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Ten years ago, if you needed a place to crash for the night, you would likely check into a hotel. If you didn’t have a car but needed to get somewhere, you’d call a cab. And if you were putting on an event and you needed to find a venue, staff or equipment, you would contact an agency.

Not any more.

Now, you’re just as likely to be crashing in someone’s spare room than check into a Hilton. Your cab driver is someone working part-time for pleasure, or to earn some extra money. Your car is someone else’s car, leased for the hour.

Welcome to the world of collaborative consumption, and the brave new sharing economy.

What Is The Sharing Economy

The sharing economy sounds complex – even Krugmanesque – but it isn’t. You don’t need an economics degree to understand what it’s about. When distilled to its essence, all it really means is ordinary people meeting a demand with resources they own, in order to make a profit.

This could manifest itself as an Uber driver ferrying passengers What Is Uber and Why Is It Threatening Traditional Taxi Services? What Is Uber and Why Is It Threatening Traditional Taxi Services? Uber has landed, and it's fundamentally changing inner-city transit. And some might say, not entirely for the better. Read More with the aid of their Toyota Prius and iPhone, or as a ‘TaskRabbit’ performing housework and odd jobs Taskrabbit: A Simple Way to Outsource Daily Tasks Taskrabbit: A Simple Way to Outsource Daily Tasks Read More . But most importantly, it’s characterized by a permeating lack of formality.

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Meet The Disruptors

There are no shortage of companies that have shook up some very old, very established industries. Perhaps the most glaring example is the taxi industry, which has faced stiff competition from the plethora of ridesharing apps emerging in recent years. The most notable of these: Lyft and Uber.

uber-taxis

These are smartphone apps that allow you to hail a ride with the press of a button. But don’t call them taxis, despite them effectively offering the same service as a taxi. This bit of etymological wordplay is what has allowed them to stay in business, and to circumvent the highly restrictive regulations and legislation surrounding taxis.

Another site operating in the sharing economy is AirBnB, which we’ve written about extensively in the past A Traveler's Tales: How To Save Money On Your Next Trip With AirBnB A Traveler's Tales: How To Save Money On Your Next Trip With AirBnB We are always eager to cut costs while traveling. Hotels are expensive. Ludicrously so. But are there any alternatives? Until recently, the answer to that question was a loud ‘no' till AirBnB came along. Read More . This acts as a brokerage which connects people with spare rooms, couches and, as the name would suggest, air beds. They’ve thoroughly revolutionized the way people find short and medium term accommodation.

It’s not just consumer-facing services that are being disrupted. London-based startup ShowSlice (who we met earlier this year These 10 Startups Are Going to Improve Lives. Here's Why. These 10 Startups Are Going to Improve Lives. Here's Why. If you've not been able to make TechCrunch Disrupt this year, you've missed a lot. Here's 10 of the best apps, startups and products I stumbled across while I was at the conference. Read More at TechCrunch Disrupt) aims to bring the sharing economy to the events management sphere. Their service allows businesses to rent sound, stage and lighting equipment belonging to other people, rather than dropping thousands to buy it upfront or having to deal with a specialized company. They also allow users to rent hundreds of venues across the UK through an interface that isn’t too dissimilar to AirBnB.

sharing-slowslice

Uber, AirBnB, TaskRabit and ShowSlice are relatively new companies, all hailing from the super-trendy shores of the Bay Area, or from Silicon Roundabout in East London. But other, much more established companies are starting to see the sharing economy as the potential goldmine it is.

Companies like BMW. The German car giant recently launched their latest venture in London, called DriveNow. This is a social car-sharing scheme. Users pay a one-time registration fee of £29 (about $45), and then get access to a shared fleet of 290 cars (BMWs and Minis, obviously), which can hired for 39p (about ¢60 USD) per minute, or £20 (about $31) per hour.

But despite the overwhelming growth of the sharing economy, and the quality of service it offers for consumers, it’s not been without its share of criticism.

How The Sharing Economy Works

Unlike traditional employment, jobs in the sharing economy have a tendency to be incredibly laissez-faire and informal. Most lack a hierarchal workplace structure, or specified working hours. They tend to be based around brokering services, which provide the platform necessary for matching buyers (or customers) with sellers (or service providers). In return, these services take a cut of the earnings. Uber takes about 20%, while AirBnB take 3%, plus the guest service fee charged to the person who makes the booking.

This means that there is no guaranteed income, with earnings being totally contingent upon market forces. In a traditional job, if the company is struggling, they are still obligated to pay the salaries of their employees. But not in the sharing economy. If demand for a service ebbs, so will pay packets – you only get paid if you provide a service.

sharing-salary

There’s also next to no ‘job security’. Should a site like AirBnB or Uber decide end their business relationship with one of their hosts or drivers, there’s little to no recourse. No employment tribunals. No severance pay. You’re out.

However, this lack of employment formality isn’t entirely a bad thing.

There’s very little of a barrier to entry with most of these sites and services. To become an Uber driver, you don’t need to pass a vigorous interview, or have an impressive CV. You only need to have a driving license, a roadworthy car, and a clean criminal record. To set up an AirBnB hosting business, the barrier drops even lower: you just need somewhere for your guests to crash. Some people have managed to sublet apartments they don’t even own (much to the chagrin of the landlords).

Although, it’s worth stressing that this isn’t universal. Handy – a New York based house cleaning startup – has came under fire for their interviewing techniques, which was described by Valleywag as a ‘nightmare tryout process‘. It conformed to every single ‘startup fratboy’ stereotype you could possibly imagine and left one Billfold journalist decidedly shook up.

It’s also worth nothing that Handy are being sued in California for labor code violations that relate to pay and conditions, because their independent contractors were effectively employees in everything but name. And although they were treated like employees, they were denied the labor protections, job security and health insurance that usually comes with long term, formal employment.

sharing-cleaner

It was the long list of requirements (detailed in the lawsuit) they made of their employees (including rules surrounding dress code, how the cleaner interacts with the client, and even when to use the toilet) that differentiated Handy from Uber and AirBnB. These wouldn’t look out of place in a corporate handbook, but are far removed from what you would expect for an independent contractor.

This informality when it comes to how labor is acquired and retained has allowed services like Uber to rapidly scale upwards whilst keeping costs low, and has resulted in the sharing economy thoroughly disrupting entire sectors of the traditional economy, including taxis, hotels and agency employment. Even bicycle hire companies aren’t safe.

What used to be the preserve of early-adopting technologists in the geek mecca of San Francisco is rapidly becoming ubiquitous. AirBnB can be found in every city in almost every country (North Korea, Cuba and Iran aside), whilst Lyft, Uber, Sidecar and Hailo are found in most major cities worldwide. It seems the sharing economy is here to stay. But what does this mean for the traditional, formal economy?

The Downsides Of Casualness

Ridesharing services and AirBnB have shaken away the cobwebs from some very dusty industries. They’ve effectively streamlined and improved the process of getting a cab, or a place for the night. They’ve been able to innovate and improve because they’ve been able to start from scratch to reimagine certain industries with a 21st century, customer oriented focus.

sharing-ride-request

Uber has been able to look at everything wrong with the Taxi industry, and throw it away. From drivers taking the long route in order to pad their fares, to the fact that few taxis allow card payments. They’ve incorporated a system where both drivers and passengers are rated, in order to keep standards high for passengers, and rides safe for drivers.

Similarly, AirBnB affords travelers a greater deal of flexibility when it comes to price and location. This flexibility is great for consumers, but it comes with an extremely high price for the established industries that are being disrupted.

Let’s look at the taxi industry in New York, which is currently undergoing a rapid transformation as a direct result of the disruptive effect of the sharing economy.

Since the early 20th century, New York’s distinctive yellow taxis have been regulated through a medallion system. Proprietors and sometimes drivers would purchase a ‘taxi medallion’, which gives them the right to pick up and chauffeur passengers. But due to the limited supply of these medallions, they increased in price to the point where they were an investment in themselves.

sharing-newyork

In 2006, the average price of a medallion reached $1 million. This is a multi-billion dollar industry, with some taxi firms owning hundreds of medallions with a collective value which often reaches nine figure numbers. Until recently, the value of a taxi medallion was regarded as a sure thing, and an investment that was as safe as treasury bonds, or money in the bank, and guaranteed to rise in value, like a house.

But with the rise of the sharing economy and the subsequent stratospheric rise of ridesharing apps, these medallions aren’t worth as much as they used to be. In New York alone, a taxi medallion has decreased in value by almost 20%. It’s a situation that has repeated itself in other major US cities, including Boston and Chicago.

The taxi industry is in chaos, and some firms are even being pushed into bankruptcy.

However, it’s not entirely certain the blame can be wholly placed on the shoulders of Uber. Medallion prices have reached their incredible prices due to a lack of competition, and an artificially limited supply of them. The appearance of Uber coincided with the city of New York introducing green ‘Boro Taxis‘, which are only permitted to serve certain neighborhoods. There has also been a spike in the issuance of new medallions.

But don’t think everything is rosy for Uber drivers, either. Although drivers can (to a degree) set their own wages by choosing how many hours they work, and the areas they serve, the actual fees they charge are usually set by the ridesharing apps themselves.

sharing-uber-app

This is a market that’s becoming more and more crowded. Competitors are all too eager to undercut their competition, in a bid to cement brand loyalty and marginalize competition. Whilst this translates to lower fares for passengers, for drivers it translates to lower earnings, and longer hours worked.

Like I said when discussing job security for workers in the ridesharing sphere, drivers have very little recourse. Since they’re not regarded as employees, they aren’t protected under employment legislation. However, drivers are taking matters into their own hands, and are exploring the possibility of joining or creating a trade union.

AirBnB, meanwhile, seemingly impacts hotel industry less. Hotels have, for the most part, been unaffected by AirBnB, although many hoteliers have expressed concerns about the rise of something they decry as an unlicensed, unregulated analog to the service they offer.

AirBnB has suffered some growing pains The Risks And Rewards Of Renting Out Your Apartment On AirBnb The Risks And Rewards Of Renting Out Your Apartment On AirBnb Are you thinking about renting your spare rooms out on AirBnB? Here's why you should, and also a cautionary note on why you should think twice. Read More , and had to weather some challenging storms in its corporate history. These range from regulatory challenges in New York and San Francisco, to trashed apartments, to their poster-child being evicted for breaching her tenancy agreement (renting her spare room to strangers violated her lease).

sharing-apartment

But, for the most part, the impact of AirBnB has been relatively benign. They’ve had their issues, certainly. But they’ve (for the most part) been able to respond in a way that preserved their public standing, and they have changed how they operate in order to never repeat the same mistakes again.

When we leave the ridesharing and sphere, we can see that the sharing economy is changing the perception of the value of labor – perhaps even trivializing it. A person’s sweat has become a commodity that can be accessed on-demand for $20 an hour, much like Netflix and Spotify have transformed the perception of a film or song’s value.

This is great if you need a handyman, or a cleaner for a few hours, but what does it mean for blue collar workers? Is it fair that in order to participate in the sharing economy, they have to compromise on job security, pay, and working conditions?

Teething Problems

This year, AirBnB turned six. Uber reached five. Their consumer-oriented UberX service is even younger, having recently hit two years of operating. TaskRabbit hit six.

The sharing economy is not a mature concept. Uber, AirBnB and TaskRabbit are relatively new companies. And in their youth, some of them are seemingly repeating the mistakes of the 19th century, with its arduous working conditions and lack of regulation and oversight. The more I read about Uber, the more I wonder if I’m reading a high-tech Dickens novel. Like Oliver Twist, but with Priuses and iPhones.

The problem is, I like Uber. I really do. Give me the choice between a hackney cab and an Uber, and I’ll take the latter. Any day of the week. Similarly, as a frequent traveler, I’ve come to depend on AirBnB because I know the quality will be outstanding, and I can choose where I stay, and how much I pay.

But can the sharing economy exist, whilst ensuring a level playing field for all all competitors, compliance with local and national laws, and good working conditions? I’m not too sure, but will be watching closely.

Photo Credit: People around money Via Shutterstock, paula french / Shutterstock.com, Kobby Dagan / Shutterstock.com

  1. Syed Naimath
    January 13, 2015 at 7:58 am

    Great explanation Matthew!

    Regardless of the hurdles they may face, these kind of companies look to be playing an important role in entrepreneurship in the future.

  2. eric jay
    December 20, 2014 at 11:54 am

    In Philippines, Uber faces the problem of private vehicles for public transport since they need to be registered for public use, they don't have limits or boundaries for their service area (the biggest concern of those registered puv's).

  3. Dann Albright
    December 20, 2014 at 11:13 am

    Great article, Matt, and a great discussion of the issues involved. I'd heard a number of these things talked about independently before, but putting them all together like this makes the issues clearer. I like your analogy to Dickens, too; it seems very apt.

    I wonder, if the contractors of companies like Uber, Lyft, and TaskRabbit unionize to get fairer treatment, if that will end up turning them into more traditional companies. The sharing economy seems like a good idea, but I feel like if we just jump right in without planning things out a bit first, it could just become a fad and disappear.

  4. A41202813GMAIL
    December 20, 2014 at 9:39 am

    In The Last Paragraph The Word "All" Is Repeated.

    ---

    I Love Disruptive Technologies.

    Far Too Many People Have Enjoyed A Free Lunch For Far Too Long.

    Cheers.

  5. Jackson
    December 20, 2014 at 6:34 am

    Call me paranoid, but I'm not keen on the lack of regulation. I'd prefer to stay in a hotel or take a proper/formal cab. Perhaps I'm old-fashioned that way.

    • Dann Albright
      December 20, 2014 at 11:10 am

      I know what you mean—there's definitely something reassuring about knowing that the service you're getting has been vetted, licensed, and hasn't done anything terrible enough to lose their credibility. I've never used AirBnB . . . possibly because I'm a bit too shy to feel comfortable staying with strangers, but also because I like the idea of an established hotel.

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