Why own when you can rent? The sharing economy and working life

So what does the taxi service, the film provider and the accommodation service hiding behind these brand names have in common?

The answer is that they are all using new technology and the Internet in order to pair services or goods to consumers, who in turn share their experiences with each other. One central idea behind the sharing economy is that when information about a product or service is shared, that product or service will become more valuable for the company, the individual and society.

As is the case for all major change, there are winners and losers here. The sharing economy started out as a consumerist do-it-yourself culture. But it could also be the kind of service which saws off the branch it is sitting on, like when Uber challenges the world’s taxi companies. The sharing economy can also change the way a product or service is being produced. When Netflix offers their customers the streaming of films and TV series with no ad breaks, it allows viewers to watch several episodes back-to-back. There is no longer a need for ‘cliff hangers’ at the end of every episode. Netflix also uses algorithms to suggest new films, based on what you and other customers have been watching. 

Do you own a power drill?

The author Rachel Botsman was amongst the first to study the sharing economy in her book ‘What’s mine is yours’. When she gives lectures she asks everyone in the audience who owns a power drill to raise their hand. Usually this results in many hands in the air. 

“Did you know a power drill is used on average 12 to 13 minutes during its lifespan?” she asks.

“What we need is the hole, not the drill. So why don’t you just hire a drill, or better still, why don’t you rent out your own drill and make some money from it?”

Perhaps it all started with file-sharing services where young people copied music and films which they had bought. You can have what’s on my computer if I get what’s on yours. With enough computers linked up there was always someone who had what you were looking for. Consumers who have grown up with the Internet take it for granted that you share knowledge with other people — also as consumers. That’s why Trip Advisor beats Lonely Planet as a travel guide. It changes every day as thousands of anonymous hotel and restaurant guests writes about their experiences. The traditional travel guides are written by staff and freelancers and are only published once a year. 

Publishers like Lonely Planet, which has sold 120 million guide books, has seen sales plummet by 40-46 percent since 2008.

Airbed gave the idea

Or take Airbnb as another example from the travel industry. The company was founded just six years ago by Joe Gebbia and Brian Chesky, two newly graduated designers who had hired an attic in San Francisco and who needed cash to pay the rent. Each year in October, the city hosts a gigantic designer conference which means every hotel room is booked out many months in advance. The two friends bought three airbeds and offered to make breakfast to people who took up their offer. They made $1000 in a week but they also made another, more valuable discovery. They realised that it wasn't just 20-year-olds who wanted a place to stay, which is what they had imagined. There were people from different backgrounds and of different ages. So they decided to start a company which was initially based on the business idea of offering simple overnight stays during major conferences. They called it Air-bed-and-breakfast, shortened Airbnb. The company quickly grew, however, and today it encompasses everything from the simplest of flats to entire palaces. 

It is free to advertise your rental property on Airbnb’s homepage. The property owner decides the price and pay a fee to Airbnb. The company will guarantee that the customer pays, but will keep the money for 24 hours in case the customer believes they were not given what was promised in the ad. Both property owners and guests write reviews about each other, which allow them to establish a good reputation. This new technology makes it easier to trust complete strangers.

Back to bartering

“We are living in a global village where everyone can simulate the bonds which used to be made when we met face to face, but on a scale and in ways which have never before been possible. Social networks and new technology take us back to a time when we traded like for like and shared with each other,“ says Rachel Botsman.

What is strange is that it actually works. Airbnb do have customers who complain that things weren’t clean enough, but very few property owners say they have had anything stolen. Meanwhile, there are issues surrounding this business which authorities need to address. How should you tax the property owners? Who is responsible if there is a fire? In October this year the city of San Francisco legalised the service as it saw that there were major environmental advantages and that the city’s room capacity increased. During the Football World Cup in Brazil, Airbnb clocked up 100,000 overnight stays.

In recent months Uber has set up shop both in Denmark and in Norway. It only took ten hours before the company was reported to Danish police. Just a few days later the same happened in Norway.

“We believe the company breaks the law in two ways. Firstly, you need a license and approval to run a taxi service. They don’t have it. Secondly, the driver needs a license, and they don’t have that,” said Hans Edvardsen, head of the City of Oslo’s Department of Transport and Environmental Affairs. 

Uber is based on the idea that individuals using their own car can ferry customers at a price. Uber charges a fee for the use of their app which allows customers to find a taxi and to pay for the service.

Uber already worth 40 bn dollars

Uber was founded in 2009 and is now operating in 250 cities across 50 countries. When the company recently raised $1.2bn from mutual funds and other investors in order to expand further, the company’s total share value reached $40bn.

Uber can also lead to major environmental gains, as the number of cars in the streets fall when private vehicles run taxi services. Uber has no responsibilities as an employer for the taxi drivers, who operate as sole traders. Their income depends on how long they are logged as being in service and how many hours of driving they manage to clock up. Their working hours are extremely flexible — from five to 65 hours a week for Uber drivers in New York. 

People’s imagination is the only limit for what kind of businesses we might see emerging in the sharing economy. But according to Rachel Botsman there are four factors which determine success:

• You need a critical mass to make sure you as a provider of a product or a service find customers. The Internet and smartphones make it possible to pair people and services.
• There must be an untapped capacity — empty flats, cars which are parked up 23 hours a day etc.
• You need trust which allows you to trade with strangers. This is helped by technology which makes it possible to build up trust capital. Each transaction is traceable and can be assessed. 
• Finally this is also about a paradigm shift where it is no longer important to own something. The CD is not important, but the music is.

Both authorities and trade unions will face challenges from the sharing economy.