Within the last few years, companies participating in the sharing economy enjoyed a high degree of media attention. After the financial crisis in 2008, a new model of consumption emerged. The temporary usage of goods and services was valued more than the actual ownership. In the upcoming years, digital platforms evolved thereby facilitating the transaction process in which consumers receive access to a service provider’s otherwise underutilized assets, services or skills. A report from PricewaterhouseCoopers (2015) estimated a potential global revenue growth for the five key sharing industries from $15 billion USD in 2014 to $335 billion in 2025. Furthermore, nearly half of the population of North America have already been acquainted with the sharing economy – of those more than 110 million people have used a sharing platform. Hence, other countries try to catch up, the key markets are China and North America.
Figure 1 Comparison of traditional and sharing economy models
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Adapted from Kückelhaus (2017), “Sharing Econopmy Logistics”
The business model neither characterized by change in the ownership of the service nor good, small commissions per transaction that are payed by the user network or the implementation of software to shape a consumer’s experience about a certain product. With the rise of the sharing economy the classical linear business model was advanced. Stakeholders started combining their assets in order to gain competitive advantage. Instead of focusing on an asset heavy structure formed by industry-specific competences, companies shifted their interests to asset light network structure organized by software platforms (see figure 1).
However, the sharing of goods and services isn’t something new. Since the existence of human life, individuals start sharing their belongings. The uniqueness of the sharing economy is the confluence of technology development and social trends that enable sharing at a global scale. In his ‘laws of disruption’, Larry Downes (2009) predicts an exponential growth in technology and a linear increase in social change. The additive value of these two trends indicates the potential of the sharing economy (see figure 2). The following paper will distinguish the social and technological trends supporting the growth of the sharing economy and line out its key challenges.
Figure 2 The global growth of the sharing economy
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2. Technological development supporting the sharing economy
The sharing economy profited a lot by the advent of the mobile web. Hereby, the key focus is on how to connect an asset (e.g. a car) with a consumer, facilitating the transaction process and the communication to the service provider. Over the time, companies that set up a sharing platform started relying on known brands (e.g. Google, Facebook) offering to function as a transmitter between the company and the consumer. Furthermore, existing services like location services (e.g. Google Maps), digital payment services (e.g. PayPal, ApplePay) and platform specific algorithms can easily be implemented into an individualized application. In the following section, the most important technologies, which enable the sharing economy to emerge, will be presented.
Participants in the sharing environment are trying to get access to the shared goods in the most convenient way. By doing so, they access the platforms over their mobile devices most of the time. Within this time, the number of worldwide smartphones has grown to over 3 billion. According to Mashable (2013), the average consumer installs up to 10 applications on his device. The increasing variety of applications allows the consumers to make more use of their phone (e.g. as a shopping or transaction portal). As most of the sharing platforms are built around a mobile centric consumption experience, the engagement of smartphone users in the sharing economy is more likely.
The ability to rent a specific service or asset at any time and place is a main motivation for consumers to engage on a platform. In order to allow a verified user to access a certain shareable connected asset once it is available, it has to be integrated into a network. As the assets are usually managed by a person with a smartphone, the implementation of basic connectivity, communication and transaction modules into the sharing experience can easily be done. In the upcoming years the connectivity will further develop due to new technologies like connected cars, Bluetooth 5.0, IoT and low-power wide area networks.
During the purchasing decision customers seek to derive a reliable source of verification. Individual user profiles and online reviews conclude in trust and transparency both for the consumer and the seller. The implementation of an own individualized profile system is facilitated by direct sign ups or the verification by third party providers (e.g. Google, Facebook or LinkedIn). By having other users who share their experience about a certain consumption by writing online reviews, new users are empowered to raise expectations regarding a product or service.
The sharing of assets and services is facilitated by the implication of transaction services from third parties (e.g. PayPal) which secure an online paying process. The transaction process has a central role in the sharing system. Payments should be user-friendly and low in costs. For the service provider it is important to facilitate the payment process to a maximum in order to not distract the consumer from positive experiences he/she gains while using the shared asset or service.
Moreover, sellers have the opportunity to further diversify their product by integrating communication APIs as subcomponents into the sharing platform, thereby simplifying the exchange between the buyer and the seller. As already discussed previously, the integration of third-party providers like Twilio Inc. (2017) enables the engagement of SMS and phone calls into any application. The type of communication takes into account a central role in the sharing economy, as the access to the shared asset should be possible at any time. Having delighted customers also shapes the valuation of the consumption experience. Therefore, a reliable, transparent and trustworthy communication platform is essential. While setting up new sharing platforms, service providers rely on platform-specific algorithms. Standardized algorithms can be implemented to forbid a customer to perform a desired action. Basic functions like matching an asset and a user or ranking listings of services have been optimized market wide. By relying on already existing algorithms, the application creation process is simplified and the barriers of entry for new competitors are decreased. Hence, the innovation of new algorithms is harmed as the interest in creating a new product is limited.
Before renting an asset, users must be able to locate it. By combining GPS sensors, software operating system location services, innovative mapping applications from third party providers (e.g. Google and Apple Maps) and the exposure of data collected with the help of APIs, sharing platforms provide an on- demand and full-time tracking service of their shareable assets. Having a known third-party service provider integrated into the location service increases the user practicability as it relies on a known standard (e.g. Google Maps).
3. Social drivers for the sharing economy
The rise of the sharing economy is based on two trends. Apart from new innovations that facilitate the access to shareable assets, social movements asked for more flexibility and independence. Nielsen (2014) found out that having an own car is valued as less attractive than in the past. However, being able to use a certain asset only if it is really needed is valued way more attractive especially for millennial consumers. In the following section, the four key motives for supporting the sharing movement will be presented.
Global recession and the need to share
After the financial crisis in 2008, the society had to reconsider their way of consumption. Individuals were forced to derive less costly ways to use the resources needed to avoid foreclosure and bankruptcy. Owyang (2015) analyzed the phenomenon that the demand of customers started shifting from the need of ownership to a desire to share. After a few years, Nielson (2014) showed that more than two thirds of global respondents were willing to share personal belongings for a financial gain. Furthermore, respondents were previously only willed to share their assets with acquaintances (e.g. family and friends). This phenomenon eventually changed to the willingness to share assets with a bigger community including other unknown but verified consumers.
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- Mark Bäumler (Autor), 2019, The sharing economy. An analysis of the confluence of technological development and social trends, München, GRIN Verlag, https://www.grin.com/document/489422