The Sharing Economy: Disrupting Old Business Models While Making New Friends
- Posted on 2013-09-20 01:00:46
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The “Sharing Economy” is a cultural phenomena which has been taking the business world by storm, and is poised to go full-on mainstream at any moment. The phrase itself is a major buzzterm in the Silicon Valley tech scene as companies from the area that were early to the game experience massive user adoption and correspondingly large market valuations. The premise behind these companies’ business models is relatively straightforward: offer people a technological solution for exchanging goods or services in a peer-to-peer market, and take a cut of the transaction for the cost of developing and maintaining the technology and risk management features (and as profits for shareholders, of course). The benefit to the users is an increased sense of community, trust online, and the warm-and-fuzzy feeling of not just spending their money locally but making new friends in the process. Every sharing economy encounter is a chance to meet someone with similar interests or personal connections, and the idea of letting a complete stranger use your car or stay in your house for a weekend is suddenly not only not creepy anymore, but downright exciting. Such is life in the emerging peer economy.
Business Insider recently published an article by Matthew Boesler entitled “The Rise Of The Renting And Sharing Economy Could Have Catastrophic Ripple Effects,” in which Boesler concludes that if the sharing economy trends continue, the entire economy could suffer. The “catastrophic ripple effects” FUD which screams out to the reader from the title is not original rhetoric from Boesler or BI editors, but rather the words used by ConvergEx, the market strategy group who are quoted throughout the article, to describe the economic implications of the sharing economy. The conclusion is not entirely incorrect, however the language used to describe those conclusions is entirely subjective. To whom are these effects “catastrophic?” To the people benefiting from new-found access to goods and services through the sharing economy, or to the entrenched, old-model businesses who, at this point in history, are beginning to look like horse-drawn carriage manufacturers in 1900, or compact disc manufacturers in 2000? ConvergEx has this to say about the subject:
“Adjusting to a consumer who does not necessarily buy, but rather rents, would necessitate a shift in production, sales, and even employment structures. Everything interesting in economics happens at the margin, so if the nth consumer chooses to rent an apartment instead of buying a house or making do with a car-share program instead of purchasing a new vehicle, then demand for new houses and cars drops… The recent recession, arguably, could be fostering a generation of ‘renters’ and ‘sharers’ (as opposed to ‘savers’) who are wary of potentially risky investment vehicles or financial instruments.”
The sharing economy isn’t “fostering a generation of ‘sharers’… as opposed to ‘savers’,” it’s fostering a generation of “sharers” as opposed to “buyers.” In fact, it could easily be argued that the sharing economy enables saving because rather than spend on credit to purchase expensive items which could instead be rented, consumers are freed to save money which would have otherwise been used to pay off debts. The tactic of employing false dichotomies is hardly an original way to sidestep the real issues at hand, and it’s telling when ConvergEx uses it so brazenly in order to bring the reader to an obviously biased conclusion. Clearly their clients prefer a more spendthrift consumer-base, which the sharing economy represents the diametric opposite of. And if consumers are wary of “potentially risky investment vehicles,” then all the better, considering that it was the blind acceptance of “risky investment vehicles” which led to the Great Recession in the first place. This is not to pick on ConvergEx too much; their point is ultimately that legacy companies will need to adopt to this new consumer model or else face serious losses, and they’re certainly right about that.
What the sharing economy represents could be looked at as a delayed market correction. Consumers are taking a realistic look at their income-to-spending ratio, and adjusting their budgets accordingly. Consumers are deciding that maybe they don’t need that bigger house, or that new car, or the latest technological gadget, and are instead opting to rent if they still desire the experience. The materialist ethos promulgated by American marketers throughout the 20th century was realized not by real, meaningful advances in wage earnings and economic growth, but by over-borrowing fueled by artificially low interest rates. The expansion of credit throughout the 20th century despite the lack of corresponding increases in real wages and economic growth led to malinvestment, painful corrections, and ultimately the Great Recession wherein millions of people lost their homes while the Federal Reserve bought up trillions of dollars in toxic assets and took interest rates to barely-above-zero just so the banks who were partially responsible for the crisis could afford to have the excess reserves required to survive.
The sharing economy has been, for many, a way to cope with the worst side-effects of the 20th century’s financial excesses, and simultaneously a way for communities to create alternatives to the materialist paradigm. In the sharing economy, access trumps ownership, which is what drives consumers towards the Airbnbs and RelayRides of the world. After an era of overconsumption, this should be looked at as a welcome change. People are adjusting their priorities towards what they actually need to live a fulfilling life, rather than what they want simply to scratch an impulsive materialist itch. Will legacy companies suffer? Undoubtedly. But in the age of rapid technological advances, no organization should feel immune to disruption. Even the concept of money itself faces disruption from new digital currencies such as Bitcoin. If the financial lubricant of the economy isn’t even safe from disruption, nothing is. And for people looking for alternatives to the old ways of thinking that got us into this mess the global economy finds itself in, that’s not catastrophic, that’s exciting.