Measurement & Instrumentation


Problems with the Sharing Economy - Is peer-to-peer (P2P) fundamentally broken?

by Pramod Dibble 31 Oct 2014
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Uber, Airbnb, and a host of other companies have capitalized on a new business model, enabled by our increasingly connected world. Called peer-to-peer (P2P), the sharing economy, or collaborative consumption, this model allows people to sell their own goods and services through an exchange to other individuals, while the hosting company keeps a percentage. On the face of it, this looks like a great idea; individuals get to earn some extra money by selling unused capacity in their own property or time, and their customers get access to a product or service under the market price. But when individuals try to make a living, as opposed to supplementing an existing income, through this model it starts to display some serious problems.

                P2P relies on participants in the exchange to own all of the means with which they deliver the service. They typically receive little to no support from the exchange company, and are listed as independent contractors as opposed to employees. This distinction allows the exchanges to pay no wages, no benefits, no capital expenses, no depreciation, and no financing costs. This is any company’s dream come true; they have no responsibility for any of the infrastructure or front-line personnel necessary to deliver their service. Beyond marketing expenses, background checks on exchange participants, and administrative costs, these companies do not have bills to pay.

                This dynamic violates the typical employee-employer relationship. In traditional companies which own their own capital and hire employees, the scenario is pretty fair. The ownership of the company takes on all the risk of their venture, and in exchange, they get to keep all or most of the profit from that venture. For their part, the employees of the organization get a more-or-less fixed amount of compensation regardless of the company’s short-term performance, but do not suffer any risk except in extreme cases.

                In contrast, the sharing economy places all the risk on those who do not share in the company’s profit. The ownership suffers little from asset depreciation, short-term market variations, and employee turnover, while exchange participants must incur the costs of operation. In the case of Uber, a driver must pay for their vehicle, gas, and insurance, all of which must come out of their share of the fare they are able to charge through the app. Similarly, Airbnb has no responsibility for the costs of owning a property rented through its platform. Participants in these sorts of exchanges relate that it is nearly impossible to earn a profit using the exchange, regardless of the wildly exaggerated estimates exchanges cite.

Other examples of companies using the sharing economy are listed below:

  • Housing  – Airbnb,
  • Dog Kenneling - DogVacay
  • Mobility - RelayRides, Lyft, Getaround, Liquid (formerly Spinlister), Sidecar, Parkatmyhouse
  • Services Exchanges - TaskRabbit, Zaarly, streetbank
  • Loans - Lendingclub
  • WiFi sharing - Fon
  • Used clothing exchanges - Poshmark, Vinted
  • Leftoverswap - exactly what it sounds like, trading your uneaten leftovers)

P2P exchanges certainly create some value for both buyers and sellers. But in order to avoid mass criticism for abusing their position, these companies will need to develop procedures to support the people who make it all happen.

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