One of the most important features of the digital revolution is its ability to connect individuals in ways that we've never been connected before. When we think about how new digital tools foster connection, we usually think about things like smart phones, texting or social media. Another important outcome of this increased connectivity is the sharing economy. In essence, the sharing economy connects individuals who have things they want to share with others who need these things. This new economy has begun to change the way we travel, what we wear and how we obtain money. Although most people are probably familiar with the term the sharing economy and may have participated in this economy in some way, this is still a relatively new phenomenon. Airbnb was established in 2008 and Uber was launched in 2009. So the sharing economy wasn't really a thing until around the year 2010. Still today, most people across the world have yet to participate in this new economy. For example, less than half of all Americans have used a ride sharing service such as Uber or Lyft. According to some estimates, the sharing economy is currently worth over $20 billion, and this value will grow exponentially in the next decade. Thus we're at the very beginning of this new and exciting economy. Since it's still quite new, there are lots of questions about the sharing economy that remain to be answered. For example, we don't know how profitable this new business model will be. Right now, most sharing platforms appear to be losing money. We also don't know much about how this new economy will impact traditional businesses or how these traditional firms should respond to this potential threat. Finally and perhaps most importantly, the social impact of the sharing economy is a topic of much debate. On the one hand, the sharing economy has been viewed as having a positive effect on the environment by making greater use of existing resources. On the other hand, the sharing economy has been criticized for paying providers low wages and very few benefits. In this video lecture we'll take a closer look at the sharing economy, what it is and how it works. Here are a few examples of some sharing economy platforms and their business models. First of all, Uber. When most people think about the sharing economy, Uber is probably the first example that comes to mind. Uber was formed in California back in 2008 and was the world's first car sharing platform. Today, Uber has over 75 million riders and three million drivers, and there's more than four billion dollars a year. In addition to giving rides to passengers, Uber also has a variety of additional offerings. For example, recently introduced a food delivery service called Uber Eats. It also provides transportation by motorcycle in number of countries such as India, Indonesia and Pakistan, and also has a subsidiary that allows individuals to rent bicycles. Most recently,, they launched a new service called Uber Works, right now only in Chicago, which seeks to match temporary workers with potential employers. Second, Rent The Runway, or RTR for short. This company was launched around the same time as Uber back in 2009, but it's not as nearly well known. Now, RTR is a sharing platform for designer clothing. Allows customers to rent a variety of expensive dresses, sweaters and jackets, for a fraction of the cost of buying these products. In contrast to Uber, RTR actually owns the products that it shares. Thus it doesn't have to rely upon external providers. Also, rather than paying on a per usage basis, RTR offers a set of different monthly plans. Another unique feature is the fact that RTR is not just a digital operation, it also has a small number of physical retail locations in major US cities such as New York, Chicago and Los Angeles. Third, LendingClub, this sharing platform is actually older than both Uber and RTR. It was founded in California back in 2006 as the world's largest peer to peer lending platform. In essence, LendingClub is an Uber for money. Individuals who like to borrow money can create a listing on it's website. This listing details information about the borrower, how much they want to borrow, and what they plan to do with this money. Investors, which are people like you and me, can provide loans to these individuals in amounts as low as $25. As investors make money from the interest, which is usually somewhere between five percent to 25 percent. The average loan on LendingClub is about $15,000 and is usually sourced from among hundreds of small investors. By all accounts LendingClub is quite successful, has a lowest default and also a high return on investment. Now, there are many different definitions of the sharing economy. The definition that I'm using comes from a recent article that I wrote about this topic with some colleagues for a number of other universities such as Boston University and the University of Pennsylvania. In this article, we define sharing economy firms as technology enabled platforms that provide users with temporary access to resources that may be crowdsourced. So this definition has three key components. Number 1, sharing economy firms are inherently digital in nature and it run on technology platforms. Second, they grant temporary access rather than permanent ownership. Third, the resources that are accessed are often, but not always owned by a set of external individuals. There are lots of interesting aspects about the sharing economy. For the purpose of our discussion, I'd like to take a deeper dive into the three characteristics that I outlined in our definition. First, two-sided platform, most members of the sharing economy like Uber and Airbnb operate via a two-sided platform. In essence, this is a business model that requires firms to recruit not only customers but also providers. In contrast, a traditional firm usually only has to attract customers because they create their own supply of products or services. That shared economy firms have to market themselves not only to create demand, but also to create supply. This is not an easy task. Due to this challenge, some sharing platforms have decided to own their own supply. For example, Airbnb is now moving into real estate and developing and building their own housing units for listing on it's platform. Second, crowdsource supply. Although some sharing platforms like RTR own their own supply, most crowdsource will supply of housing, transportation or money from a large group of outside individuals who are not employees. Now, because they're not employees, sharing platforms have limited control over these individuals. As a result, the quality of a sharing economy offering is usually less persistent and harder to control compared to a traditional firm. For example, if you've used a ride sharing platform such as Uber, you probably has some really great drivers and also a few that are not so great. I've experienced this myself. In order to deal with this challenge, sharing platforms have employed three different strategies. First, careful selection, usually by conducting extensive background checks. Second, training, giving providers a set of rules and procedures to follow. Third, a rating system that encourages customers to provide ratings of their providers and then eliminating providers that obtain lower ratings. Third, access not ownership. The feature that is most commonly found across nearly all sharing platforms, is providing customers with temporary access rather than permanent ownership. This feature has a number of important implications. First of all, by providing temporary access, customers have the opportunity to try products and services they would not be able to or want to own. For example, the car sharing platform Turo, allows individuals to try a wide range of luxury automobiles at a fraction of the cost of ownership. Sharing economy scholars also suggests that brands that are accessed rather than owned are less central to our self identity and create lower levels of brand attachment. Thus brands may be less important in the sharing economy than in the traditional economy. For example, Uber riders have no control over the brand of vehicle that picks them up, and usually seem to care more about the driver than they care about the car they're driving.
