Strengthening “sharing economy’s” case

Strengthening “sharing economy’s” case

Danai Pathomvanich
Feb 3, 2016

Everywhere we turn today, new sharing-economic companies are seriously disrupting traditional businesses.

We’ve all heard of Uber, Airbnb, Grab and Lyft that have enjoyed rapid growth over the last five years and will scale new heights in the next decade.

A recent McKinsey Quarterly article “How the sharing economy makes its case – these challengers must develop a smarter approach to external management” said sharing economy revenues could reach $US335 billion by 2025.

“But as with any fast-expanding sector, governments, regulators, and industry incumbents are taking greater interest, and the growth pains are becoming louder.”

Identifying market inefficiencies

Companies such as Uber and Airbnb, the authors said have succeeded by identifying market inefficiencies and transferring control over transactions to consumers.

In all cases, the common thread has been dis-intermediating incumbent business by sharing of excess capacity and increasing productivity.

By doing so, they have created unprecedented challenges for incumbent operators such as taxi firms, hotels, restaurants and utilities.

Incumbent challenges

Incumbent operators are trying to fight off “sharing economy” operators by using currently taxi licensing regulations to ban Uber cars.

At the same time, hotels have tried using various regulations to stop “illegal” room sharing hosts.

All these actions have been brought on by incumbents who fear losing their niche licensed-businesses.

At the same time, regulators and governments have started to question the long-term impacts on incumbents and communities.

Must adopt fresh approach to external engagement

Alberto Marchi and Ellora-Julie Parkh, the articles authors said that amid the confrontations and the name calling, sharing-economy players must now adopt a fresh approach to external engagement.

They must have a greater willingness to collaborate with governments, to help shape emerging regulatory frameworks, and take an active part in countering recent negative publicity that could undermine their innovative potentials.
Past approach

According to the authors, sharing economy operators have in the past fought back by using two approaches.

First, some of them operate until they are noticed and then respond to Court challenges.

Secondly, some attempt to educate stakeholders about the sharing economy’s benefits until they are finally recognized.

Both approaches, the authors said are fine when companies are small and business models niche, but are now showing signs of fatigue.

“Litigation and resentment are increasing, and recent EU debates have been peppered with references to the arrogance of some sharing-economy players, notably about taxes and the law.”

A new type of engagement

The authors said a new type of engagement should be undertaken to rebuild trust.

1. Establishing facts around societal benefits
Most sharing economy companies such as Airbnb highlight the economic benefits for the 50 percent of room-sharing hosts who use the service to pay their rent and utility bills.

The authors said a better case would be to highlight its contribution not just to employment but also to other social concerns, like the environment and female participation in the workforce.

2. Identifying common ground and building alliances
Sharing-economy companies should be building alliances with powerful trade associations.

In some cases, sharing-economy players might even consider partnerships with incumbents, notably what the authors call the “sleeping beauties” among traditional industries.

For instance Yandex.Taxi, Russia’s main ride-sharing service, developed by the country’s most popular search engine, at first quickly won market share by helping established taxi companies win additional orders.

3. Don’t’ just litigate - shape regulatory frameworks
Sharing economy companies should help policy makers identify areas for regulatory intervention, rather than constantly asking for “smart and proportionate regulation”.

Companies should learn from other industries, such as telcos and energy producers, how to help policymakers identify areas for regulatory intervention.

Potential issues might include clarifying roles and responsibilities for tracking and penalizing abuses.

“How can ride-sharing companies collaborate with local authorities to prevent rape in New Delhi?”

They can also learn now to coexist with incumbents.

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