Understanding the sharing economy03/09/23
Data and research should be at the center of regulatory discussions as policymakers address concerns about the sharing economy
Sharing economy companies like Airbnb and Uber, GoFundMe and DoorDash are disrupting a number of different industries and raising policy and regulatory questions around the globe. As users adopt the popular new tools, others are asking that governments step in to regulate the new businesses.
Communities, organizations, and competitors are increasingly impacted by sharing economy businesses that both make our lives easier and introduce risks and concerns. Residents complain when neighbors turn homes into short-term rentals, and some businesses, like taxis, argue that online tools present unfair competition.
Unsurprisingly, we’re experiencing disruption as app-based businesses experience rapid growth and threaten established markets. The speed of technology has helped these new businesses launch, and cultural changes during the pandemic meant that many customers turned to new online tools to meet their needs. All of this is happening quickly compared to traditional business evolution.
Though the pandemic has subsided, economic forecasts indicate that sharing or third-party services are expected to continue their phenomenal growth. One example, from Insider Intelligence research, forecasts a 14.8% year-over-year increase in U.S. digital grocery sales, reaching $160.91 billion in 2023.
As these nascent industries expand and continue to evolve, it is essential that global business leaders and legal and business scholars identify what role they can play in the growth and regulation of the sharing economy. In particular, academic researchers offer a skillset that can help policymakers look past the anecdotal and focus on the realities of how the sharing economy business impacts the community.
And since the sharing economy is based on digital platforms, there will be large amounts of useful data that can be used by researchers wanting to understand the impact of sharing services.
Sharing businesses: From eBay and beyond
Families, cities, towns, and neighborhoods, have shared the use of assets, skills, and time for many generations. But the rise of technology and advent of the Internet have made it easier for these relationships to thrive. Technology makes it easier than ever for people with extra goods and services to find people who can use those assets. Technology has been the fuel that drives what we now call the sharing economy.
Sharing economies allow individuals to make money on those underused assets. Launched in 1995, eBay was one of the first businesses in what we now call the sharing economy. eBay provided a global electronic marketplace where anyone could buy or sell all kinds of items.
Today businesses, including Uber, Zipcar, and Airbnb, have found ways to continue harnessing technology that makes it easier for people with surplus resources and those in need to connect with one another. As this world of sharing has evolved, the term sharing economy has begun to include a wide range of online economic transactions.
Technology-driven expectations of growth
Big data, increased storage capacity, and increasingly agile computer and app programs have allowed the sharing economy business models to take many forms. In addition to renting a ride in someone’s private car, sharing economy platforms include peer-to-peer lending, crowdfunding, hiring freelancers, coworking, sharing fashion, or renting apartments and homes.
According to research firm Zippia, interest in gig work increased significantly since COVID-19 restrictions.
- At least 59 million American adults participated in the gig economy during 2020, roughly 36% of the U.S. workforce.
- 16% of U.S adults have earned money through an online gig platform at some point in their lives, and 9% earned income from online gig work in 2021.
- Wages and participation for gig workers grew by 33% in 2020.
Spurred by the growth of its leaders Uber and Airbnb, the sharing economy is expected to grow from $14 billion in 2014 to a forecasted $335 billion by 2025, according to "The Current and Future State of the Sharing Economy," an article by Governance Studies at Brookings. With that growth come new developments and inroads into new business sectors.
With the expansion of sharing economy-style enterprises also comes concerns about negative consequences. Risks include privacy and safety concerns, regulation uncertainty, inconsistent or unfair management practices or a lack of understanding of government or industry regulations. The positive consequences of trust-based commercial sharing are ample, but the negative consequences should not be ignored.
Pros and cons of the sharing economy
The sharing economy offers both advantages and disadvantages for workers and industry competitors alike. And these benefits and concerns are being navigated by workers, consumers, government officials, and industries around the world. Globally, the pros and cons are similar.
Sharing economy: The pros
- Extra income: One attraction to joining the sharing economy is that it offers people a way to generate additional income by monetizing underutilized assets.
- Lower prices for goods and services: Sharing resources making digital price comparisons can potentially translate to lower costs.
- Reducing environmental impact: The sharing economy increases the use of goods. And it reduces the number of goods that must be produced, reducing industrial pollution.
Sharing economy: The cons
- Workers may miss out on benefits: Freelancers or gig economy workers often miss out on benefits available to permanent workers, such as insurance or paid time off.
- Unclear tax requirements: Platforms that operate outside their host country or state can run into difficulty with tax authorities.
- Safety concerns for both workers and customers: The sharing economy revolves around trust, and this trust includes the belief that these services are both safe and legal. But users, drivers, and guests all remain vulnerable to some extent.
- Data and privacy risks: Platforms in the sharing economy, like many online businesses, often have vast information about users, including names, addresses, phone numbers, and financial information.
- Lack of regulation can be problematic: Around the globe, governments are grappling with problems created by innovative sharing platforms like Uber and Airbnb. In some areas with some businesses, there are no existing regulatory regimes. In other cases, technological innovation has led to policy disruption. Regulations covering legacy businesses are being reinterpreted to determine how they apply to business in a sharing economy.
Research reveals the true story
We often hear about regulatory concerns regarding the sharing economy in terms of anecdotal stories about the environment, user safety, or unfair competition. But before we change laws or regulations to address these issues, it is important that business leaders and academics develop research into the true picture of the sharing economy’s impact.
For a paper published in 2022, I worked with an academic research team on just such a problem. In ‘How Do On-Demand Ridesharing Services Affect Traffic Congestion? The Moderating Role of Urban Compactness’, published in the journal Production and Operations Management (POMS), Zhongju Zhang, from Arizona State University; Chen Liang, from the University of Connecticut; and Yili Hong, from the University of Houston studied the impact of the IT-based on-demand ridesharing platforms on an important aspect of sustainability — traffic congestion.
This topic of ridesharing and traffic congestion had been studied before, but results had been inconclusive. We looked at the impact of Uber as it was introduced in a variety of U.S. metropolitan areas with a specific focus on the moderating role of urban compactness. We wanted to find conclusions through a granular look at the data and that moved us beyond anecdotal criticisms we’d been hearing about Uber.
Our conclusions revealed that:
- Ridesharing services significantly increase traffic congestion in compact areas
- Ridesharing services decrease traffic congestion in sprawling urban areas
We were able to understand something not found in previous studies because we used the data to help us step back and look at the whole picture.
Turning to global academics and business leaders
As the sharing economy continues to leap forward, many public discussions and media stories about business and technology have turned to artificial intelligence (AI) and tools like ChatGPT and autonomous vehicles.
But we as a society aren’t done yet with fine-tuning or even just understanding the sharing economy. It’s important for global leaders and international business academics to keep an eye on (and perhaps lend a hand to) the regulatory environment that is still trying to make sense of the sharing economy.
In the past few decades, we have seen a lot of new technologies and technology is improving constantly. As a result, we are seeing transformative strategic changes in those businesses, in industries, and in culture. The introduction of new business models can be confusing. People can become resistant to change. But before we ask policymakers to make new rules and regulations governing these new businesses, it’s important to look at the whole picture and find out how the sharing economy is really affecting the world around it.
Advanced technology, blockchain, and the Internet of Things continue to be the top three transformative business technologies. In our study, we looked at Uber, but there are plenty of opportunities to dig into the data and understand the impact of other companies. And there will be many more in the future.