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Sharing economy

The sharing economy: The disruptor’s dilemma

Nayeem Syed  Assistant General Counsel at Thomson Reuters

Nayeem Syed  Assistant General Counsel at Thomson Reuters

The sharing economy or crowdsourcing offers dynamic, diverse and flexible supply options in addition to empowerment of those who want to work for themselves.

These peer-to peer developments restructure markets, often considered impervious to technology disruption, by removing search costs. This enables buyers to connect directly over a shared platform with a vast group of unconnected but undifferentiated sellers seeking to monetize spare capacity.

Uber and AirBnB are the well-known services under siege from politicians, regulators, employment lawyers and, of course, traditional industry interests around the world. But they are just two of a recent spate of new start-ups based on a lean, crowdsourced business model.

In the third part in our series, how can disruptors prevail?

Disruptors

Disruptors have been empowered by the consumerization of digital technology manifesting itself on the smart phone with the combined power of processing power, GPS and high speed internet.

By creating exchanges, they transform centralized industry structures and blur the distinctions between personal and professional services and formal employment and causal labour.

One key attribute that incumbents (hopefully) have over disruptors is trust. They have built this over time and it is a key value added component of price. However, trust can be gained and if nurtured, can endure.

BlaBlaCar operates highly successfully in France enabling complete strangers to commute daily together. The advantages to the wider community are significant in that maximizing car usage especially during spikes in demand alleviates pressure on authorities to build more and more permanent infrastructure.

However, not all things can be shared profitably. Much was made of the underutilization of the average home power drill – used a total of less than twenty minutes during its entire lifetime. Unfortunately, efforts to create an on-demand exchange for these types of vital-when-you-need-them but used only occasionally assets have yet to produce a unicorn.

TaskRabbit which matches casual labour with local demand redesigned its model in 2013 from labor competitively bidding for a task to posting their rates and then winning on a first-come, first-responded-to basis.  It is not rapidly growing but seems at least to be approaching profitability and may show the difficulty in managing a fragmented range of suppliers and services. Homogeneity may therefore better enable consistency, reliability and as such, more readily scale.

What has been generally successful is where a new service has tried to replace or erode an intermediary’s role in an industry which has provided little additional value to either sellers or end buyers.

However, young crowdsourcing firms have not always helped themselves. In their race to grow and establish themselves, they have often adopted a combative approach to regulators, local politicians and journalists.

One high profile founder attributed the abnormally “scrappy-fierce” attitude to the mindset required to survive the tough early days but recognized that it often leads to less than optimum outcomes.

Crowdsourcing firms have often challenged existing laws and an agency’s jurisdiction because it does not neatly fit within an old framework. They have argued against extending jurisdiction because there is insufficient reason to do so and it would conflict with other policies that promote Internet information services. However, even if crowdsourcing does not fit conventional industry definitions, it does not mean public safety should be ignored and/or left for individual companies or the marketplace to resolve.

In any event, avoiding regulation altogether is not in crowdsourcers’ interests as uncertainty unsettles investors and ultimately, that risk increases its cost of capital.

Instead, an assertive but collaborative approach is needed that seeks to find common ground and limits aggression to the relentless reinforcing of consumer benefits.

This approach will allow crowdsourcing to collect support and devise solutions which allow it to co-exist under tiered regulation. When there is a refusal to seek a negotiated approach, disruptors are limiting themselves to a set of binary outcomes, betting they will completely win and the other side will completely lose.

However, venture capitalist investors likely know and internally accept their investees will eventually face externally imposed constraints, and those constraints will both reduce sales and add costs. These twin drivers will reduce long-term profitability but by then, they will have seen off many rivals and will lead their industry segment. Indeed, as successful crowdsourcing firms have found, the public are very loyal to a reliable, flexible competitively-priced service, unless they do something particularly egregious.

Learn more

Read Part 1 of our series – The sharing economy: The mature company’s dilemma

 

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