bitcoin The future of the sharing business model

The sharing economy is here to stay. IT leaders developing the next generation platforms should consider sharing economy ideas as part of their model.

We are at an emergence of another generational shift. Younger generations prioritize experiences over assets and quality over quantity in many areas of life, and technology has evolved to help fulfill their desires. In today's economy, the new generation does not want to be burdened with owning unneeded things.

Notice these demand changes:

  • The next generation would rather rent from others on peer-to-peer accommodation platforms like Airbnb. They don't want to stay in high-rise hotels.
  • Young workers prefer internet-based freelance work or gig jobs, working anywhere they choose. They are not interested in overwork and needlessly commuting to isolated office cubicles.
  • The new generation would rather create sharing communities that offer item access, virtual currency exchange, and flexible on-demand services when needed. They are turning away from owning and storing things they use only occasionally.

With new technologies becoming available, this new lifestyle is becoming more achievable. It is a future in which peer-to-peer exchange becomes increasingly prevalent, and the crowd replaces the corporation at the center of capitalism. These are growing communities aligned with the principles of open organizations.

Moving to collaborative capitalism

In his book The Sharing Economy: The End of Employment and the Rise of Crowd-Based Capitalism, Arun Sundararajan calls the sharing economy "crowd-based capitalism" and identifies these five characteristics:

  1. Primarily market-based: It has potentially higher and broad levels of economic activity.
  2. High-impact capital: It opens new opportunities for assets, skills, time, and money to be used at levels closer to their total capacity. It puts idle assets to work where, in the current system, they are wasted.
  3. Crowd-based, non-hierarchical networks: Capital, assets, and labor come from decentralized crowds of individuals rather than centralized corporate or state sources. They are governed by distributed crowd-based marketplace systems or platforms rather than by centralized third parties. Distributed control ensures that value is prioritized, not just profit gain.
  4. Blurring lines between roles: Distinctions like personal vs. professional and producers vs. consumers are less meaningful. Sharing that used to be personal is becoming semi commercial. One can be a producer and consumer simultaneously, supplying newly discovered excess wealth-producing assets.
  5. A changing work environment: The differences between fully employed and casual labor, independent and dependent employment, and work and leisure are less clear.

These characteristics illustrate why terms like "collaborative economy," "gig economy," "peer economy," "renting economy," and "on-demand economy" are part of the sharing economy. The sharing economy has commercial characteristics, but there is also a gift economy that serves both an economic purpose and social and cultural functions.

Sundararajan maintains that the Twentieth Century was defined by hyperconsumption, whereas the Twenty-first Century may become the century of collaborative consumption. Hyperconsumption differs from collaborative consumption in four ways:

  1. Buying individually on credit vs. collaborative joint purchasing, sharing, and trusted community building
  2. Mass advertising vs. community interaction
  3. Individual ownership vs. sharing access to assets
  4. Global and regional syndication vs. local and virtual face-to-face networking

These patterns fit nicely in situations where open organization principles like transparency and collaboration can play a major role. The sharing economy reflects a shift away from faceless, impersonal Twentieth Century capitalism and toward exchange that is more connected and more embedded in a community with a purpose.

Within the new sharing economy, there are social cues to the importance of trust, reputation, and a digital community facilitating service to others. These elements lead to a human bond between the two exchange parties.

This cohesion is central to the sharing economy. It embraces exchanging services and value with others even though payback is not clearly defined. Sometimes, the joy of giving and the good feeling of being generous to a stranger are enough.

A new model

Sundararajan writes, "Gift exchange tends to be an economy of small groups, of extended families, small villages, close-knit communities, brotherhoods, and, of course, tribes." Today's sharing economy scales behaviors and forms of exchange long familiar in such communities to a broader, loose-knit digital community of semi-anonymous peers. These exchanges are on a continuum between the gift economy and a market-transaction economy, with very few at the ends of the spectrum and many more at some point in between.

Consider the Couchsurfing platform. You join this platform by setting up an account; to do that, you must verify your identity. Once becoming a member, you can sleep on other members' couches, and they can sleep on yours. There is no financial exchange. No one monitors whether you offer your couch or use other members' couches more.

Users say they are attracted to this platform primarily by the opportunity to meet people or make new friends - a representation of the open organization principle of community or network building. Finding a place to stay is of secondary value. Hospitality and a desire to connect with other human beings drive the Couchsurfing platform. Sometimes a Couchsurfing member contacts another member in a strange city just to socialize without a stay, simply to interact with a local person within an unfamiliar community.

This human interaction results in positive experiences, resulting in favorable reviews, which could result in finding accommodations more easily in the future.

Shifting business models

What social factors promote sharing? One is the continuing growth of the global urban population. People are physically becoming closer and, therefore, can more easily share underused assets. There will be continued growth of megacities with a population of over 10 million worldwide. Forecasts suggest that all future population growth will be in urban areas, particularly these megacities.

Consider this: People in cities share public parks, transportation, and apartment buildings without a thought. No one would consider purchasing and individually owning any of these public assets. The more densely populated an area is, the more sharing will happen naturally. Furthermore, with less space, people will not want to fill their space with things unless those things are in great need and regular use. These factors lead to more peer-to-peer sharing and less individual ownership. 

In the book Peers, Inc, Robin Chase gives many examples of how the supply of many goods and services that used to come from corporations and the government may come from peers in the community. Chase writes that emerging practices such as the sharing economy, crowdsourcing, collaborative production, and collaborative consumption create more peer-to-peer, peer-to-business, and peer-to-government projects, and more small-business-to-big-business interaction.

With this growth, navigating this change using open organization principles will become increasingly important.

Regulation and consumer protection

Peer-to-peer platforms create new and different regulatory challenges. Standardized regulations may make sense on a large scale but are not suited to small person-to-person arrangements. The question is, can trust and consumer protection be established and enforced without putting too much restriction on small, vulnerable microentrepreneurs?

One approach is to form a guild within the community that can act as arbitrators of disputes. These guilds have experts and experienced members who can fairly address most issues. They can act as third-party mediators. is a collective action platform that can start petitions and collective actions when there is improper behavior in private or public institutions. A platform like this could monitor and respond to digital, virtual, and physical issues within a given community. 

Left alone, market practices can produce inefficient, inequitable, or insufficient outcomes, which economists call market failure. This can happen when there is an imbalance in knowledge between provider and user. Sundararajan offers three suggestions to mitigate this problem:

1. Peer regulation

Recommendations, referrals, suggestions, and product reviews among third-party peers are compelling. They can build or destroy a business's reputation and social capital. A sharing community sets standards and works collectively to ensure those standards are maintained.

With today's technology, a platform can develop the appropriate community and regulatory framework. eBay has its Power Sellers, for example, and BlaBlaCar offers an explicit certification of trust based on driving reputation. In microfinancing, your reputation can substitute for credit history. Yelp started as a restaurant rating platform but now rates many things.

Third-party certification can also help maintain acceptable standards. Furthermore, to build a trusted business relationship early, paying more than the market requires and keeping early transactions small enough to avoid heavy losses might be wise.

2. Self regulation

Platforms want to reduce market failures that would create a bad reputation and deter people from using their services. In response, they create platform volunteers that educate and inspect the activities of people using it. Profiles on platforms like Facebook and LinkedIn can also form a digitally verified ID. Some websites also offer criminal background checks and driving histories.

Furthermore, self-regulation could happen through building coalitions (self-regulatory organizations or SROs). Coalitions can be like self-governing bodies or guilds. They define standards, monitor them, and govern specific industries or professions, not just individuals. They rate each agent and determine trustworthiness.

Within the sharing economy, Sundararajan believes these guilds must establish credibility early, demonstrate strong enforcement, be perceived as independent, and take advantage of participants' reputational concerns and social capital.

Community trust can be built to form long-term relationships. More than one transaction will be required for a lifetime career. The successful completion of one transaction leads to future transactions. The community must have communication networks that monitor successful transactions.

Consideration must also be given to those that don't use the service, like an Airbnb host's neighbors. It may be wise to join local co-op associations, condominium boards, or homeowner associations.

3. Regulation through data

Technology can also provide governance, from simple devices like taxi-metering equipment to advanced algorithms. Many websites mine data from their users, which must be carefully used with both the suppliers' and users' permission. If they grant permission, communities can monitor much information about satisfaction.

In addition, digital security systems can detect and block fraudulent activities swiftly. Even cameras that detect repeated lack of smiles can identify signals to point out concerns.

Sundararajan does not argue that government safety laws and regulations are not required. However, community-based and internal regulation is more powerful in many countries than existing laws.

Governments will also have to play a supporting role in making this business model more successful: Legal standards would be helpful, and industrial guidelines and inspections could make these services more reliable.

This article is adapted from The future of the sharing business model and is republished with permission from Ron McFarland. Thanks, Ron!