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Should the Sharing Economy Ever Be for Profit?

15/04/2016 12:58

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There is lot of contention surrounding the term 'sharing economy', with Uber and Airbnb at the centre. Many argue that the term has been strapped onto many companies purely as a marketing gimmick, disguising profit-motivation and somewhat exploitative practices under the pretence of 'making the world a better place'.

Journalist Farhad Manjoo recently outlined how the popular 'Uber of X' model just 'doesn't translate', with Steven Hill pointing to the slowing of 'VC welfare', forcing these companies to raise their prices.

The term 'sharing economy' is losing its integrity, and has instead, for many, become synonymous with delivering more convenient services for a higher price.

The question is, therefore, should real sharing economy businesses and social enterprises be making profit, and if so, how much and for whom?

For the staunch devotees who remain true to its original ideas -- doing good, ethics, community, less waste etc., an array of new terms have been coined; the 'collaborative economy' and 'peer-to-peer economy' for example, and the term 'social enterprise' to encapsulate any organisation engaging in social good. The models which do not fit with these values are brushed aside as the 'access economy' or 'on-demand economy'.

Semantics aside, there have even been attempts to regulate the sharing economy. In the UK, the body SEUK exists to attempt this, but with their list of founding partners including PwC, RBS, Johnson & Johnson and Santander, it's hard not to be sceptical about profit over altruistic incentives.

Whatever you call it, it can be stripped down to 'using internet technologies to connect distributed groups of people to make better use of goods, skills and other useful things,' Nesta, 2014. This could be property, resources, experiences, time, skills, belongings, -- even pets!

Borrow My Doggy is, to me, an example of a solid, actual 'sharing economy' business. They exist to broker the relationship between two groups of people who want to meet -- those who want to borrow, and those who want to lend. Through Borrow My Doggy I have met and become friends with my neighbours, and we have formed a mutually beneficial relationship, without any direct exchange of money coming into it. As a borrower, £10 a year seems very reasonable to use a well-made online platform, and to have access to their team who can field queries, mediate potential disputes, and protect both parties with insurance and other risk mitigation. However, dog lenders have to pay £45 a year, and, subscription fees have already risen since the company started out.

When a company raises investment there is immense pressure to deliver a return on that investment. In Oct last year, Borrow My Doggy raised £1.5m in equity crowdfunding, which many other UK sharing economy enterprises such as Grub Club, Compare & Share and JustPark also carried out. Hopefully, this method of raising investment will buffer the pressure felt by the injection of venture capital which often demands high and fast returns on investments. Instead, crowdfunding may attract those who invest for altruistic reasons or perhaps those wanting to merely 'ride the wave' for kudos and association whilst possibly enjoying a very tax efficient investment.

This is not to say that companies who have engaged in crowdfunding won't increase their prices down the line, however. Cat in a Flat, a service connecting cat-sitters to cat owners which also raised investment through crowdfunding, was initially free but now charges £1.50 service fee per booking, which actually sounds quite reasonable. However, the company also now takes a whooping 19% of the fees paid from owners to sitters. It's not to say that operations require this much to be sustainable, but I have spoken to people who have left the service due to this price hike.

Another successful sharing economy enterprise I want to talk about is Echo. We have all likely engaged in some kind of 'skill swap' already -- perhaps you helped your dad set up his computer after he fixed your car, or lent a friend camping gear after they designed a logo for your new business? It feels good, and it is mutually beneficial. Of course, we also all have had the friend who promised to return the several favours you did for them, and, well, this can be darn right annoying... Enter 'time banking'. By exchanging your time for credits, you do not have to swap time directly peer to peer, and can instead spend your credits on all kinds of offers and peers. Formalising skills exchanges in this way ensures all parties know what they are exchanging and receiving, and the platform and staff can efficiently mediate and facilitate. This, really, should be the primary objective of a sharing economy organisation.

Like Streetbank (a lending service for neighbours), Echo is funded by grants by Nesta and government associated bodies, and as such has managed to stay completely free, whilst having successfully built an exceptional community of peers and businesses repeatedly using the service.

Being free from the pressure to increase profits and put prices up in order to please investors, is often in direct opposition with an ethical, collaborative and community-building ethos. At the end of the day, a sharing economy company depends on its users. If it cannot provide a service at a reasonable price then their users will leave and find new platforms. Technology-wise, building the initial platform to carry out peer-to-peer exchanges is often relatively straightforward -- it's the execution and building of a community-driven user base which is the most valuable for a sustainable sharing economy organisation.

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