It’s time to embrace the new “sharing economy”
The sharing economy is upon us. Sometimes referred to as the “trust economy,” “peer-to-peer economics,” the “demand economy,” and “the collaborative economy,” today’s rapidly evolving networks of consumers and vendor/providers are transforming the way we travel, commute, communicate, take lodging, eat, and a whole host of other consumer behaviors.
Pioneered by Uber, a technology company that developed the first consumer-facing peer-to-peer app that demonstrated a capability of scaling to a truly global level, the sharing economy is gaining traction and threatens to disrupt an ever-growing list of traditional business models.
How the sharing economy works
So far, all the successful national-level sharing economy platforms have a similar model, in concept: Strangers offer goods or services to other strangers on the Internet, who may want to buy them. They connect via a website or cell-phone application that is put together or administrated by a third party, which generally finds a way to monetize each transaction. Payments are typically handled via an electronic payment transaction company, with payments normally delivered to the recipients’ control either instantaneously, on demand or automatically each week.
Companies at the forefront of the sharing economy follow the same basic model: strangers share goods or services, connecting through a website or an online application that is facilitated by a third-party business. Smartphone apps allow people to conduct transactions anywhere with the convenience of their mobile phone, and online payment services offer quick compensation.
While sharing and barter networks have been around for millennia, they’ve always been limited in scope, with limited opportunity for sellers and buyers to connect over distance. But the modern smart phone and mobile payment technology have enabled the concept to explode – potentially taking entire industries (see taxi drivers) with it.
The explosion of the sharing economy
AirBnB and Couchsurfing.com aren’t just cutting travel agents out of business – they’re cutting hotel owners out, too. And they aren’t the only business disruptors out there by a long shot. LoveHomeSwap sets up homeowners for home swapping arrangements for a week. Short-term Stays enables homeowners to rent out spare bedrooms to a subscribership of 100 million readers. FlipKey.com is also connecting potential vacation home owners with renters looking for a getaway for a few days or a week or two.
“The average car costs 8,000 dollars a year to run,” Says Rachel Botsman, author of “What’s Mine Is Yours: The Rise of Collaborative Consumption.” “Yet, that car sits idle for 23 hours a day. So when you consider these two facts, it starts to make a little less sense that we have to own one outright. So this is where car-sharing companies such as Zipcar and GoGet come in."
Uber and Lyft have made it easy for owners of cars to share those assets with those who need a ride – offering themselves out as drivers, or even renting their cars directly. Shared economy car rental services include Getaround, Turo and RVShare, each of which allow those looking to rent a residential vehicle for a short trip to rent one from someone who owns an RV that happens to be sitting idle.
Zipcar takes the concept a step further: With Zipcar, members subscribe to the right to a fractional interest in a fleet of cars, which the company parks at airports, downtown areas, campuses and other convenient places. The company cleans and maintains them, keeps up the insurance payments, and tracks the reservations. You just reserve a car when you need one, unlock and start the car with the RFID access card that comes with your membership, get in the car, and drive. “It’s like owning a car… without the sucky parts,” claims the company catchphrase.
So once you’ve dumped the car, maybe you can rent out that parking space that came with your apartment, but that you don’t need anymore! JustPark lets people or businesses in crowded urban areas to increase their incomes by renting out their parking spaces when they’re out of town – or if they just don’t need a car. So renting a place around the Pearl District of Portland or the Castro District of San Francisco just got a bit more affordable to those who are comfortable riding bikes or taking Uber cars when they need to leave the immediate neighborhood.
Spacii.co lets you rent storage space in your shed, attic or garage – cutting storage facilities out, but allowing homeowners to get a bit of revenue out of their lofts, storage sheds and attics. It could even pay for your payments financing steel shed in your yard!
Got pets? You can get a petsitter or dogwalker via DogVacay, Rover.com or Fetch! Need to earn some money? Set up an account and get paid to take care of other peoples’ pets while they’re out working or traveling.
Basic chores? TaskRabbit and Handy.com connect people who need some chores done with people willing to do them for a fair price. Handy focuses on handyman-type work, including furniture assembly (for you frustrated IKEA customers), while TaskRabbit also recruits and connects personal assistants with people who need them.
Own a truck or van? Need a truck or van? Have goods that need hauling or delivering? Moving and need some transport and/or muscle? Contact Dolly or Buddytruk, work out a price, and cut U-Haul out of the equation while saving money.
China’s way ahead of us in realizing the promise of shared economy platforms. While a number of early innovators in the U.S. have fizzled and died (alas, renting out power drills and other basic tools never caught on in America, Chinese consumers have embraced these platforms and now not only happily flag rides from Uber and from its Chinese competitor, Didi Chuxing, but eagerly rent everything from bicycles to umbrellas to basketballs in massive numbers. And not from established retailers, but increasingly via peer-to-peer networks accessed via Tencent and Alibaba.
- The rise of social media – enabling vast peer-to-peer networks to easily connect for a common purpose.
- Ubiquitous smartphones – with the memory to download and run specialized applications.
- Advances in RFID and blockchain technology. For example, RFID and blockchain technology make possible the creation of self-executing smart contracts, which enable the owners of cars and houses to open only to people with approved access, and only during the time periods during which they are renting the car or house. Furthermore, blockchain platforms enable vendors to set up access to their property via contracts that execute automatically, without the vendor having to manually take actions to engage or unengage locks or collect payment – which takes a lot of labor costs out of the equation.
- Secure and instantaneous online payments, thanks to companies like PayPal and innovations in banking and payment technology.
In theory, economists describe the sharing economy simply as a way to unlock utility and value in otherwise idle property, labor or capital.
For example, a car that is idle 23 hours every day can be put to work generating income for its owner – because it generates value and utility for the renter. Meanwhile, in some markets, car owners are bringing in $10,000 per year in income renting their cars (though alert readers will realize that these owners must deduct depreciation and wear and tear on their cars from that stated income. The actual income net of that depreciation will be much less.)
Uber first came on the scene in limited markets in 2008. Less than ten years later, the ridesharing platform – essentially just a phone app and a payment mechanism weighed down by some obnoxious management – has a market valuation greater than a number household travel names.
The ridesharing market brought in about $2 billion in revenue in 2016, according to the Casualty Actuarial Society, which projects those revenues to increase to $12 billion per year by 2020. Pricewaterhouse Coopers has estimated that by 2025, five main sectors of the sharing economy could represent $335 billion in revenue worldwide, up from approximately $15 billion in 2015.
According to a recent analysis by Allianz:
The popularity of the sharing economy for summer travel booking has tripled within two years, with 50 percent of travelers likely (26 percent very/ 25 percent somewhat) to use services like Uber, Lyft and Airbnb this year compared to 36 percent in 2016 and 17 percent in 2015, according to the third annual Allianz Travel Insurance Sharing Economy Index released today by Allianz Global Assistance USA.
Insurance and risk issues
As the technology platforms that enable the growth of the sharing economy evolve, however, other industries are struggling to keep up. One prominent example: Thousands of people were driving for Uber – essentially becoming the equivalent of self-employed, independent contractor taxi drivers, with taxi driver-level mileage driven and potential liability, but on personal auto insurance. The auto insurance industry had to scramble to develop and market an auto insurance policy product and premiums that supported the actuarial challenges of the Uber driver, while adjusting the terms and conditions of personal auto insurance policies to exclude car sharing use. Otherwise, premiums would have had to rise on all other auto insurance customers – whether or not they were car sharing.
State regulators have also been grappling with policy, including whether to allow these relatively unregulated and unbonded drivers to access high-traffic areas like airports for which local officials have already promised to taxi drivers who have paid in millions for taxi medallions. State regulators have also had to work on how much liability insurance protection any given rideshare driver should have in order to operate within their jurisdictions.
Eventually, the auto insurance industry worked with rideshare company executives and state and local policymakers and managed to solve the issue in the U.S. and stabilize its risk pools. The National Association of Insurance Commissioners published an extensive whitepaper detailing the specific challenges in the ridesharing/transportation network space.
The home insurance and landlord insurance industry are currently undergoing a similar process as they try to come to grips with the different insurance needs of occasional short-term rental owners compared to straight-ahead owner/occupants – and who should be responsible for carrying the coverage? Should the entirety of the responsibility fall on the homeowner? Or should the sharing economy platform maintain the coverage?
For example, if someone rents a 2nd story bedroom through a homesharing site, goes out on the lanai, and the lanai collapses and a renter breaks his or her neck, who is financially liable? Of course, the homeowner is responsible for the repair and maintenance of the deck. But if the owner has been renting out the bedroom for months, a standard homeowners’ insurance policy won’t cover the claim. They will point to the exceptions and exclusions in the policy and remind the owner he or she should have purchased a landlord insurance policy designed for short-term rentals.
Meanwhile, our poor renter, through no fault of her own, could be in a hospital or in a wheelchair, out of work, with mounting medical bills to pay and her home in foreclosure.
The insurance industry is now moving to close that potentially hugely disruptive insurance gap.
Courts and insurers are likewise being forced to consider how to apply existing practices in workers compensation, umbrella liability, wage and hour laws, employee versus independent contractor classification, and a wide variety of other questions as the pace of sharing economy growth taxes the ability of other institutions to adjust and adapt to the rapidly emerging sharing economy.
Meanwhile, though, anyone considering participating in the sharing economy, either as a vendor/seller or as a renter/buyer should carefully consider potential liability exposures, as well as the counterparty’s ability to make good on any claims if someone should be harmed or injured as a result of the transaction.