Spawning a Monster – Sharing Economy Disruption Examined

In 1980 futurist Alvin Toffler predicted that consumers and producers would merge into prosumers. He might be proven right by the sharing economy.

Start-ups are forming a peer-to-peer economy using the social web, development tools, smartphones, and cloud platform services. The companies build apps for the users to rent or share their work, capital or belongings. The apps run on platforms that help the users to connect,  negotiate, make transactions and rate deals. The company providing the connection makes a profit taking a percentage on the deal. Otherwise the company is not involved, it is a transaction between individuals.

The book Nerdonomics by Elisabeth Thand Ringqvist, describes the general trend. Businesses are increasingly started by entrepreneurs with a high degree of connection to their niche community. The story of the nerdepreneur is personal and genuine, but is it enough? Do these companies scale?

In the US, the trend is starting to disrupt the service economy. Uber connects drivers and passengers for rides similar to taxis. AirBnB connects someone with a spare room with someone who needs to rent lodging. If a task needs to be done, TaskRabbit provides someone who can do it, Zopa does the same for capital investments.

Europe is not far behind. Spanish Cabify is an on-demand car service network, French HouseTrip provides entire homes for limited periods, Sorted books local people in the UK to help with tasks and Finnish Fixura is providing P2P loans.

The spread of the sharing economy puts underutilised assets to work, providing users with opportunities that otherwise would be difficult to find. The sharing economy is creating as much buzz online as IT has for music, computer games and film, and 3d-printing for production.

In Paris the conflict between established taxi companies and networked drivers has lead to the  restriction of GPS app bookings to official taxis. In Berlin there is an injunction against services that work by app, but use professional drivers, forcing them to return to depot between rides. In Brussels Uber has been banned, much to the dismay of Digital Agenda Commissioner Neelie Kroes.

Critics claim the apps constitute a race to the bottom, flaunting local laws and regulations put in place to protect workers and consumers. Rather than cutting out the middle man, the companies are accused to set themselves up as universal brokers.

There is some truth to it. Unemployment, or slow business, are forcing some to piece together incomes from many short contract or part-time jobs. Sharing is not so much caring, as just getting by. Marco Torregrossa at Euro Freelancers projects that 40 per cent of the EU’s workforce will be freelancers by the year 2020. He has a point in that European policy is still too much about job creation, rather than work creation.

The ”burden of ownership” is not just an anti-consumerist pose. Extended liabilities on externalities make the ownership of some items too costly. Rent regulations make apartments too expensive. High taxation of low incomes, extensive workplace regulations, and elevated VAT-levels generally make low productive labour too expensive in Europe. This explains the rising degree of automation, as capital is relatively inexpensive.

One major issue of the p2p-economy is accountability. Despite all talk about community you are actually not giving a ride to an acquaintance or lending a couple of hundred euro to a friend. If the car crashes, will the insurance cover it? Insurance companies have an important role in building a sustainable framework for the digital economies.

Policy makers need to focus on measures that level the playing field in the right respects, as applying conventional industry regulations risk to single out innovation. Regular companies tend to have a stronger position in bargaining with the consumers, a position that could well be reversed in the sharing economy. Quality standards and comprehensive reputation systems within the networks should be encouraged, to raise the general level of service.

Waldemar Ingdahl

CEO, think tank Eudoxa