What connects the dots between Uber, AirBnB, Wikipedia and a Mumbai based startup?

It’s a concept called the Sharing economy. No, it’s not a new concept, in fact far from it. It’s one of the oldest concepts known even to the caveman. So to explain it simply, it’s an economy built on sharing— of underutilized assets and matching the needs of a user with that of an asset owner (peer to peer).

The term “collaborative consumption” was first coined by Marcus Felson and Joe L.Spaeth in their paper “Community Structure and Collaborative Consumption: A routine activity approach” published in 1978 in the American Behavioral Scientist. In 1995, 2 companies that disrupted the way commerce was conducted by developing a new economic model, made possible by the advent of Internet were EBay and Craigslist that allowed peer-to-peer exchange of goods.

Routine examples of sharing economy we all are familiar with are- libraries and public transport. I could go on about the evolution of the sharing economy but rather direct you to the Wikipedia link and not reinvent the wheel.

So, what’s all the hype about?

Even though sharing, renting, exchanging of stuff has existed in some form and shape since a very long time, a fundamental shift is being experienced today in the way sharing economy works and spreads. Rise of social networking and mobile penetration are the sparks lighting this explosion. Internet offers a stable long-term platform for sharing models. Trust and reputation form the foundation of this economy and play an instrumental role in its growth.

What’s sharing economy, in today’s terminology?

Basically, sharing economy is a socio-economic model based on trading, renting, sharing, exchanging- products, services, spaces, skills that enable access over ownership. One of the leading authorities on this subject, Rachel Botsman defines collaborative economy as an economy built on distributed networks of connected individuals and communities versus centralized institutions, transforming how we produce, consume, finance and learn.

The sharing economy can be broadly broken down into

–       Product Service Systems- where users pay for usage and access over ownership

–        Redistribution Markets- which is primarily bartering, sharing, trading, swapping goods

–       Collaborative Lifestyles- bartering, sharing, trading and swapping intangibles.

In simpler terms, it is the preference of “access over ownership”. Many consumers today are prioritizing performance and experience over possession. Information technology and peer communities power this model.

As evident from the above explanation, sharing economy is not restricted to a particular category of products/services. Below I would like to share some examples elaborating this point:

As you can see, this is a huge opportunity. To put in numerical terms, product rental marketplace valued at $85Bn, vacation rental space valued at  $80Bn, ridesharing valued at $117Bn (Source: Entrepreneur Magazine)

The sharing economy is producing some of the most explosive startup growth in the history of the technology industry. However, as recently witnessed, the growth of companies in this space is not without its own set of challenges. Regulatory issues of Uber have been widely publicized across the globe. Airbnb as well faced certain regulatory backlash in US and Europe recently. Having said that, these companies are now actively working with regulators to address the challenges that are brought on by these disruptive models and coming up solutions that in some cases have even brought modifications to the underlying law.

What’s next?

The next wave of opportunities in businesses, is predicted to be companies that will support development of the sharing economy. For eg: Guesty manages a users’ Airbnb listing starting with screening potential hosts, to answering queries to coordinating with cleaning staff pre and post guest arrival etc. Another trend being predicted is that of expansion. For instance, Uber venturing into delivery services. Finally, there are many traditional industries where peer-to-peer sharing can really disrupt the way business is conducted and many startups have started popping up catering to this need.

So come and join the revolution!