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A Deep Dive into Your Latest Uber Ride

January 23, 2017 //

Peer to peer economy: leading a wave of disruption

The sharing economy, or peer to peer economy as it is often referred to, is a form of collaborative consumption where “participants share access to products or services rather than having individual ownership” (Hamari, 2013). Originally conceived as a common means of production, e.g. the open source software movement, and means of microfinancing, the economy blossomed in 2013 into a $15bn a year sector with projections suggesting revenue will break $335bn by 2025[1]. A recent survey by Nielson suggests that more than 65% customers are willing to share their assets or willing to partake of others’. Perhaps what is most striking about the economy, however, is the diversity of forms it has taken: ranging from crowdfunding platforms (where a large number of smaller contributions are pooled to fund projects or ventures), to the open data movement (where the crowd can recombine and exploit the wealth of publically availably data to drive innovation), to real estate (co-living and co-housing), to even agriculture (where seed swapping and garden sharing have become vibrant economies).

In each case the notion behind the economy is a simple one. By exploiting idle resources consumers can enter into mutually beneficial relationships; thereby capturing value which would have otherwise gone unused or been wasted. Take, for example, the housing rental platform AirBnB which allows homeowners to temporarily rent out their homes when they are not in use. By digitally connection people with excess housing, i.e. the owner who is not occupying the dwelling for some period of time, with people in need of short term housing, e.g. vacationers or business travelers, the platform allows both parties to enter a mutually beneficial relationship. In this scenario the owner, whose home would have been unused during the time he or she is not occupying it, can capture some form of rent from the unused resource and the renter can occupy superior lodging for a discounted price. Unsurprisingly, platforms like AirBnB have a host of advantages over traditional service providers like hotels because the owner does not need to carry excess inventory to meet demand when it spikes (the average occupancy rate for hotels in the US is roughly 65%[2]). As a result, hotels, as are all traditional vendors, are required to charge consumers a premium to subsidize their own unused resources, i.e. vacant rooms, when they are not in use.

Despite the benefits of the sharing economy its meteoric rise has not been without controversy. While advocates of the various aspects of the sharing economy have argued that it provides quality services to consumers at discounted prices, detractors have increasingly questioned the legality of services. Because the services circumnavigates often costly professional licensing requirements, like those for taxi drivers, it has been argued that these drivers have an unfair advantage in a world where the liability concerns for things gone wrong is pressing[3]. Moreover, this controversy has not only come from supplanted competitors, like hotels and taxi drivers, but from members of the sharing economy as well. AirBnB, for example, was recently sued by the rival sharing service HomeAway, for uncompetitive practices in the city of San Francisco.  The sharing economy has put immense pressure not only on existing businesses which wonder where the next phase of disruption will come from, but also on regulators and policy makers who struggle with the challenge of enabling these services in a manner that will not put existing industries at a disadvantage and will ensure adequate checks and balances to protect consumer welfare.

[1] http://www.pwc.co.uk/issues/megatrends/collisions/sharingeconomy/the-sharing-economy-sizing-the-revenue-opportunity.jhtml

[2] http://www.statista.com/statistics/200161/us-annual-accomodation-and-lodging-occupancy-rate/

[3] http://time.com/3625556/uber-manslaughter-charge-san-francisco/

Sunil Wattal was also recently featured in Philly Mag, offering his insight on various topics surrounding Uber. The articles can be found here:

Uber X Reduces Drunk Driving

and

Uber and Lyft Illegal in Philly