The key factors of success of the sharing economy platforms
Why own if you can get access to rental goods? Why invest in a business if it’s possible to make a profit with zero marginal cost (money needed for producing each new unit)? These questions are at the core of sharing economy platforms. The world's largest retailer Alibaba carries no stock, the largest taxi firm Uber owns no cars, the largest provider of accommodation Airbnb owns no property.
The sharing economy platforms are gaining popularity all around the world. The number of its users in the US reached almost 18 million in 2018 and is forecasted to grow by 19.3 million in a year. So what constitutes the success of the sharing economy platforms? There are at least a few reasons.
(Image source: Statista)
1. Zero marginal cost
Entrepreneurs usually have to invest a lot of resources to start a business. And as the business grows, scaling it also requires money. You need to buy new equipment, pay employees, order raw materials, etc. Sharing economy platforms don’t require such investments, at least at the start. The idea of sharing economy stands on the concept of “prosumption.” It means that people can be both producers and consumers of goods and services. For example, you can give rides with Uber and use Uber to get a ride.
Platforms like Uber and Airbnb are available for a broad audience of customers and businesses. According to the recent Uber stats, there are 75 million riders and 3 million drivers worldwide. The startup makes it possible for drivers to work for themselves and takes 25% commission for rides. Everything you need to start making money with Uber is a car. Marketplaces such as eBay also simplify the procedure of starting a business. They provide users eager to sell goods with a ready-made platform. All that is left for a beginner entrepreneur is to create an account and pay a commission for using it. Similarly, a rental service Booking.com enables landlords to lend apartments paying 15% share to the platform.
The harmonious use of natural resources is one of the ways to achieve a more ecological living. A lot of people today try to reduce emissions, reuse goods, and recycle wastes. Sharing economy favors ecological behavior as well. For example, Credential Clothing network connects the things people have and no longer need with people who can use them. In this way, they give a new life to clothes and reduce people’s footprint on the ecology. Ride-sharing is also beneficial for the environment. An average car is used only 8% of its lifetime so researchers praise ride sharing for reducing emissions.
Sharing economy platforms are built on trust, which differs from trust relations in a classic business model. Trust refers to the willingness to rely on a party without being able to forecast the outcome. In the gig economy, trust is set with the help of technology. People pay attention to rating, feedback from other users, and filled profiles in social media before they choose whether to deal with one or another service provider. The sharing economy does not guarantee a professional level of services, but it is created by people for people and constitutes openness.
4. Personal experience
Every business strives to meet people’s needs. But to stand out among the competitors, entrepreneurs need to offer something special. Anything that will make a client have the best interaction with a brand and feel special works. It can be a name of a customer on the Starbucks coffee cup, a bird in the corner of a box from a bakery, small sweet presents in a hotel room. The personal experience defines if a person will use the service again.
Gig economy’s platforms also provide customers with a unique experience. For example, Airbnb is not only a service for apartment booking. It also offers users new impressions. Wherever you go, you can join activities you are interested in: take an ultimate Harry Potter walking tour in Edinburgh, create a traditional African kaftan in Johannesburg, or enjoy wild nature in Costa Rica. All that goes beyond a traditional set of options and makes the experience of customers memorable. You can check out Airbnb technology stack to learn more about the technology behind this great experience.
(Image source: SlideShare)
5. Instant gratification
A modern user wants everything right now. This is called instant gratification, and it has become possible thanks to the Internet and mobile apps. Instant gratification means getting pleasure as soon as possible. It’s in human nature, and technologies sharpen this desire making people more impatient. An ordinary user won’t watch a video longer than for two seconds if it doesn’t interest him or her.
We are spoiled by getting things fast. One tap of a finger - and food from a local restaurant is at your doorstep. Sharing is caring, and fast sharing is even better.
6. Wide audience
Sharing economy сovers the widest audience. People of different age, background, and education benefit from it. Some people earn money with sharing economy platforms as tour guides, drivers, or landlords. Others use the services. So gig economy covers the vast audience of contributors and users.
Nothing is ideal. And the sharing economy platforms aren’t either. Their main drawback is a lack of regulations. If customer-supplier relations are built on trust, each of the parties is responsible for their behavior and the quality of services. Harassment by drivers, poor quality of delivery, a rude babysitter are just a few of the possible drawbacks. However, many platforms are working toward improving control and safety regulations.
Today, when sharing economy platforms make billion revenues, it is hard to doubt their success. Researchers who question themselves about the future of the gig economy look at the issue from the economic, ecological, legal, and technology perspectives.
Economically, sharing platforms favor creating new workplaces. Wider employment will lead to reducing poverty. From the ecological perspective, the gig economy promotes sustainable development. The services of collaborative consumption reduce the greenhouse effect and predict the overconsumption by reusing goods. The average household could save up to 7% of its budget and 20% in waste if the maximal number of people used sharing economy (The Sharing Economy: Make It Sustainable, 2014). However, there are economic consequences such as disrupting market of a traditional business that can lead to fierce competition and price dumping.
From a legal perspective, the sharing platforms suffer from the lack of regulations. Also, the legal issues refer to the poor work guarantees for the employees.
Lastly, the technology aspect seems to play in favor of the gig economy. The technologies have reduced transaction costs and increased mobility. And today the gig economy platforms continue developing making users addicted to new convenient tools for collaborative consumption.