The Sharing Economy: A Race to the Bottom

Last year, Airbnb hosted more than four million guests around the world.1 A million rides were shared on Lyft just over a year after it launched in 20122. These data points alone seem impressive, but the growth of this phenomenon is staggering. The “sharing economy”—as it’s being called—enables just about anyone to become their own micro-entrepreneur. New companies like Uber, TaskRabbit, and Airbnb are popping up at a remarkable rate, and they’re disrupting traditional businesses in astonishing fashion. An entire conference dedicated to this new socio-economic system occurred just a few months ago, but the truth is the sharing economy is little more than marketing sleight of hand.

What Rhymes with Sharing?

A significant driving force purportedly behind the sharing economy is a social one—a notion of friendship, community, and trust. The rideshare service Lyft uses a tagline “your friend with a car.” Venture capitalist Scott Weiss of Andreessen Horowitz calls it “a real community—with both the drivers and riders being inherently social—making real friendships and saving money.” The two-day Share conference took place in May, organized by Natalie Foster, former New Media director to the Obama campaign. Foster claims that “we’re building a movement” with a guiding principle that access trumps ownership.

One of Airbnb’s founders, Nate Blecharczyk, suggests, “We couldn’t have existed ten years ago, before Facebook, because people weren’t really into sharing.” The paradoxical irony is that people have never been more disconnected and seemingly connected at the same time than any point in history. A Trulia survey3 last year indicated that almost half of all Americans don’t know their neighbors’ names. An Australian sociologist found relations in “a precarious balance” after investigating community responses to the 2011 flooding in Queensland, concluding that “we are less likely than ever to know” our neighbors.4 Yet, Foster and others assert the sharing movement is “recreating the virtues of small-town America [by] rejecting the idea that stuff makes us happier, that ownership is better than access, that we should all live in isolation.”

It’s Not Voodoo (Economics)

Shockingly, the reality of the sharing economy isn’t a sociological one, it’s an economic one. The selling point of Lyft isn’t the fist bump passengers are greeted with. Technology has reduced the barrier for the peer-to-peer exchange of goods and services, but such an exchange is hardly new. The sharing economy is simply a euphemism for micro-subletting developed by marketers to allow companies to insert themselves as transaction brokers. That’s not to conflate the ideas of “sharing” and “free,” but to perceive these companies as community-first, business-second would be disingenuous. Union Square Ventures partner Brad Burnham made this clear at Share, diverging from some of the self-congratulatory talk. “What we’re talking about is the natural tendency of capitalism to consistently find a more efficient way of delivering something,” he says. “It’s information technology lowering transaction costs and revealing assets that can be utilized.”

The concept of for-profit sharing, specifically as a business model, isn’t alarming. In fact, it’s the nature of capitalism. However, the sharing economy isn’t what it is because people want or need a lifestyle of access-over-ownership, it’s because, for some, it’s all there is. On one hand, it’s a supplementary source of income for people rich in assets. On the other hand, it’s a livelihood for those who aren’t.

The Bottom is a Long Way Down, Let’s Split a Cab

Uber and Lyft have been engaged in a savage ground war, both in pricing5 and business tactics. The same can be said of other such companies offering services for less under the guise of “community” and “sharing.” It’s a troubling race downward, but what’s more troubling is the reason many of these companies are able to disrupt incumbents so pervasively. Airbnb et al. bypass industry-specific taxation, insurance, and further regulations. They’ve felt it in fines and other legal difficulties. In some sense, “micro-entrepreneurs” are really just employees less a salary or wage, health insurance, paid-time off, and employer protection.

“We are enabling micro-entrepreneurs to build their own business, to set their own schedules, specify how much they want to get paid, say what they are good at, and then incorporate the work into their lifestyle,” says TaskRabbit founder Leah Busque.6 Doing laundry covered in cat diarrhea or breaking down boxes probably isn’t the American Dream for most, but it’s becoming increasingly indicative that income inequality is a driving undercurrent of the sharing economy.

A Bloomberg national poll7 conducted late last year revealed that nearly two-to-one Americans believe the U.S. no longer offers everyone an equal chance to get ahead. This is felt by many participating in the sharing economy. Burnham raises doubts about the long-term viability of companies like Airbnb, Uber, and Lyft, all of which have raised hundreds of millions of dollars in venture capital. His concern is that every dollar returned to investors is a dollar the users of the service don’t see, yet they created the value in the first place. “Those companies won’t be able to get out from under that structure,” Burnham says, suggesting that a new generation of “thin” share-economy companies will take their place. The tendency, he proposes, will be for competition to become “thinner and thinner to the point where you end up at decentralized autonomous corporation” along the lines of Bitcoin.8

The Future of Sharing

While “sharing economy” is a misnomer, the businesses that participate in it are disrupting markets. What’s unclear is how this will shakeout in the long term. The likely outcome is that this new model will become assimilated into existing models and embraced by incumbents. Airbnb, Uber, and company may continue to exist in some capacity, but they face challenge from leaner “skinny platforms” using more innovative funding strategies. It’s improbable these disruptive newcomers will remain unfettered from regulation. In a sharing economy with no floor, a race to the bottom is without end.

  1. https://www.airbnb.com/annual []
  2. http://techcrunch.com/2013/08/08/lyft-1m-dc []
  3. http://info.trulia.com/neighbor-survey-2013 []
  4. http://www.macleans.ca/society/the-end-of-neighbours []
  5. http://fortune.com/2014/05/28/in-price-wars-some-uber-and-lyft-drivers-feel-the-crunch []
  6. http://www.businessweek.com/articles/2012-09-13/my-life-as-a-taskrabbit []
  7. http://www.bloomberg.com/news/2013-12-11/americans-say-dream-fading-as-income-gap-hurts-chances.html []
  8. http://www.forbes.com/sites/jeffbercovici/2014/05/13/why-uber-and-airbnb-might-be-in-big-trouble []