The Sharing Economy

By | Updated Aug 1, 2016 4:46 PM UTC

“The sharing economy” is a sobriquet to warm hearts. Think of it as a claim that while grubbier businesspeople sell, buy and rent, the ones in the sharing economy collaborate, facilitate, build trust. Or so they say. Sharing-economy flag-bearers like Uber, Airbnb and Homejoy give people easy, cheap access to products and services that would otherwise go unused, free of the burdens of ownership. Their fans say this brings social benefits like community building and diminished inequality. Skeptics predict that it’s more likely to lower wages, raise housing costs, undermine health and safety rules and expose women to harassment and assault. A 2015 Harvard Business Review headline had this to say: “The Sharing Economy Isn’t About Sharing at All.”

The Situation

Venture capitalists have invested heavily in sharing-economy companies despite little evidence of progress toward profits, putting in $4.1 billion in 2014 and $17.9 billion in 2015. Uber, the ride-hailing company, in July 2015 raised $1 billion at a valuation of about $50 billion — theoretically making it the equal of U.S. retailer Target. By December, that was up to $62.5 billion. In June 2016, Airbnb, for home sharing, began a new round of fundraising at a valuation of $30 billion. Challenges have ranged from a New York lawsuit that accuses Uber of running an antitrust scheme, to a San Francisco law meant to flush out illegal rentals that Airbnb is challenging in court. Uber settled suits over the legal status of its drivers in Massachusetts and California and agreed to work with a union to form a driver's guild in New York. In France, Uber has faced everything from violent protests to fines imposed on its executives by a judge. In a different kind of setback, Uber in July sold its China operations to rival Didi Chuxing, ending an expensive price war. Mayors of major cities from New York to Seoul have joined together to produce a common regulatory framework, hoping for greater leverage in confrontations with leaders of the fast-growing field. Companies have started up in a range of smaller niches as well. For instance, dogs can share homes too, on DogVacay, which has 25,000 sitters on its platform.

The Background

The notion that sharing constitutes a distinct economy has been emerging at least since publication of a 1978 academic paper called “Community Structure and Collaborative Consumption,” about car sharing. So what’s new? Smartphones. Today’s sharing economy got its start in 2008, when Apple introduced its App Store. Suddenly, it was easy to summon a business partner in minutes. TaskRabbit, founded that year, became one of the earliest sharing-economy companies, connecting people looking for work with others looking to avoid chores. Example: cleaning dead fish out of a tank. Expansion has been aided by innovations like cloud computing and by economic circumstances, notably more people looking for work in weak economies since the financial crisis. With a smartphone, it’s easier than ever for companies to manage a workforce using sophisticated mapping, logistics and communications software, and to monitor the performance of workers through rating systems.

Sources: RFS 1099 Report, U.S. Census Bureau

The Argument

Ideological opponents say the sharing economy creates employee-serfs who go without benefits like health insurance and job security. Also that peer-to-peer transactions aggravate inequality. In big cities, for example, apartments used for “sharing” become unavailable to long-term renters, worsening housing shortages and driving up rents. Competitors like hotel and taxi operators argue that Silicon Valley startups use their venture capital to subsidize costs, giving them an unfair advantage. On the flip side, sharing companies make it easier for poorly paid workers to supplement incomes. Time and resources can be put to better use: Why build a new hotel when people have rooms to spare? Sharing offers an escape from regimented office life and rigid working hours. As sharing companies adjust to regulators, they become more like other businesses. Houston makes Uber drivers pass a background check and provide access for the disabled. On the other hand, deals like Uber's merger of its China operations with Didi raises the question of whether one feature of the economy of the future might be a range of sharing monopolies.

The Reference Shelf

  • A Bloomberg Businessweek article in June looked in detail at Uber’s formidable lobbying apparatus.
  • Bloomberg Briefs published a special report on the sharing economy in June 2015 and a map showing the global range of Uber’s regulatory struggles.
  • Professor Yochai Benkler of Harvard University is credited with first articulating the full potential of the modern sharing economy in a 2004 Yale Law Review article.
  • Bill Gurley, an investor at Benchmark who sits on Uber’s board has written about Uber’s ability to build a business bigger than the taxi industry.
  • The Information and Wall Street Journal explored court cases that will determine whether Uber drivers and other sharing-economy workers should be treated as employees instead of independent contractors.
  • A Bloomberg Business article in March showed how companies like Uber and Airbnb benefit from investor protections that inflate their headline valuations.

 

(This QuickTake includes a corrected reference to the Benchmark investment firm.)

First published June 1, 2015

To contact the writer of this QuickTake:
Eric Newcomer in San Francisco at enewcomer@bloomberg.net

To contact the editor responsible for this QuickTake:
Jonathan Landman at jlandman4@bloomberg.net