By Abir El-Hallak
Image : Huffpost Business
What better place to start than by using a definition from Wikipedia, an excellent example of the sharing economy where everyone shares their knowledge on any and every conceivable topic: “a hybrid market model (in between owning and gift giving) which refers to peer-to-peer-based sharing of access to goods and services (coordinated through community-based online services).” In effect, the sharing economy is a for-profit and non-profit economic system whereby individuals directly share underused services or resources stemming from both a monetary and social paradigm shift. It connects individuals who demand a product or service with those who can supply the product or service.
While the concept of a system of exchange is not new, modern-day online social networks, mobile devices, analytics, cloud computing and electronic markets and services are empowering factors to the notion of shared products and services: “what enables the explosive growth of the sharing economy today is the internet. Barriers to sharing (time, space, geography, marketing dollars) are rendered irrelevant in the digital age of free mobile apps that connect people across time zones, cultures, and languages” (Forbes). As these peer-to-peer networks continue to push up, empowered by platform dynamics and network effects, experts believe the sharing economy will continue to flourish and present unlimited prospects for entrepreneurs.
“A plethora of startups have stemmed from the sharing economy, 17 of which are worth over a billion dollars each” (Entrepreneur). Let’s explore some successful sharing economy startup companies.
Need a place to stay? Airbnb has a spare room.
Travellers choosing Airbnb can rent a room, a whole house or even a British castle. The San Francisco startup “averages 425,000 guests per night, totalling more than 155 million guest stays annually – nearly 22% more than Hilton Worldwide, which served 127 million guests in 2014” (PWC). According to Airbnb “our community is built on a great deal of trust – trust that makes hosts feel comfortable allowing travellers to stay in their home, and trust that helps travellers feel they belong anywhere. The foundation of that trust is our review system, so we want to make it just as easy for people to share honest reviews about the experiences they have using Airbnb, as it is when they review a product. Our community benefits from honest reviews that help them make informed booking decisions.”
Short on time? TaskRabbit will run your errands.
“Live smarter by outsourcing household errands and skilled tasks to trusted people in your community” (TaskRabbit). TaskRabbit is a mobile marketplace founded in 2008 where 4,000 carefully interviewed and background checked “taskrabbits” can bid to do your jobs and tasks such as delivery, shopping, cleaning or handyman work thereby matching freelance labour with local demand, TaskRabbit’s core business model. Brian Schrier, one of the company’s “elite taskers” earns approximately $7,000 a month from TaskRabbit jobs and pinpoints his craziest job as the one where he was “paid $70 an hour to fold t-shirts for a startup company. They were supposed to come folded, and the company was desperate to get them folded before an event. It taught me that if someone is desperate enough, they’ll pay what they need to pay to get people to help” (Time).
Need a ride? Uber is ready and waiting.
Uber is an online transportation network company that connects passengers with drivers for hire and operates in more than 250 cities worldwide. In December 2015, “Uber was valued at $68 billion, having taken just 6 years to surpass the valuation of 100-year-old companies like General Motors and Ford, as well as “traditional” transportation companies like Hertz and Avis” (Bruegel). As one of the fastest growing startups worldwide, it operates under a dynamic pricing model to accommodate the continuous changes in supply and demand whereby prices increase as a result of higher driver to demand for rides ratio. According to the boss of Uber, Travis Kalanick, “the review system means drivers with poor ratings don’t last long, while passengers who behaved badly find it hard to get a ride” (The Economist).
Hungry? EatWith will cook for you.
The meal-sharing website has been offering customers the experience of enjoying a home-cooked meal with complete strangers in 150 cities around the world since 2012. Guests select a location, and a Chef, with the help of chef profiles and sample menus, and the dining experience takes place in the Chef’s home. The startup company “provides a marketplace that connects diners and hosts, creating a unique social experience where guests get to know one another while also eating an authentic home –cooked meal” (TC). “Peer-to-peer dining websites have been called “the Airbnb of home-cooked meals” because they operate under similar principles. Each website bills itself as a community where users can buy and sell food-related experiences and rate them afterwards for quality control” (BBC).
Have a look at this: http://www.cbc.ca/player/play/674240579832/
Need a dog sitter? DogVacay is the answer.
The “Airbnb for dogs” and more cost effective than a kennel, DogVacay customers can leave their dog with one of the 20,000 hosts in 3,000 cities who will care for it in a more comfortable environment. An unhappy dog and huge kennel bill led to CEO Aaron Hirschhorn’s idea for a startup potential to fulfil a clear gap in the market. It all began with an overnight dog-sitting business on Craigslist in 2011 and DogVacay was founded a year later. “DogVacay carefully screens its dog-watchers, which have an average rating of 4.96 starts out of five on the site. More than 100,000 people have applied to be dog-sitters, but DogVacay has only accepted 20,000, all of which go through interviews, training, and reference checks before joining” (FORTUNE).
There is no doubt that sharing startups have impacted hugely on business models. “Just as YouTube did with TV and the blogosphere did to mainstream media, the share economy blows up the industrial model of companies owning and people consuming, and allows everyone to be both consumer and producer, along with the potential for cash that the latter provides” (Forbes).
Supply and demand is of course the central theme, as evident in the examples investigated above. Here, the changing concept of access to a product or service as opposed to outright ownership plays a significant role further unlocking supply and demand potential beyond traditional buying and into renting, lending, reselling and swapping to name just a few. Uber, for example, does not own any of the vehicles used by its customers and TaskRabbit customers may choose to hire gardening services as opposed to buying their own lawnmower. Digital platforms are the huge facilitators in this respect efficiently connecting the two in real-time. According to one of the founders of Airbnb, Nate Blecharczyk, “we couldn’t have existed ten years ago, before Facebook, because people weren’t really into sharing” (The Economist).
This brings us to another key feature of the sharing economy. Trust, and the formation of a trusting community. Consumers who use this sharing economy business model are generally unperturbed by these methods of exchange that encompass social interaction. The social connections cultivated are the driving force behind a positive online reputation which helps to build influence and credibility which in turn becomes directly connected to the brand itself. Therefore, the business needs to protect the reputation of its brand by carefully managing these connections in order to promote and develop a sense of community as well as convenience. Undoubtedly “online social networks and recommendation systems help establish trust; Internet payment systems can handle the billing. All this lets millions of total strangers rent things to each other” (The Economist).
Are you a budding entrepreneur just launching your sharing economy startup? We would love to hear from you!