We’ve heard a lot lately about the “sharing economy” as well as the “collaborative economy” – two terms that are often used interchangeably but probably shouldn’t be. Seemingly, every corner of the economy is now being “disrupted” by this new breed of businesses.
Consider the variety of practices that fall into the sharing economy: you can buy orsell rides (Uber), rooms (Airbnb), loans (Prosper), crafts (Etsy), tasks (Handybook), cleaning services (Homejoy), freelance work (Elance), tutoring (WyzAnt, my company) and all sorts of other products and services.
But when you look closely at these companies, there’s actually very little sharing or collaboration involved. They are awesome businesses and very much part of a new economy, but they have been mislabeled.
It’s utopian to think that this new economy, whatever we want to call it, is thriving on such virtuous characteristics as sharing and collaboration. I don’t aim to diminish the importance of companies in this category. In fact, my own company, WyzAnt, is squarely in the middle of this trend. Certainly there are common threads among these businesses and reasons why several of them have grown exponentially to multibillion dollar valuations. But sharing and collaboration are not part of the secret sauce. What makes these businesses special and successful are the concepts of participation and utilization.
"Participation'' and "utilization'' are better terms for this new sector of the economy because these adjectives describe concepts that sharing and collaboration have never fully captured. So let’s get our definitions aligned
Participation: noun; the action of taking part in something. Businesses like Uber, Airbnb and Etsy increase accessibility to goods and services that were historically limited by regulation, price, awareness and other factors. This is true for both supply and demand (riders and drivers, hosts and travelers, and buyers and sellers). These businesses cause participation to increase among all parties.
Utilization: noun; putting to use; turning to profitable account. Utilization is another way of saying that these businesses take advantage of excess supply and latent demand. This is where the term “sharing” is often substituted incorrectly ( When I rent a spare bedroom on Airbnb, it is a business transaction, not sharing. I'm motivated by profit to utilize a resource I control).
Almost all of the businesses in the sharing/collaborative economy discussion are two-sided businesses with marketplace characteristics. To illustrate this point, let’s look at participation and utilization on both the supply and demand sides of a few companies you know.
Uber. Historically, black car rides were reserved for professionals and the wealthy. Today, Uber’s great technology and efficient marketplace drastically reduce prices and improve access, thus enabling more people to enjoy this service.
Uber is also increasing participating on the demand side by lowering barriers to becoming a private driver. At the same time, Uber allows drivers to increase the utilization of their vehicles. Due to the liquidity in the Uber marketplace, they don’t have to search as long or drive as far to find a passenger.
Airbnb. Utilization is the core of Airbnb’s value proposition for hosts. Why let your apartment sit vacant when you can make money renting it?
From a macro perspective, few hosts would participate in the hospitality industry except Airbnb’s technology and services make it simple for them to do so. On the traveler side, Airbnb's affordability encourages more people to take trips, increasing participation in travel generally (at least that’s what Airbnb would argue).
Etsy. Without Etsy, many craftspeople would be relegated to selling through local and offline channels. Few would have the means to participate in online commerce and may be unable to sustain an independent business. Similarly, without Etsy, fewer people would order handmade goods, personalized gifts or custom artwork. Etsy also enables sellers to utilize their unique skills as artisans, whereas without Etsy, some sellers would have to do other work to make a living.
Uber, Airbnb and Etsy are the talk of the town today but Ebay invented the category. There are plenty of other rising businesses that are driven by participation and utilization: Odesk, Elance, Prosper, WyzAnt, TaskRabbit, Homejoy, Handybook, Threadflip, Liquidspace, ZipCar and UShip, to name a few.
The Role of Technology. All of these businesses compete in established industries by leveraging technology (and often a two-sided marketplace business model) to bring down the price point for consumers and improve the historic take-rate of suppliers. They find innovative ways to enhance the traditional experience, such as Uber’s mobile app for drivers and riders. This is possible only with technology and the Internet.
A small subset of companies in the “sharing” and “collaborative” economy does, in fact, have aspects of sharing and collaboration, in addition to participation and utilization. These include businesses like Lyft, Couchsurfing, Kickstarter and Indiegogo, where the brands are deeply rooted in the user community and have a big social component.
The fact that Uber, Airbnb and Etsy don’t involve sharing and collaboration is no knock against these businesses. Rather, we should celebrate these businesses for creating better marketplaces than the institutions they replaced.
Passengers now take nicer cars and drivers make more money. People make use of their empty rooms and travelers pay lower fees. Craftsmen can finally make a living and consumers can purchase high quality goods that would otherwise be unavailable. But let's call a spade a spade. These businesses belong to the “participation” and “utilization'' economy.