basic, sometimes repetitive
work for individuals or companies that order it – though you shouldn’t expect to get rich doing it.

What It Challenges: Traditional jobs may never go away entirely, but for some, talent
marketplaces may be a much more enticing form of employment. Talent marketplaces are
more flexible than traditional employment arrangements, eliminating the stress and
complexity of the hiring process for everyone involved. If you have the requisite skills or
knowledge, these platforms allow you to earn money by providing them, often from the
comfort of your own home (or at least your own car).

By creating more liquid marketplaces for knowledge and and talent, this facet of the sharing
economy enables busy people to delegate work on demand – and creates economic
opportunities for those willing to do it.

8. Niche Services
What It Is: Some sharing economy platforms offer services that are extremely useful to
smaller slices of the population. For instance, Spinlister lets you rent a bike when you’re
traveling – or when you decide you need a pedal-powered ride for a bike commute on a
beautiful day. It’s a great way for bike owners (and owners of other types of recreational
equipment, too) to earn passive income and for bikeless people to source a sustainable
ride. Rover helps you find a place, typically another dog-lover’s home, to board your pooch
when you’re traveling or otherwise unavailable. It’s usually cheaper, and far more welcoming,
than a commercial kennel.

Bike sharing is another sharing economy application that’s disrupting traditional conceptions
of ownership. Bike sharing services such as Bcycle, which has multiple locations in cities like
Denver and Austin, allow members who pay manageable membership fees to rent bikes by
the hour or half-hour, often for just a few dollars per session. Used wisely, a bike sharing
membership can be significantly cheaper than traditional bike ownership after accounting for
maintenance.

What It Challenges: Impersonal commercial arrangements can be avoided entirely. Like

other functions of the sharing economy, these services cut out the middle man, reduce costs,
and connect like-minded people. DogVacay and Spinlister allow dog lovers and cyclists,
respectively, to turn their passions into income while addressing potential headaches for
travelers. This increases trust among participants, creating a clear contrast with an
impersonal bike rental outfit or kennel.

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Advantages of the Sharing Economy

1. Cheaper Goods and Services
The sharing economy is built on the idea that sharing certain goods, services, and skills is
more efficient. This can reduce costs for available goods, services, and time. For instance, if
you only need to use a bandsaw once a year, it’s much cheaper to pay $20 to rent one from a
neighbor or tool lending library than to shell out $1,000 or more for one of your own. The
same goes for an occasional service, such as an annual housecleaning or a point-to-point ride
in a densely populated area.

By using something or someone only when necessary, you don’t have to deal with the

headaches or costs of ownership and employment, such as car and health
insurance, maintenance, and HR issues. In essence, the sharing economy cuts out the middle
man, whether that’s a traditional employer or the company you buy goods and services from.

2. Extra Income for Providers

On the other side of the transaction, an owner can unlock the potential value of an item, such
as a vehicle that would otherwise be sitting in the driveway or a talent that wouldn’t be
utilized in a day job, by sharing it when it’s not in use. By giving rides or working in a talent
marketplace, you can replace or supplement the income you’d earn in a traditional job. By
renting out your house or possessions, you can earn passive income while you’re doing other
things – possibly fun things, like going on vacation.

3. New and Better Opportunities

The sharing economy offers access to things that might not be practical to own or obtain. For
instance, many people simply can’t afford a car or convince a traditional bank to extend a
personal loan. Peer networks make it possible to access such things without asking
participants to pay a lot or assume unacceptable amounts of risk.

4. Stronger Communities
Many sharing economy platforms, such as ridesharing apps and Airbnb, have built-in ratings
and reviews that help keep providers and consumers honest. Coworking and task 
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marketplaces are built on the idea of interpersonal collaboration and resource-sharing. And
some platforms use their influence – and the shared resources of their participants – to help
those in need.

For instance, according to TechRepublic, Airbnb has coordinated free accommodations for

people affected by natural disasters, and TaskRabbit has experimented with organizing
volunteers in crisis situations. These and other trust-building efforts help sharing economy
participants see one another as equals, building constructive relationships where none
existed previously.

Disadvantages of the Sharing Economy

1. Privacy/Safety Concerns
The sharing economy requires people on both sides of the transaction to forfeit some privacy.
For instance, when you rent out your house on Airbnb or Vrbo, you basically invite strangers
into your home. While you trust your renters to be respectful and law-abiding, you can’t be
100% sure that they’ll follow through. The same issue applies to ridesharing, selling or renting
items in an online marketplace, and using a task platform to source in-person labor, like
housecleaning and home repair.

By contrast, taxi services, traditional retail outlets, and cleaning and contracting services
must be licensed and/or abide by consumer-protection regulations that don’t necessarily
apply to sharing economy providers.

2. No or Few Guarantees
When you share your resources with others – whether by renting out a house, car, or
equipment, or participating in a talent marketplace – you also assume the risk that you won’t
get paid or that the items you share will be damaged. For instance, in a talent marketplace,
there’s typically a finite number of jobs for which you’re qualified and thus no guarantee of a
steady income – or even payment for completed work if the buyer isn’t satisfied. Ridesharing
platforms feature the same constraints. Plus, renters in your home or riders in your car could
cause damage that you have to pay for – either above and beyond a security deposit you
require, or in the form of an insurance deductible.

3. Cooperation With Others

Though its community-building power can be a benefit, the sharing economy requires close
cooperation between people on each side of a transaction. This may lead to tradeoffs that
constrain your independence or self-reliance. For instance, when you use a coworking space,
you agree to share resources that, in a standalone office suite, you’d have total control
over. When you rent on a house or apartment sharing platform, you occupy a space that
contains someone else’s personal property, and may be subject to a homeowners’
association’s rules (or neighbors’ scrutiny). In a hotel room, you don’t have to behave as if
you’re a guest in someone’s home.

4. Market Distortions
The sharing economy’s inherently disruptive effects sometimes feel downright punitive.
Among the most widely studied are local housing market distortions precipitated by short-
term rental platforms in major cities and popular tourist destinations.
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A 2017 study by the National Bureau of Economic Research, UCLA, and the University of
Southern California found that “a 10% increase in Airbnb listings leads to a 0.42% increase in
rents and a 0.76% increase in house prices.” That might not sound like a lot, but keep in mind
that Airbnb listings have grown at a much faster clip over the past decade in top markets like
San Francisco. According to Zillow, housing prices roughly doubled between early 2012 and
early 2018.

The Future of the Sharing Economy

Though theories abound, no one is really sure how peer-to-peer networks might reorder our
society and economy in the coming years. But the sharing economy does promise some
tangible benefits that could become more pronounced as more people participate.

1. More Flexibility in Work and Life

One important outcome of a society built on sharing goods and services is the flexibility to
make arrangements faster, with less risk or uncertainty, and often on your own terms.

Say you need to close or move your business. Coworking allows you to walk away from
your current space without worrying about breaking a lease or leaving thousands of dollars on
the table. Home-sharing services offer on-demand lodging, with many of the comforts of
home, at a reasonable cost. Crowdfunding lets you raise money for a new idea without
jumping through a traditional lender’s hoops.

Likewise, as a ridesharing provider, peer-to-peer lender, or participant in a task marketplace,

you have the opportunity to set your own work schedule or earn passive income. That may be
attractive compared to conventional employment arrangements.

2. More Ways to Earn and Save Money

Collaborative consumption offers economic benefits for everyone involved. If you’re using
your car as a ridesharing vehicle, renting out your house when you’re not home, or
participating in a crowdfunding campaign in exchange for equity, you’re unlocking value in
something you already own. If you’re on the other side of these arrangements, you may
eliminate the cost of car ownership, reduce your travel expenses, and secure valuable
financial support for a new business idea that may not have been fundable otherwise.
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Other sharing functions, such as coworking spaces and task marketplaces, may be cheaper
than their traditional counterparts. In all cases, the sharing economy either saves money or
provides income for its participants.

3. Less Worry About Valuable Possessions and Obligations

If you can get more of what you need through the sharing economy, you may be able to live a
leaner existence that requires fewer valuable possessions – and fewer worries about them.
For instance, if you live in a city and only need to drive a few times per month, a car may be
unnecessary. Not having to deal with car insurance, maintenance issues, and potential
thieves could be a big benefit. Likewise, if you can rent or share expensive tools or equipment
that you only use for special projects, your tool shed or garage won’t be as attractive a target
for thieves.

4. More Adaptable Businesses

Despite its increased prominence and continued growth, the sharing economy won’t
completely displace traditional economic networks anytime soon. It’s more likely to force
existing industries to become more like the collaborative platforms that challenge them, with
potential benefits for everyone involved.

For example, in response to competition from ridesharing companies such as Uber and Lyft,
some taxi companies now offer apps that let riders hail nearby drivers without calling a
dispatcher or waving their arms, and car rental companies such as Enterprise send cars to
pick up customers wherever they are. The story of existing businesses forced to adapt to
dynamic competitors is an old and familiar one that often benefits consumers.

Final Word
As the old saying goes, the only certainty is change itself. The past couple decades have seen
a whirlwind of technological changes, from a dramatic increase in processing power, to the
creation of a global network that permeates every aspect of our lives. These
developments have created new avenues for social change too, letting pro-democracy
protesters in Africa and Asia organize gatherings from their cellphones and making it
possible for people to work from virtually anywhere with an Internet connection.
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The sharing economy is a huge facilitator of these shifts, but the endgame is far from clear.
Sooner rather than later, you may need to ask yourself: Are you ready to step up and write the
next chapter in the story of an increasingly collaborative planet, or do you trust others to put
the right words on the page?

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