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What is the Sharing Economy?

You Keep Using That Word, I Do Not Think It Means What You Think It Means

The “sharing economy” it is a phrase being thrown around a lot and has a pleasant connotation – after all didn’t your mom tell your that sharing is nice?

But what is it really? Say┬áI need to get downtown for a meeting. In the old days I might call you up and ask for a ride or you might loan me the car for a couple of hours. But only if it didn’t conflict with your need for the car.

Enter Uber. Uber is a car “sharing” service. You create an account with Uber, then when you need a ride somewhere you use the app to request a ride. Someone then shows up and drives you to your destination – for a price.

The last time I checked sharing didn’t require payment. Also how is this different than calling a taxi service?

Airbnb is a home “sharing” service. But it really isn’t any different than any of the other short term rental services than have been available for decades.

What is really going on is that it has become effective to set up two sided markets since both those who have something (suppliers) and those who need something (consumers) are now online. The company setting up the market provides an easy way for the 2 parties to connect. Given enough suppliers there will always be availability for the consumer. Since the job of the company is to ensure there are plenty of suppliers for the consumers rather than purchasing and maintaining the product there is little overhead other than marketing.

Even this isn’t a new concept. I once did some work for a company whose product was a catalog of other companies that had manufacturing waste such as scrap steel and construction debris. They spent all day on the phone calling other businesses looking for someone who wanted these things. What is different now is the cost of finding these people.

What is new is that since it is so cheap to connect suppliers and consumers now it becomes effective to rent items that are less expensive. I don’t have to have a fleet of cars, I can just rent the one I have and only when I want to. The market of suppliers provides coverage when I am unavailable.

All the suppliers are also listed in one place (not really since there are competitors to Uber) so it is easy to find one. Additionally there is typically a reputation system so that both the supplier and the consumer can rate each other. This keeps the system in balance and encourages both parties to be nice and do a good job. However, that reputation is only good for that market. I can’t take my Uber rider reputation and use it at DogVacay.com.

I get that the term “sharing economy” is here to stay, and that’s fine. But the next time I share my cookies with you expect a bill.

Published in Business