What is the sharing economy, and how does it work?

A sharing economy is described as an economic system in which private individuals exchange assets and services.

It’s a catch-all phrase for a variety of services, apps, and goods.
These, according to Attila Marton, professor of digitalization at Copenhagen Business School, can be split into three categories.
First, there’s the genuine sharing economy.
This is sharing in its most basic form, such as meals among family members or domestic goods among flatmates.
Wikipedia, for example, began as a platform for users to create and share knowledge on their own time.

Second, there’s gift-giving.You give away a goods or service, such as a birthday cake, in the hopes that others will do the same in the future.
This idea arose from the early days of the internet and the open source movement, in which programmers shared their code and software for free.

Users could upload their own music in exchange for access to other people’s music on Napster, an early internet streaming service.

The pseudo-sharing economy, which best encapsulates today’s sharing economy, is the third option.
This is the formalisation and monetization of the informal economy, which includes tiny, unregulated transactions such as street food, taxis, and anything else considered ‘off the books.’

Many people believe that the term “sharing economy” has been misappropriated in this way.

“The two most popular sharing platforms, Airbnb and Uber,” says Christoph Lutz, associate professor of communication and culture at BI Norwegian Business School, “are very commercial and have very little to do with true sharing in the sense of solidarity and community.”

Why has the sharing economy exploded in popularity?

Technology has been the most important factor in the emergence of the sharing economy.

“Corporations have been able to enter into the informal sector and capture part of its value through digitalization,” Attila argues.
Microtransactions and peer-to-peer review have made internet sharing more convenient and trustworthy.

“These apps have efficiently matched unused resources to demand,” says Ming Hu, professor of business operations and analytics at the University of Toronto’s Rotman School of Management.

It also contributes to millennials and Generation Z’s cultural transformation.

“People, particularly young people, prefer to access items rather than own them,” Christoph argues.

Although not precisely sharing systems, Spotify and Netflix convey the same notion of accessing shared resources rather than owning physical copies. The same rationale may be used to anything from BorroClub items to a BlaBlaCar backup car seat.

The expansion of sharing platforms has certainly been aided by large investments. While Uber and WeWork were scaling and attempting to gain market share, SoftBank invested heavily in both. While these businesses continue to struggle with profitability and attaining public ownership, they are as reliant on investment as they have always been.

Is the sharing economy a long-term solution?

Many sharing networks promote themselves as a way to avoid waste, pollution, and excess. However, whether they cause more harm than help has been questioned.

Bike-sharing applications promise to get vehicles off the road and encourage fitness, but photographs from China’s Ofo reveal the dangers of sharing gone wrong—in this case, rapid expansion in an oversaturated market.

It’s been hypothesised that clothing sharing services like Rent the Runway encourage customers to buy more garments than they would otherwise since they know they can rent them out.

“As consumers, we try not to worry about the environmental consequences,” Ming continues.

Local economies are also threatened by sharing platforms. Airbnb has been accused of contributing to gentrification and rising rents. In locations such as Berlin, Airbnb has been utilised to get around local rent limitations while also forcing residents to rely on subletting their rooms to pay their rent.

Attila explains, “It profits from expansion, while risks and losses are externalised to its surroundings.”

Financially, it’s still unclear if sharing platforms will be able to make a profit—as evidenced by the failures of Uber and WeWork’s initial public offerings (IPO).

“Given the low number of viable platforms and the rapidity with which new projects vanish,” Christoph feels that financial sustainability is rarely guaranteed.

Attila believes that companies like Uber’s business strategy is self-defeating.

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