Defining the Sharing Economy – What is It?

The 3 Components that Define the Sharing Economy

The reality is, the sharing economy is so improperly defined that investors call Instacart, Seamless, and other life-as-a-service companies a part of the “sharing economy.” Startups want the altruism, community appeal, and press associated with the movement. That and, they — like many others, don’t actually understand what the sharing economy is. Investors just know these new models are lucrative business opportunities. Idle assets — yes please!

Since the internet is essentially a sharing platform, it’s easy to call anything from Ebay to Spotify a part of the sharing economy, but I think we need to take a step back and actually consider what this phrase means.

In spending the last last 2+ years thinking about this in the writing of It’s a Shareable Life, I’ve come to the conclusion that there are three components that make up sharing economy endeavors:

An underutilized resource

A peer-to-peer exchange

The ability to save or make money

1. An underutilized resource — This could be someones time, space or possessions that would otherwise be idle or unused.

2. Peer-to-peer exchange — The is where peers come together and are able to act as both providers and participants in a two-sided marketplace. There doesn’t need to be money involved — simply a value exchange.

3. Ability to save or make money — Since people are either gifting, borrowing, renting, or otherwise providing value, one person or the other will save or make money in the process.

Notice that business-to-consumer is not included in this definition for the sharing economy. That’s because the real sharing economy depends on peers (even if there is an intermediary). And once a driver depends on Uber as a sole income source, for example, the driver is no longer using their spare time and idle car to provide a service, rather they are making a living and possibly even buying a newer car to facilitate their driving. Full time work changes everything in terms of how the law sees the workers, taxes, them as well as how it protects them. More here: “Sharing Economy… “Employees or Micro Entrepreneurs?”

Another example is Zipcar. Technically, Zipcar is an extremely efficient car rental company, enabled by technology, but they are certainly not part of the sharing economy. Whereas, services like GetAround and RelayRides make it possible for anyone to rent out their car as well as pay to drive one on a peer-to-peer basis. You can see why the media keeps talking about the sharing economy in a confused frenzy by watching the video below. If Zipcar is part of the sharing economy then so are timeshares!

We use money because we collectively trust that it’s real even though, technically it’s not and amazingly money is not even backed by anything. What’s interesting about the sharing economy is that a lot of the value exchanged (although you don’t hear about it much in the press) is given by way of gift, with a pay-it-forward mentality, or based on a social currency. Things like Couchsurfing, Timebanking, WWOOF-ing, Freecycle and more don’t cost a penny to participate in and nor is anyone earning revenue off of these services. These are part of the sharing economy too, they just don’t get a lot of airtime because there isn’t some business story to be told, simply a human one, which is told very well in It’s a Shareable Life — the book doesn’t shy from talking about platforms that people make money from or charge for — as currently much of the sharing economy runs on the premise of renting or otherwise charging money in exchange for idle time, space, and resources.