Sharing economy?

Abstract

Sharing economies such as Airbnb or BlaBlaCar have been taking over the market over the past few years. As these economies have at its core the idea of sharing rather than possessing, some say that they might represent a positive turn in the business environment. Nevertheless, it has been shown that not all sharing economy companies are taking such turn. The goal of this paper is to analyse the different sharing economies that exists and how they deal with the responsibilities associated with the concept of sharing.

Introduction

Sharing economy is a business model that has at its core the idea that access is better than ownership. It believes that instead of selling the goods and services it possesses; the job of a company is to provide a platform where people who already have such goods and services can exchange them with others who seek it (Tabcum, 2019). The sharing economy segment is one of the fastest growing segments of the economy, growing even faster than Facebook, Google and Yahoo combined (Muñoz & Cohen, 2018). As of 2017, for instance, it was estimated that it would grow from $18.6 billion (2017) to $40.2 billion in 2022 (Apte & Davis, 2019).

As it consists of a model that focuses on sharing rather than selling, some think that the sharing economy will bring democratization to business. They say that, by giving people a platform to share their goods and services, sharing economy companies will allow common people to enter the market and immediately compete against well-established enterprises as equals (Apte & Davis, 2019). Furthermore, they say that because sharing economies tend to focus on optimizing underutilized resources, they might also bring the solution to increasing urbanization, overpopulation, climate change and income inequality (Muñoz & Cohen, 2018).

Companies such as Airbnb and Uber, however, have shown that this is not always the case. Airbnb, for instance, has been restricted in multiples cities around the world due to its negative impact on the housing market (Guttentag, 2018). Councils are concerned that the option for Airbnb renting might deplete housing stocks and lead to gentrification (Muñoz & Cohen, 2018). Uber, on the other hand, has been centre of many scandals regarding the contract status of its drives and recently has had to face strikes around the world regarding the very same issue (Ghaffary, 2019).

Thus, the goal of this paper is to investigate how different sharing economies develop and how they deal with the ideals being attached to them, such as business democratization, sustainability and income inequality. To do so, we’ll start by better defining ‘sharing economy’ and drawing the lines that might help us assess how different sharing economies may differ. Once a better definition is found and the lines are set, we’ll part to discuss four different sharing economy cases to try and find if there is any determining factor that can be used to predict how a company will develop. After studying the four cases, we’ll move on to a personal reflection where we apply the findings of the paper to my own personal practice as an entrepreneur.

Literature Review

Despite the popularity, sharing economy as a concept has yet to be improved. As more and more companies are put under the same umbrella, it becomes clear how, although having the same ‘sharing’ tag, companies differ in terms of their business models and goals. In 2018, Pablo Muñoz and Boyd Cohen (2018) published a paper in which they categorized sharing economies into 3 different general models according to how they shared resources, the platform they used, how they dealt with technology and transactions, their governance model and their business approach.

The first category they came up with is that of platform corporation, which is the most widely covered by the media. In this model, companies are mostly focused on the market and on maximizing profit, examples of such are Airbnb or Uber. The second category is that of platform cooperative, which was introduced to counteract the platform corporation model. In the cooperative model, focus is given to distribution of profit and collaborative governance; examples of these types of companies are Stocksy or Fairmondo. In between the corporation and the cooperative model lies the hybrid model, which combines aspects of both, such as BlaBlaCar or, up until recently, Couchsurfing (Muñoz & Cohen, 2018).

Although it is possible to find examples for all three different models, Muñoz and Cohen (2018) noticed that corporative models are more common than cooperative or hybrid models. This observation matches that of Apte and Davis (2019), who note that sharing economies tend to follow a rather ironic trend in which companies that start off as mainly focused on sharing slowly gravitate into a profit driven form. More than that, they note that most companies that try to stick to the sharing ideals fail.

Apte and Davis (2019) explain this effect by pointing at the relatively high transaction costs of cooperative models. They say that, despite the social benefits of sharing, costumers prefer buying a new product to spending time locating, picking up and returning a product that is being shared. Now, although this might elucidate why some companies fail, it most certainly does not give a full explanation to the issue.

Two companies that managed to succeed despite following a business outside the corporative model are BlablaCar (hybrid) and Stocksy (cooperative). In the next section, we’ll go through the history and ideals of these two companies to understand how they managed to succeed. Alongside them, we’ll also discuss about Airbnb (corporative) and Couchsurfing (recently turned into corporative) to understand what makes some companies drift towards the corporative model.

Case Insights

BlaBlaCar

BlaBlaCar was initially idealized by Fred Mazzella in 2003 after almost missing an event due to the lack of seats in a train. After having to convince his sister to give him a car-ride, he realized how convenient it would be if there was a company that provided such services (d’Espous, n.d.). Hence, he officially launched BlaBlaCar in 2008 under the name of Covoiturage.fr and in 2011 it introduced the version that is known nowadays (European Commission, 2017a). Although BlaBlaCar is for-profit, it has an alternative transaction model that allows them to fix the ridesharing rates so to discourage drivers from turning the service into a business, thus maintaining low ride fees and promoting social cohesion (Muñoz & Cohen, 2018).

Stocksy

Stocksy United is a Canadian stock photography cooperative that originated in 2013 after iStock, another stock photography company, was bought by Getty Images. Its main purpose is to put power back into the hand of artists, to give the artists control over their careers. To do so, the cooperative assumes a cooperative governance model in which all company members receive a share of the company. The cooperative has three membership classes: founders (max. 5 people), staff (max. 20 people) and artists. All classes have the same rights within the companies, the main difference being the type of advices they give within the company and the amount of dividends they get. The artists get 90% of the dividends whereas founders and staff get 5%; as of 2018 all dividends were shared equally (Farleigh, 2018).

Airbnb

Founded in 2008 by Brian Chesky, Joe Gebbia and Nathan Blecharczyk, Airbnb’s purpose is to “create a world where anyone can belong anywhere, providing healthy travel that is local, authentic, diverse, inclusive and sustainable” (Airbnb, n.d.). Initially, the idea was to do so by connecting travellers and hosts willing to share their underused rooms in exchange for a reasonable fee (Thales & Brown, 2016). However, with the expansion of the platform, the nature of the company started to shift from sharing underused accommodations to real state revenue-generation (European Commission, 2017b). The company does not distinguish between private and commercial or professional peer providers neither does it require them to identify as such (European Commission, 2017b). Thus, it makes it hard for travellers to distinguish the truly authentic and local accommodations from the commercial ones.

Couchsurfing

Couchsurfing was founded in 2004 by Cassey Fenton, Daniel Hoffer, Sebastian Le Tuan and Leonardo Bassani da Silva (Couchsurfing, n.d). Its first conception came from Fenton in the year 2000 after his experience trying to find accommodation in Reykjavik, Iceland (Longenecker, Petty, Palich, & Hoy, 2012). Looking for a more immersive experience, he decided to email students from the university of Reykjavik asking for a couch to stay. He had such a positive response that he decided to create a website that would allow others to go through the same experience (Longenecker et al., 2012). At its beginning, Couchsurfing was a non-profit company that fostered intercultural exchange and community building (Roudman, 2013). However, as it grew it started to struggle financially and so, in order to apply for funding, it decided to switch to the status of a socially responsible for-profit company (Lapowsky, 2012). The decision was not taken lightly by the Couchsurfing community and, even though the company now had the money to maintain is growth, members started to drift away (Lapowsky, 2012).

Reflection

Considering the four cases, it seems like the identity or model a sharing economy eventually assume is determined by how the company deals with the company growth and the level of community it wants to pursue. There seems to be an inverse relationship between growth and level of community within a company. The faster the company grows, the less important becomes the community. As an example, whereas Stocksy has a slow growth but very strong community, Airbnb skyrockets growth at the expenses of a weaker community. Interestingly, BlaBlaCar, which seems to occupy the space between the two, has managed to keep up with a moderate growth at the cost of a moderate community. Couchsurfing makes the example of a company that did not know how to manage the balance between growth and community, where an attempt at having both lead to failure within the company.

Reflection on Practice

For my own venture idea, I wanted to build a company that strived for both community and relative growth. My main idea was that of a company that provides people the means to connect and share goods and/or services. More than that, a company that can draw a map of free resources available for the people (ex. Food and materials waste hotspots) and gives them means to connect and make use of such resources.

One of my main problems was that of finding a way to raise the money necessary to maintain the company without it compromising the company’s ideals. I needed to find a way of raising money that would neither depend on member’s donation or on other types of funding that involved the centralization of the company’s share on just a few hands.

Hence, I came up with a model similar to that of Stocksy in which company members that choose to sell products made from the resource map on the platform keep 75% of the value for themselves and give 25% to the company. This way, neither do the members need to spend money with the company or does the company hold the majority of the company’s shares.

Although this seemed like a good idea at first, I then considered what could happen if there were no regulations regarding how member’s make use of the resources found on the map. It could be that members start to profit from products that were originally found for free without improving or modifying the product, hence going against the company’s ideals and unbalancing the company’s economy. Furthermore, because the resources the platform offers are free, it could be that members would start using too many resources, more than necessary, too quickly, hence making the company unsustainable and unprofitable.

To solve this issue, I looked at the example of BlaBlaCar and how it manages the transactions made by its members. Although it allows drivers to share the expenses of the ride with the traveler, it does not allow them to profit from them. BlaBlaCar, by controlling the market within it, ensure that the company is both sustainable and profitable. In my own company, I’d do the same. I’d ensure to have a dynamic within the company that the members themselves keep track of each other, so that no-one ends up profiting from what initially should be free. Also, I’d come up with a mechanism that checks if the products being uploaded to the selling platform are indeed modified, improved materials or not.

As with Couchsurfing at its beginning and as with Stocky, I’d put major emphasis on how the company builds trust and a sense of community between all its members. I believe that this understanding, especially in a company that relies so much on the good will of its members, is essential for its success. Like with Stocky, and unlike Couchsurfing, I’d embrace a slow but steady growth aiming at both community and expansion.

Conclusion

Although sharing economies are referred to as the potential solution to business democratization, overpopulation, climate change and income inequality, amongst others (Muñoz & Cohen, 2018); not all companies classified as sharing economies have the solution to those problems as their main drive. In this paper, we discussed about the differences between community and profit driven sharing economy companies and assessed what makes them drift towards one or the other. It was found that growth and community management are the main determining factors to predict how a company will develop, if it will tend more towards community or profit as it matures.

What the findings indicate is that, rather than companies naturally shifting from community to profit focused because of inherent dynamics within the sharing economy environment; they are faced with a choice of either staying with the community, and hence embracing slow growth and lower profit or drifting away from community to achieve higher growth and profit at the expenses of the community, as is the example of Airbnb. This contradicts Apte and Davis (2019)’s statement that companies purely focused on community are more likely to fail. Rather, companies that are mostly focused on the community need to let go of high rate growth to maintain it.

As the claims made in this paper are based on only four different sharing economy study cases, they can only be taken as hints towards an answer to the questions raised in the paper, rather than a dead-end conclusion. For this reason, it is recommended that future works interested in investigating the same topic apply the methods used in this paper to a broader range of case studies and add to it other more, in-depth analysis.

With regards to practice, I’d highly recommend anyone interested in building a community driven company to research other models of cooperative platforms such as Stockysy, Timebanks.org, Fairmondo, Resonate or many others that can be found at platform.coop. Despite the money driven society we live in, one would be surprised at how many non-profit community based companies exist.

References

Airbnb (Ed.). (n.d.). About Us. Retrieved from https://press.airbnb.com/about-us/

Apte, U., & Davis, M. (2019). Sharing economy services: Business model generation. California Management Review, 61(2), 104-131. doi:10.1177/0008125619826025

Couchsurfing. (n.d.). Our Story. Retrieved May 29, 2019, from https://www.couchsurfing.com/about/about-us/

D’Espous, V. B. (Ed.). (n.d.). BlaBlaCar's Inside Story 1: Think It. Build It. Use It. Retrieved May 29, 2019, from https://blog.blablacar.com/blog/inside-story/think-it-build-it-use-it

European Commission (2017a). Exploratory study of consumer issues in online peer-to-peer platform markets: Task 4 – Case study: BlaBlaCar. Retrieved May 29, 2019, from https://ec.europa.eu/newsroom/just/item-detail.cfm?item_id=77704

European Commission (2017b). Exploratory study of consumer issues in online peer-to-peer platform markets: Task 4 – Case study: AirBnB. Retrieved May 29, 2019, from https://ec.europa.eu/newsroom/just/item-detail.cfm?item_id=77704

Farleigh, J. G. (2018, May 13). Brianna Wettlaufer & Nuno Silva on Stocksy United. Retrieved May 29, 2019, from https://blog.p2pfoundation.net/brianna-wettlaufer-nuno-silva-on- stocksy-united/2018/05/13

Ghaffary, S. (2019, May 07). The Uber strike shows how drivers remain one of the company's biggest liabilities. Retrieved May 29, 2019, from https://www.vox.com/recode/2019/5/7/18528512/uber-driver-strike- gig-economy-labor-dilemma

Guttentag, D. (2018, August 30). What Airbnb really does to a neighbourhood. Retrieved May 29, 2019, from https://www.bbc.com/news/business-45083954

Lapowsky, I. (2012, May 29). Couchsurfing's Dilemma: Is It OK to Make a Profit? Retrieved May 29, 2019, from https://www.inc.com/magazine/201206/issie-lapowsky/couchsurfing- new-profit-model.html

Longenecker, J. G., Petty, J. W., Palich, L. E., & Hoy, F. (2012). Small business management: Launching and growing entrepreneurial ventures. Boston, MA: Cengage.

Muñoz, P., & Cohen, B. (2018). A compass for navigating sharing economy business models. California Management Review, 61(1), 114-147. doi:10.1177/0008125618795490

Roudman, S. (2013, November 7). How to Lose Funds and Infuriate Users: Couchsurfing, a Cautionary Tale From the ‘Sharing Economy’. Retrieved May 29, 2019, from http://techpresident.com/news/24498/couchsurfing2

Tabcum, S. (2019, March 04). The Sharing Economy Is Still Growing, And Businesses Should Take Note. Retrieved May 29, 2019, from https://www.forbes.com/sites/forbeslacouncil/2019/03/04/the- sharing-economy-is-still-growing-and-businesses-should-take- note/#77f8f8544c33

Teixeira, Thales S., and Morgan Brown. "Airbnb, Etsy, Uber: Acquiring the First Thousand Customers." Harvard Business School Case 516-094, May 2016. (Revised January 2018.)