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Pros and Cons of Sharing Economy

Collaborative Economy: Pros and Cons

 

Collaborative economy and micropreneurship are among the most talked of topics of the decade. Micropreneurship and microfinance, both are related to collaborative consumption and sharing economy. Microfinance refers to financial aid in the form of financial products and services for the economically backward. This sector has seen dramatic growth during the last few decades. Several things around the globe are changing as people have started believing in the idea of sharing. The collaborative economy is based on a very simple idea and that is people do not always need to go to the big producers to fulfill their needs. They can also depend on each other and benefit from sharing. This includes products as simple as toys to services like shared ride. Sharing economy or collaborative economy means a big change. Microfinance and collaborative economy might not seem like related but the two are. It is because the purpose of both is empowerment.  Responsible access to finance can provide similar benefits as microfinance. Micropreneurship and collaborative economy have  provided similar results.

 

However, sharing economy has its own pros and cons. There are some great advantages but some disadvantages as well. During the past few decades a large number of people decided to get hold of their careers and become their own bosses. They could enjoy earning while working freelance. Sharing economy has favored such people. However, sharing economy is beneficial no doubt, but it had disruptive effects in some areas. There is a downside of the sharing economy whose impact is yet to be fully measured. Sharing economy with itself brought a sea of outsourcing opportunities.  Businesses benefited by a supply of part time workers available at low costs. They could outsource smaller projects at costs within their budget. They can hire freelance workers and continue to employ them if they like. Uber and Task Rabbit are two great examples of such companies. It shows that collaborative economy has proved good for businesses as well as professionals. It also brought a large workforce together that was otherwise not available. Entrepreneurs have benefited heavily by hiring from this large freelance workforce. These shared workspaces or the coworking spaces also granted the entrepreneurs an opportunity to work together and learn from each other.

Read about the 7P’s in the service Marketing mix of Uber

These were the pros of the collaborative economy, but there are disadvantages to consider too. Sharing economy has been good for those it hired as well as those it served. It also meant increased employment. However, it also made clear that there was a shortage of skilled people in the workforce. To fill the shortage businesses needed to hire from the crowd of freelancers. Another major disadvantage of the sharing economy was that it led to the degradation of wages. Freelancers generally earn less than the minimum wage. It also led to several economists expressing concerns over the degradation of wages.  They were concerned that this might press the mainstream businesses to drop the wages they pay their workers. Still, such businesses have proved to be a good starting point for those with an entrepreneurial vent of mind. In a way, the sharing economy and the traditional businesses have stood as a challenge before each other. The sharing economy has come as the biggest challenge for the traditional businesses. Not all are in favor of the sharing economy. The businesses whose domain is threatened by the fresh competition or those that are genuinely concerned about the unregulated entry of new players are against sharing economy. The traditional businesses and authorities have challenged the sharing economy in their own ways. They argue that the new businesses violate the applicable laws. Car sharing companies and the accommodation providers have been bearing most of the brunt till now.

 

The hotel industry has also been feeling threatened by the increased influence of the shared economy.  Airbnb has been a major challenge for a large number of hotel brands around the world. Homeowners can rent their part or complete homes through Airbnb. Throughout the world, at several places this has had a detrimental effect on the hotel businesses. The result has been that the hoteliers are angry and have expressed their anguish over its rise. The hotel owners are complaining because the homeowners are reaping undue advantages. Moreover, they are not subject to the same laws as the hotels. Many laws that apply to the commercial hotels do not apply to the private homes. At some places the residents were served notices by their landlords for renting out their apartments against the leasing agreements. Apart from hotel industry there are several other industries also where the traditional businesses are feeling challenged by the sharing economy. Uber has disrupted the existing businesses and is facing legal issues and bans across several countries. Moreover, it is the authorities that are feeling challenged over how they should interpret the old laws in the context of the new businesses.  The regulatory bodies are confused if there is a need to form new regulations for the sharing economy and the new businesses.

 

The micropreneurs have gained from the flexibility and opportunities provided by the sharing economy. The disadvantages of sharing economy are mainly being faced by the traditional businesses. However, for the companies that have benefited, the profits are big. Companies like Uber basically act as matchmakers between the consumer and the businesses or the service providers.   Uber creates and captures value in unique ways. It is a two sided platform. On the one side are people who will pay if they are provided with cheaper yet decent alternatives to taxis. On the other are the drivers who are ready to drive people around the city if someone pays them for it. With the higher number of consumers, the number of drivers ready to join Uber is also high. In this way, Uber created value for all the parties involved in its business. Uber’s model is simple where it takes only 20% of every transaction. It has used price discrimination on the type of services being provided to the consumers. Consumers can choose from Uber, Uberx, UberBlack and UberSUV. People who can pay for extra luxury can get it. Uber has used the Surge pricing model very effectively. If the supply falls short, the prices are increased. Increased prices attract drivers to the platform in larger numbers. This keeps the supply steady and the brand proposition strong. Uber in this way used price discrimination on both sides effectively.

 

Microfinance and sharing economy have several things in common and many things they can learn from each other. The focus of both is empowerment. Both empower people to use the skills they could never use because they were never given the opportunity. Both have empowered people to connect with others in previously impossible ways. The entire process has been facilitated by the use of technology making interaction and value creation easier. However, not all the consequences of the sharing economy are the intended ones. New businesses always create shortcuts that  have bigger consequences than obvious. Whether it is a new technology or new business, it brings changes that are not always intended. Moreover, their impact can also give rise to ethical, economic and political questions. Sharing economy through its financial impact has given rise to ethical, economic and political questions in the markets where it is active. While some groups are advantaged a small number of groups may also feel disadvantaged. In several markets Uber faced severe opposition because existing taxi services felt it was looting their market share. In some markets it was even banned. Regulators often feel that the new businesses are skirting regulations to earn profits.

 

Sharing economy has brought major economic changes and that’s where most of its power lies. However, the success of these brands proved that sharing economy is more than a passing fad. The way it has managed the balance between supply and demand is a proof that it will last. It has tapped into supply resources that no one ever believed existed. However, the traditional businesses start feeling threatened when common people become suppliers of products and services. This is where all the opposition for Task Rabbit and Uber comes from. Still, it is difficult to ignore the benefits that have arisen from sharing economies. They have not just generated employment but also stimulated the economy in other ways. It gave rise to new opportunities and there might be more potential hidden in sharing. Moreover, the benefits have not remained limited to the businesses but have spread to the common people. However, there are social implications of the sharing economy as well since more than an economic movement it is a social movement.  It has brought employment for the people looking for jobs and additional convenience for the customers.

Businesses like Uber and Task Rabbit have not just reduced costs but also brought additional convenience. Benefits are both for the customers and the suppliers. However, these benefits have also proved disruptive and it is mainly the traditional businesses that are facing the challenge. If you want to know of the disruptions that the sharing economy has caused, then it is already visible in the world. Things have changed fast with its arrival and you cannot still draw a line where its range ends. Uber, Task  Rabbit, Upwork; all these have changed many things in the economic and political realms. They have done several things to make the world a better place and yet there are some side effects. One cannot say the sharing economy has created pleasant results for all. It has left several traditional businesses displeased like Air BnB has grabbed a happy share in the hospitality market in a  short span of time. Uber has done some faster business and compared to it Air BnB has kept moving patiently. This patience has started rewarding it and from this year it has moved into the profits zone.

The issues are not faced just by the competing businesses. Sometimes those employed by these companies can also be on the receiving end. Mostly these companies employ part time workers and these workers can subject themselves to pressures they are unfamiliar with. However, if the workers are also trained to understand their challenges and pressures they might face while completing such tasks, these pressures could still be managed. Air BnB hosts face some challenges like hosts that do not abide to local laws or Uber drivers rising for longer hours than they should. Companies must also pay attention to such challenges and try to work on them before they become a source of reputation damage. Apart from these challenges things are good about the sharing economy and it has also brought people out of their comfort zones and helped them see their skills and abilities from a new angle.  This is where it has created the biggest challenge for the traditional businesses. If Air BnB enables you to pay away your home loan, it is definitely going to make you feel great. Uber  has also helped those find employment who owned vehicles and were looking for income. So, thinking in terms of income inequality and lack of opportunities you can see that the sharing economy has proved good for the world. happy or sad, sharing economy has arrived and even those who did not find it good for their business’ health would have to bear the truth. The best thing that sharing economy has done to the world is to highlight the critical deficiencies of law and the political system which keep people from achieving their potential.

Sources:  https://smallbiztrends.com/2014/10/new-sharing-economy-pros-cons.html

Read more about the gig economy and how it is changing the world – https://blog.iese.edu/expatriatus/2017/09/08/the-global-gig-economy/

https://www.ft.com/content/749cb87e-6ca8-11e7-b9c7-15af748b60d0

Written by Abhijeet Pratap

Abhijeet has been blogging on educational topics and business research since 2016. He graduated with a Hons. in English literature from BRABU and an MBA from the Asia-Pacific Institute of Management, New Delhi. He likes to blog and share his knowledge and research in business management, marketing, literature and other areas with his readers.

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