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Economic Advantages of the Sharing Economy

shutterstock_208213282Today’s sharing sites let individuals rent anything from apartments and cars to power tools and bicycles. Sometimes called collaborative consumption, Internet sharing sites benefit the economy in several ways. The peer-to-peer rental market is now worth an estimated $26 billion, with companies like AirBnB and Uber leading the way. Economists estimate that overall revenue for the sharing economy will top $3.5 billion in 2014, with a predicted growth of more than 25% in the near future.

Sharing benefits both individuals and the environment. Some of the specific gains include:

    • Firstly, it allows individual owners to make money from their underused assets. For example, Car Next Door claims that members can earn $2,000 or more per year.

  • Renters save money by not having to buy the item they are renting. They also typically save money than if they had used a more professional provider, such as a car-hire company or hotel.
  • The environment benefits because people are able to utilise excess capacity rather than purchase another item, resulting in lower demand and reduced resource requirements.
  • A non-economic benefit is the social aspect of the sharing economy. If you rent a room from someone on a hosting site like AirBnB next time you travel, you have a chance to meet someone new and get recommendations from a local.

Old economic rules still apply

In many ways, the sharing economy still follows the old rules of economics. For a service to take off, there has to be a high enough pain point and an effective way of meeting that demand. If a new company isn’t providing a significant service or convenience, it isn’t likely to attract enough users to create a self-sustaining ecosystem.

Another key factor is service quality. In a sharing economy where many of the service providers are not professional, it is tough for a company to guarantee a great experience for all of its customers. Companies need to establish strong community connections and a reliable feedback system to ensure that its providers are of the highest quality.

Overcoming regulation Issues

Regulation is sometimes a significant barrier to the spread of companies devoted to the sharing economy, and city officials can be resistant to this new business model. Regulatory laws are geared toward professional businesses, not consumers providing competing services in their spare time with their own goods.

The largest concern is typically that sharing economy-based companies are trying to profit from avoiding the types of oversight that traditional companies have to face. Some legitimate concerns are created by the sharing economy business model. For instance, city officials want to ensure that places rented through AirBnB are safe and that CoSeats drivers are reliable and are driving safe vehicles.

Such realistic concerns must be addressed, while at the same time laws will need to change to keep up with this new economic reality. In the meantime, cities like Amsterdam have been fining AirBnB users for operating in unlicensed hotels and avoiding hotel taxes. And in some U.S. cities, taxi firms have lobbied to ban peer-to-peer car lift services, fearing direct competition.

The key to guiding change is to work with city governments to identify the best regulations that need to be upheld, and work to update or eliminate those that are not relevant to the new business model. Instead of just blaming regulators, companies will have to take an active role in creating an environment where everyone wins.

When online shopping took off 15 years ago, people were understandably worried about quality and security. However, after a few successful transactions, most people were willing to trust the process. The rise of the sharing economy is the next evolution of the Internet in adding value for consumers.