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The Sharing Economy Isn't a Niche. It's the Future of Market Capitalism. How will future markets function when technology drives the marginal cost of goods and services nearly to zero?

By Tx Zhuo

entrepreneur daily

Opinions expressed by Entrepreneur contributors are their own.

Airbnb via Blog

Is greater technological efficiency leading to the death of capitalism? This is the argument author Jeremy Rifkin makes in his book "The Zero Marginal Cost Society."

Rifkin cites the information goods industry and the sharing economy as harbingers of this new non-economy. Where platforms such as YouTube and Medium removed publishing and publicity costs almost completely for content creators, businesses such as Uber and Airbnb will do the same for their respective industries.

These platforms that allow millions to connect and share assets with minimal expense are driving marginal costs for companies and consumers down to near zero, raising the prospect of capitalism as we know it becoming obsolete.

While these companies continue to alter business models, what's really happening isn't a removal of cost -- it's a shift in the source of that cost. Rather than cause the death of capitalism, these technological developments will redefine what it means to be an employer, an employee and a customer.

Capitalism will still be alive and well in a few decades, but it just may be hard to recognize.

Related: The Sharing Economy Holds Promise for More Goods to Be Offered at Near Zero Marginal Cost

The future of employment won't be a straight line.

The sharing economy is an excellent guide for what the future will hold, especially regarding employment. It was worth about $15 billion in 2014 and is projected to reach $335 billion by 2025. "1099'' workers are the bread and butter of that growth, and the bellweather of this brave new world.

It was once common for employees to spend the majority of their working life at a single company, but now the average employee stays about 4.4 years. The youngest employees stay only half that long.

Meanwhile, platform technology is making it possible for the sharing economy to scale. The cost of connecting contract workers with consumer demand is low, and the platforms have few liability concerns, aren't required to pay a minimum salary and aren't responsible for providing benefits for 1099 workers. Companies and employees are moving in the same direction -- one where employment is fluid and often comes from a number of different sources.

Related: Green Power: A Low-Cost Boost to Your Brand and Bottom Line

The result is a workforce with more power than ever. The main competition for corporations won't be the business down the street, it will be the workers themselves. Rather than full-time positions, more companies will offer jobs in discrete segments, recruiting a pool of talent that can be tapped when needed.

How to meet the future head-on

As a VC, I've seen plenty of startups come and go. Here are the steps that the most promising businesses are taking to prepare for the future marketplace:

Keep fixed costs low.

Technology will bring marginal costs down over time, which means that the most successful companies will be the ones that play ball in terms of cost structure. Lower costs by taking on fewer permanent employees, outsourcing non-core activities and relying on the sharing economy without compromising service quality.

Embrace "free" services and products rather than fight them.

Take ChowNow, which offers restaurants a platform to manage online orders. Instead of reinventing the wheel and building out its own delivery platform, it leveraged the growing shared economy movement and launched a partnership with Uber to fulfill deliveries.

Focus on long-term marketplace value and building trust.

Now that margins for sharing are slim, marketplaces need to focus on long-term relationship value instead of one-off transaction fees. This involves building trust and creating a great transaction experience for the buyer and seller.

Empower individual workers, and provide value.

Rather than create barriers to switching jobs, offer workers the tools they need to become more successful -- this might even include allowing them to spend part of the workday working for other companies.
One example is how Uber started a program to help its drivers purchase or lease new cars. In doing so, it has given drivers new tools to do their job better and potentially earn more money, creating greater brand loyalty with employees.
WorkGenius is a great tool for employees that helps them find additional work hours on other sharing economy platforms.

While production will continue gaining efficiency, business will always have a cost -- what's important is staying adaptable. Capitalism isn't dead; it's just evolving.


    Tx Zhuo

    Managing partner at Karlin Ventures

     TX Zhuo is a managing partner of Karlin Ventures, an L.A.-based venture capital firm that focuses on early-stage enterprise software, e-commerce, and marketplaces. Follow the company on Twitter.

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