Two-sided platform business models, such as the emblematic Airbnb and Uber, have shown the upsides of the sharing economy during recent years. By the time the article was published in 2014, the sharing economy was estimated to have a value of $26 billion, and it is expected to have a value of more than $300 billion by 2025 (Wadlow, 2018). Sharing is increasing and customers are receiving additional value, but the new markets are also susceptible to failures and unfair conditions that should not be ignored.
The Dark Side
The authors showed the downsides of the sharing economy with different examples.
- Shift to unbalanced markets: Airbnb and other accommodation sharing platforms are often more profitable for landlords than long-term rentals. As a result, there are less houses available for regular long-term rentals and average low-income inhabitants can encounter difficulties to find a place to live at an affordable price.
- Honesty and Reputation issues: dishonesty in the sharing economy has led to several rip-offs. Malicious reviews can also damage the reputation of providers and users.
- Sharing economy or ‘skimming’ economy?: ride-sharing alternatives can offer better prices than traditional transportation methods because drivers find loopholes to avoid extra licenses, insurances, rules and taxes.
- Sharing economy or shared servitude?: activities like ride sharing or micro-outsourcing sometimes provide irrelevant income while taking away job opportunities from the base of the pyramid.
- Whose Ox Gets Shared?: legal disputes can arise between a producer and a sharer. Aereo marketed a product to stream and share the content broadcasted in 1 device into other devices (personal or for other people), which was legally banned in the US. Similarly, an app founded in San Francisco was facilitating drivers to auction their public parking spot, also encountering legal confrontations.
- Not my responsibility: this is usually the attitude of the sharing economy platforms. For instance, an Uber driver is just a contractor and the company is not liable for any accident. Some companies are benefiting from the sharing economy by taking the profits and transferring the risks to other parties.
Lightening the Dark Side
- Take responsibility for risks that benefit the system. Companies like to avoid risks, but the benefits of taking responsibility for a risk can offset the realized costs. For instance, banks were at first opposed to the Fair Credit Reporting Act because it increased their liability for unauthorized transactions. They thought it would encourage fraud and careless behaviors, but it ended up benefiting the banks. Protecting the customers significantly increased credit card usage, which has a greater economic impact than the additional liabilities they now have.
- Invest in the consumers. If customers themselves are creating the value, investing on them can significantly increase the revenues of a company. Airbnb invested in educating the renters in order to publish better descriptions and pictures, which in turn resulted in double the revenues.
- Drive community self-regulation. Platforms can detect and solve issues quicker than the government or external parties. Users can also be useful with methods like reputation systems.
- Tax fairly. A good example is the city of Amsterdam, which implemented a fair tax on sharing economies like car and accommodation sharing to create fair markets.
- Set review systems. Consumers rely on reviews in their decision processes when taking part of sharing economies. Everyone should be able to have access to complete and trustworthy information.
The article provided a good overview of some risks and best practices for business models based on the sharing economy. The authors used plenty and good examples to illustrate these dos and don’ts of the sharing economy. The paper also does well on taking into account all the points of view (companies, customers and other stakeholders) when formulating their arguments.
On the negative side, the article does not touch upon all the downsides of the sharing economy and does also not include some important recommendations on how to manage these platforms. For instance, as an additional dark point:
- Working for the sharing economy often leads to no traditional job benefits, such as retirement plans or healthcare.
Additional recommendations for sharing economy platforms not touched in this article could be:
- Build trust and values within a community and avoid information asymmetries by providing full and good quality information. If customers understand their common needs and feel part of a community they will more likely help each other through value creation.
- Lastly, the article does not talk about how important it is for local governments to control and collaborate with local platforms. Local authorities should ensure no unfair market situation arise, and they can also improve the efficiency and welfare of their cities by supporting sharing economy platforms. According to Frey et al. (2018) there are already enough governmental regulations in place, but the authorities just have to make sure that these regulations are met by enforcing more platform transparency and better controls. Governments can also foster a healthy growth of the sharing economy by helping to solve data privacy issues.
Moreover, the article provides a general overview of the issues and best practices of the sharing economy, but it does not provide any empirical evidence of the real impact (both positive and negative) of the sharing economy. According to Petropoulos (2017), there is not enough empirical evidence on the real impact of the sharing economy, and therefore it is not possible to optimize its regulations. This author claims that researcher need to conduct more longitudinal studies with economic and social data to obtain new insights, rather than provide general overviews like it was done in the focal article. Petropoulos (2017) claims the problem is that sharing economy platforms are usually reluctant to provide researchers with the information necessary for good studies, and he calls for a change because all parties can benefit from these studies.
Frey, A., Welck, M., Trenz, M. and Veit, D. (2018). A stakeholders’ perspective on the effects of the Sharing Economy in tourism and potential remedies. University of Augsburg, pp.576-587.
Malhotra, A. and Van Alstyne, M. (2014). The dark side of the sharing economy … and how to lighten it. Communications of the ACM, 57(11), pp.24-27.
Petropoulos, G. (2017). An economic review on the collaborative economy.
Wadlow, T. (2018). The sharing economy will be worth $335 billion by 2025. [online] Supplychaindigital.com. Available at: http://www.supplychaindigital.com/logistics/sharing-economy-will-be-worth-335-billion-2025 [Accessed 8 Mar. 2018].