The Sharing Economy: Peer-to-peer Commerce is Shaking up Traditional Business Models

Feat-SharingEconomyIs your garage filled with outdoor rec toys you only pull out once or twice a year? What about your fruit trees—did any apples rot on your ground last season? How about your home? Do you have a spare bedroom that’s collecting dust? If so, the sharing economy could be your ticket to turn these unused items into extra income.

Also known as the people economy, collaborative consumption and peer-to-peer commerce, among other names, the sharing economy is an emerging business model that allows individuals to rent or borrow goods from other individuals rather than buy or own them. The peer-to-peer transaction works through an app or internet platform, such as GearLope (for your unused outdoor toys), SLC Fruitshare (for your uneaten apples) and Airbnb (for that spare bedroom).

“We all have stuff—cars, yard tools, clothes. The sharing economy lets us share what we have so we all don’t have to buy the same stuff. It’s becoming a more and more significant part of our economy,” says Mike Glauser, executive director of the Clark Center for Entrepreneurship at Utah State University.

The sharing economy has expanded rapidly across the globe, affecting nearly every industry. From giants like ride-hailing company Uber to small startups like Park City-based PigeonShip (a delivery service platform), the sharing economy has touched nearly every community—and it’s expected to get even more popular. The Federal Trade Commission (FTC), in fact, anticipates the sharing economy will soon see $110 billion in global transactions.

While many are excited about the innumerable opportunities the sharing economy presents to ordinary people, the emerging business model has plenty of critics who denounce it as exploitative and unregulated. Time will tell how impactful the sharing economy will be, but one thing is already clear: It is transforming the way we do business and the way we live.

Personal Connections

As Jared Overton drove from St. George to Salt Lake with a friend’s set of golf clubs in the back, he had an idea. “I was thinking of what I had done, carrying the golf clubs, knowing that there’s probably dozens of people every day who need something delivered, and hundreds of vehicles headed in that direction. If there’s a way to match the two up, it’s a win-win for everybody.”

In 2011, Overton crafted a business plan for PigeonShip, which he describes as an, “Uber-style, crowd-sourced pickup and delivery service. … We encourage the general public to make some extra money by picking up and delivering anything you want.”3

Today, Overton says PigeonShip has a larger Utah fleet than UPS. “We’ve gone from basically zero packages in month one to well over 400. We’ve had triple-digit growth for several months. We have about 200 pigeons [drivers] joining every month.”

Bill Mastin, founder of GearLope, an outdoor equipment sharing company, has a similar story to PigeonShip’s beginning. “I wanted to take my kids on a canoe trip on Jordanelle. We didn’t have a raft or a boat, so I bought something from REI. Driving up the canyon, I thought, ‘I don’t even have a place to store this in my house.’ It came to me that [outdoor products] would be such a perfect place to have a sharing economy business. And that was the start of it all.”

Park City-based GearLope was launched at the close of 2014 and has seen steady growth. “We probably have close to $400,000 worth of gear and a few hundred users in the site. We’ve had good momentum in building the gear listings. With every listing it becomes more attractive to the people who are going to use the site.”

GearLope and PigeonShip have distinct services, but they both embody what the sharing economy is: ordinary people using internet-enabled platforms to rent or “share” goods or services with other ordinary people. GearLope and PigeonShip are simply the technology platforms to help people make the transaction. But what really separates these companies apart from traditional businesses is the personal connection created between provider and consumer.

“When someone comes to pick up and deliver your item, they’re not a UPS driver with 150 boxes in the back—it’s your item and their car. And you know that they’ll take extreme care of your item, as if it’s their personal item,” says Overton. “It’s much more comforting.”

Mastin describes a time when he rented a kayak from a neighbor he had never met using the GearLope platform. “He spent 30 minutes talking to me about how to work it and where to put in, and told me about his Canada trips. That whole conversation happened outside of the site,” he says. “The event [sharing an outdoor product] is an experience. I spend time with this person, and he spends time talking to me.”

Cause and Effect

USU’s Mike Glauser spent the summer of 2014 bicycling across the United States. He wanted to find out why so many entrepreneurs were leaving Silicon Valley and Wall Street to start businesses in small communities. He recently published Building Your Dream on Main Street America, a book about discoveries he made during his months-long journey about small business, including the sharing economy.

While there’s no doubt that internet and app technology has made the sharing economy possible, Glauser points to two socioeconomic trends that are fueling this emerging business model. The first is technology-related job displacement. He points to a 2014 Oxford study that reported 45 percent of all American jobs today will be gone during the next 20 years. He also points to an AP study that found four out of five Americans will see a long period of unemployment at least once in their lives. This employment uncertainty is driving more people to find “gigs or freelance work,” Glauser says.
“We are using more and more robotics in manufacturing and that’s eliminating hundreds of thousands of jobs. Software is doing what accountants used to do. Online learning is replacing brick-and-mortar schools. What we’re facing is the middle class is earning less and there are fewer and fewer jobs. Anything that can be done through technology is occurring rapidly. The whole middle class is insecure about the world and the future.”

The second trend boosting the sharing economy is a generational shift in consumption habits, says Glauser. He points to the millennial generation—those born between 1980 and 2000—as leading the change.

“The Millennials are 32 percent of our population. They are very value-driven and minimalist. They don’t want material possessions—they believe in sharing and contributing to society,” he says. “They want to work for organizations with strong values and that give back to community. And many only want to work part time.”

As these two trends—employment uncertainty and minimalist consumption—converge, the sharing economy is a solution that in many ways makes sense, but the key to keeping it successful is trust between users and providers. Users are encouraged to provide honest feedback, and providers who receive negative reviews often go out of business. Because of this authentic review process, many argue the sharing economy is self-regulated.

“People are trusted until they prove they can’t be trusted—a reverse mentality from before,” says Glauser. “With all the consumer ratings about these products and services, people are very comfortable buying products from Etsy or renting places through Airbnb—but trust definitely has to be there. If it’s not, the sharing economy’s not going to work.”

Regulatory Conundrums

Though the sharing economy has presented countless opportunities for individuals, it’s also presented several challenges. From local municipalities to the FTC, governing bodies across the country are struggling to develop sensible regulations that don’t impede growth and innovation. Questions about consumer protections, employee classification and rights, and fair competition remain unanswered.

Like many states across the country, Utah’s cities and state legislators have worked to address the array of issues presented by sharing economy companies. For example, Park City, St. George, Moab and Provo have already issued ordinances limiting Airbnb’s room rentals. The cities cite public nuisance concerns, such as noise and traffic, as well as impacts on property values. Tourist towns, like Park City and Moab, are especially concerned about how Airbnb could impact their tourism dollars. A Boston University study, for example, found that each additional 10 percent increase in the Airbnb market resulted in a 0.37 percent decrease in hotel room revenue. Though the decrease seems small, it adds up quickly, and organizations like the American Hotel and Lodging Association are warning tourist towns against welcoming Airbnb and other nightly rental platforms into their communities.

But the concerns Airbnb presents are much different than the concerns of ride-hailing companies like Uber and Lyft, which have taken the brunt of local regulation. In 2014, the Salt Lake City Council signed an ordinance restricting the ride-hailing industry. The council mandated driver background checks, vehicle inspections and insurance coverage of $1.5 million. While the traditional taxicab industry applauded the new rules, as they viewed it as leveling the playing field, Salt Lake City received public backlash.

“It was viewed as they were stifling innovation,” says Alex Lawrence, vice provost at Weber State University.

While the council was recovering from public backlash, the Utah State Legislature in 2015 approved SB294, which made all ground-transportation companies (including taxicabs) register with the state, consent to audits and safety checks, and conduct driver background checks. Salt Lake International Airport, however, was excluded from SB294 and was left to Salt Lake City oversight.

In September, Salt Lake City Mayor Becker implemented a one-year pilot program to permit Uber, Lyft and other ride-hailing companies to operate at the airport under the same conditions as traditional ground transportation providers. The city plans to examine the pilot program next year.

Utah isn’t the only state struggling to find a sensible oversight approach to these emerging companies. Employee classification, for example, has been one of the key problems presented by the sharing economy. Many argue that providers, who are typically considered contract workers, are actually full-time employees. In California, Uber recently lost a lawsuit from a driver claiming to be a full-time employee. Now Uber faces a class action lawsuit from thousands of drivers who are making the same claim.

Other companies, like Instacart and Postmates, are facing similar employee misclassification legal battles. And Homejoy, a house-cleaning company, closed its doors in July as it also encountered legal troubles for using contract employees.

The array of issues the sharing economy presents is diverse and complex. In June, the FTC invited regulators, academics and industry representatives to flesh out the issues and discuss the government’s oversight role. The day-long workshop discussed issues as diverse as worker misclassification to capping the number of vehicles on the road to taxation and regulation. But as the workshop concluded, more questions were posed and few were answered.

Innovate or Die

The sharing economy isn’t the first new model to disrupt traditional business, and it certainly won’t be the last. But it’s clear that many long-time brands and industries are out of touch with how this emerging economy is changing the way we do business.

So, what can a business do to turn this potential threat into an opportunity? Lawrence says it may sound simple, but businesses need to, “have a customer-centric business that’s focused on new and helpful ways to serve the customer.” He points to Amazon CEO Jeff Bezos. “He’s famous for saying, ‘customers will never be upset if the price goes down or the delivery time is cut short,’ so they constantly focus on, ‘how do we get lower prices and faster shipping?’ He’s generally right—there’s always room for improvement. If I were a taxi or a hotel company that has not historically been innovative, it might be too late, but why not consider [applying] those same business models in your current business. Offer an app to make it easy for people to get a taxi and pay a taxi. …You almost have to think, ‘how would I put myself out of business?’”

PigeonShip’s Overton says companies that don’t consider adopting sharing economy principles may find themselves in trouble. “Someone always figures out how to do something better. VHS was eliminated by the advent of the DVD. Look at Blockbuster in the ‘90s—who would have thought that going and renting a movie would be eliminated? These monumental changes will happen. If you’re not being innovative and thinking ahead, chances are someone’s going to put you out of business. Things can change overnight.”

USU’s Glauser says that while a lot of the sharing economy’s long-term success will depend how it is regulated, the emerging model is here to stay. Moreover, it will be an essential platform for tomorrow’s workforce. “If my prediction is correct, more of us will have our own jobs and multiple streams of revenue. The question isn’t going to be, ‘how do I find a job?’ it’s going to be, ‘how do I create my own job?’ It’ll be interesting to see what happens.”

    • 44 percent of U.S. consumers are familiar with the sharing economy
    • 7 percent of the U.S. population are providers in the sharing economy
    • 19 percent of the U.S. population has engaged in a sharing economy transaction
    • 64 percent of consumers say that in the sharing economy, peer regulation is more important than government regulation
    • 69 percent say they will not trust sharing economy companies until they are recommended by someone they trust
    • 43 percent say owning feels like a burden
    • 57 percent say access is the new ownership

Source: PwC, “Consumer Intelligence Series: The Sharing Economy”