What Is the Sharing Economy? Sometimes known as the collaborative economy or collaborative consumption, the sharing economy is based on the principle of reciprocal giving. In its simplest form, it encapsulates the idea of sharing resources, rather than owning them for personal use. Two consumers may share an asset, instead of buying it outright, for example.
As well as lowering the cost for each consumer, this also maximises the use of the asset, thus reducing waste. At a time when sustainability is a major issue, the potential to reduce waste and utilise goods to their full potential is a major driving force behind the rise of the sharing economy.
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What Is a Sharing Economy?
The concept of the sharing economy has been around for centuries. People bartering for goods or exchanging skills in return for goods are some of the earliest examples of a collaborative economy. In a modern context, however, the sharing economy is much harder to define, partly because it is consistently evolving and changing.
While the sharing economy traditionally encompassed informal trading, such as the shared use of a communally purchased asset, it has since become commercialised. Flatmates clubbing together to purchase an expensive games console and jointly owning it might have been an early example of the sharing economy, for example. Now, the sharing economy can just as easily be used to describe a commercial enterprise that offers the temporary use of an asset, such as the hire of a car, instead of selling the asset outright.
Critically, some experts define the sharing economy as having a technological component, although this does not feature in traditional examples of the exchange-based theory.
What Is a Sharing Economy Business Model?
Business models within the sharing economy can vary. However, a typical sharing economy business model involves the ownership of assets by a central organisation, such as a company. The company then allows consumers or customers to access their goods on a limited basis. This may involve hiring the asset for a specified amount of time or using the asset for a predefined purpose. In return, the customer will pay a fee that is far less than they would pay for buying the asset and gaining ownership of it.
As the company can reuse its assets, sometimes making them available to multiple consumers at once, it can continue to generate profits from its continued ownership. In turn, consumers will continue to pay for the short-term use of or access to an asset. As well as being able to generate value from an asset at a much lower fee than it would cost to purchase the goods, consumers can also avoid the hassle that sometimes comes alongside ownership, such as insuring a vehicle or paying mooring fees for a boat.
What Is Sharing Economy Examples?
There are many high-profile examples of companies that operate using a sharing economy strategy. In fact, you might be surprised at how commercialised many businesses that use the sharing economy model really are.
Airbnb is a prime example of a sharing economy business model, for example, yet the company’s profits might cause you to think otherwise. However, the principle of homeowners renting out their underused space and short-term tenants accessing temporary accommodation at a reduced cost, is a classic example of sharing under-used resources while retaining ownership of the asset.
Similarly, the ridesharing company Uber also operates on this principle. Here, transportation, rather than the vehicle, is the commodity that’s most valuable. Passengers can access transport swiftly via an app on their phone, which allows them safe passage to their destination. Not only is it more convenient than alternative methods, such as standing at a cab rank or walking, but it also enables people to access private transportation at a much cheaper rate than having their own car on standby. Of course, the fact that multiple people use the same vehicle and driver exemplifies the shared nature of the asset.
When Did the Sharing Economy Start?
In a simplistic format, the sharing economy began centuries ago. Indeed, you could look at any household and see examples of the sharing economy. The breadwinner might pay for utilities and essentials that are shared by members of the household, for example. Before industrialisation, people exchanged their skills in return for goods or services, instead of paying money for what they needed.
However, it was arguably the peer-to-peer network that heralded a new era of the sharing economy. The concept of sharing assets with strangers over the internet highlighted how consumers could benefit from sharing their resources, rather than buying things individually.
Although this evolution threatened businesses at first, it didn’t take long for companies to capitalise on the renewed concept of the sharing economy. As a result, new business models were formed and assets were viewed in a different light, in order to create the sharing economy companies we’re now so familiar with.
Why a Sharing Economy is Good
There are many benefits associated with the sharing economy. As the concept largely began with consumers, it’s designed to meet a buyer’s needs. To this extent, many of the services and goods available for sharing businesses would be otherwise unavailable to consumers if they had to buy them outright. Purchasing a penthouse apartment or a luxury yacht might be out of the question for the average consumer, for example, but renting one for a night or weekend makes a previously unattainable luxury an accessible commodity.
At the root of the sharing economy, however, is the desire to reduce waste and ensure resources are fully utilised. To this end, companies based on the sharing economy model could have a positive environmental impact.
Rental clothing companies are a good example of how the sharing economy can reduce waste and create more sustainability. Instead of purchasing new items and feeding the damaging cycle of ‘fast fashion’, consumers can rent garments from owners for a specified period of time. Once worn, the clothes are laundered and returned, ready for the next consumer to hire.
However, it’s important to note that a business model based on the sharing economy is not necessarily inherently sustainable in terms of its environmental impact. While one of the core principles of the sharing economy may have been to reduce waste and increase sustainability, the commercialisation of collaborative consumption means that profits are often prioritised over the environmental principles that once governed the economy.
How Big Is the Sharing Economy?
It’s difficult to quantity how big the sharing economy is, simply because there is no universal definition. For some experts, the gig economy, crowdfunding and coworking fall within the definition of the sharing economy, in the same way that collaborative consumption and peer-to-peer lending do.
Despite this, there’s no doubt that the sharing economy has increased in value in recent years. As technological advances have facilitated more convenient sharing of goods, businesses have capitalised on the fact that they can generate a large amount of revenue by renting, rather than selling, goods.
To date, more than $23 billion USD has been invested in companies based on the sharing economy by venture capitalists, while it’s estimated that 20-30% of U.S. and European workforces are active on sharing platforms. Expected to be worth $300 billion USD by 2025, there’s no doubt that the rise of the renewed sharing economy is set to be a gamechanger for modern businesses.
How to Make Money in the Sharing Economy
If you want to make money in the sharing economy, there is more than one way to do it. For individuals who want to supplement their income, you can generate revenue by offering your services as part of the sharing economy. Becoming a rideshare driver or even an employee of a sharing business could be a career move that enables you to increase your annual income, for example.
Alternatively, you could make money from the sharing economy by allowing your goods and assets to be temporarily leased to other people. If you have a spare room, you could make it available on sites like Airbnb, for example. Similarly, you could share your vehicle via a car sharing service or even rent out your clothes to budding fashionistas in return for a fee.
If you want to make money in the sharing economy on a larger scale, you may decide to launch your own sharing business. If so, you’ll need to either purchase goods that can be made available to consumers or facilitate the hiring of assets between consumers and owners. Both models are viable business opportunities, particularly if you use the latest technology to provide an innovative service that has yet to be brought to the market.
Is the Sharing Economy Sustainable?
As the sharing economy is still evolving, it’s hard to say whether it will be sustainable in the long-term. However, the early success of the latest reiteration of the sharing economy indicates that we’ve yet to see the peak of the trend. As consumers become accustomed to the added convenience and relatively low cost of accessing goods and services, it’s highly likely that there will be continued demand for sharing businesses.
Similarly, as companies find new ways to generate repeated revenue from the same assets, they’ll be eager to continue operating in this format. After all, corporations have the same overarching objective: to make profits. As the sharing economy evolves to a more capitalistic version of its original model, it seems likely that business owners will continue to adapt the sharing model to fuel business growth.
Despite a significant degree of success, the sharing economy has faced substantial obstacles. Regulation has yet to fully catch up with revised collaborative consumption, for example, which has led to uncertainty in some areas. While this may have caused a brief interruption to sharing businesses, it’s unlikely to prevent the sharing economy from continuing to thrive.
With both consumers, workers and businesses benefiting greatly from the sharing economy, we can expect to see many more companies using collaborative consumption and sharing models to increase their profitability in the future.