In 1999, Napster started a revolution: sharing music was not only cheaper than buying CDs but it also had a cool factor and allowed more choice. Even though Napster turned out to be operating in a legal grey zone, the sharing model grew and has been adopted in various sectors in the past five years.
The traditional business model where a company employs staff directly and uses its own set-up to deliver a product or service is now facing stiff competition from a model based on a sharing mentality. Sharing goods or services has long been a tradition between family and friends and in fact most of the companies operating under this business model were launched by groups of friends who shared their resources and eventually evolved into huge social networks operating internationally.
Nowadays we have apps and websites that allow a service provider to connect directly with a potential client to find a huge variety of services. Uber, which caters for transport sharing, and hosting company Airbnb are probably the two most recognisable brands based on a sharing model.
Airbnb started out in San Francisco in 2008 when its co-founders could not afford to pay the rent for their apartment and decided to rent out one of their rooms to anyone visiting their city. This social networking site continued to grow and today, just after six years, it has offices in 12 different countries and has more than a million listings worldwide varying from rentals of one room to entire castles in Ireland and even small islands in the Caribbean.
Uber receives ride requests via smartphones and matches these with freelance drivers. Like Airbnb, this company also started out in San Francisco and to date has expanded to 200 cities in 53 different countries. This service offers extremely competitive rates when compared to taxis: it mostly appeals to young people who are probably wary of the high fares and dubious service associated with mainstream taxi services. In comparison, Uber drivers are building a reputation of being courteous and going out of their way to ensure a smooth trip: this is a direct result of Uber drivers being self-employed and depending on passenger feedback for future business.
While Airbnb, Uber and similar sites facilitate the better use of underutilised resources, the sharing economy has had its fair share of controversy. Uber has been the target of aggressive protests led by taxi companies. In fact, last December, a Madrid judge ordered Uber to cease operations in Spain, ruling that, “Uber lacks the administrative authorisation to carry out the job and the activity they carry out constitutes unfair competition”. Uber – which is currently valued at around €30bn – was also ordered to cease operations in India while in the US, government is struggling to regulate this business practice whileensuring that passenger safety remains a top priority.
While Airbnb, Uber and similar sites facilitate the better use of underutilised resources, the sharing economy has had its fair share of controversy
Airbnb, currently valued at more than €10bn, is attracting similar protests. The New York Attorney General is trying to build a case showing that Airbnb’s business model is illegal since it encourages people who are already renting their property to sub-let, which is technically illegal. The Attorney General’s report claims that Airbnb had a turnover of nearly €33m from New York listings that violate zoning laws. Moreover, the report claims, this turnover was made at the expense of hotels and legal rentals. Despite this alleged illegality, analysis expect this court battle to take more than two years, during which Airbnb’s lobbyists will try to convince the US Senate to change archaic renting laws to allow sub-letting and therefore ensure that the New York court case against Airbnb is dropped.
Another interesting concept that is gaining ground is WiFi sharing. Anyone with an internet connection can share a connection with others. The company Fon.com boasts more than 14m spots: to become a Fonero, as members of this community are called, users must either install a piece of software or buy aFon-router. This allows members to share a portion of their Wi-Fi bandwidth and in turn get the right to use others’ Fon spots.
The website LendingClub.com allows peer-to-peer cash lending and is completely regulated under US and European legislation. It allows borrowers to receive loans from investors willing to risk their savings in exchange of attractive interest rates. To reduce defaulting risk the Lending Club allows only credit worthy individuals to request loans while assigning elevated interest rates to high risk borrowers.
Banks do not allow investors to directly invest in a particular loan and instead invest collectively. On the other hand, LendingClub.com is using a model where a particular investor is directly paired with one borrower. The company claims that this model puts more pressure on the borrower to pay back a loan within the stipulated period as there is a direct human contact between borrower and investor rather than just having to deal directly with the bank. In fact the LendingClub states that their defaulting rate is considerably lower when compared to the traditional banking sector.
Just as eBay allows individuals to become sellers, sharing sites allows individuals to become taxi drivers and rental agents. It seems that the sharing business model works best for expensive items such as houses and cars and allows their owners to make some money when these assets are not being used to the full.
Locally, the sharing economy hasn’t achieved the same popularity it enjoys in other countries, most probably because most of us own cars and houses and therefore don’t need to borrow and share. There are, however, some niche websites which have Maltese users: one of these is Dogvacay.com, through which you can hire dog sitters while you are on holiday. There are also some 1,000 local listings on Airbnb: however, most listings are for entire properties rather than rooms, as most hosts in other European countries offer.
It is expected that the sharing economy will continue to grow in the immediate future. However, while legal structures have to adapt to this new model, they must also ensure a level playing field so that the sharing economy does not gain ground thanks to unfair competition.
Ian Vella is a search engine optimisation specialist.