Concluding our mini-series on sharing economy platform businesses, today we will apply a very wide lens on the potential impacts and opportunities of our innovations. Last time, we talked about positive and negative impacts and how we as innovator can take part in finding solutions rather than awaiting potentially heavy-handed regulations.
Today, we are going to cast an even wider view on potential social impacts. I am aiming to balance risks and opportunities. There are many on both sides. The critics see the large for-profit sharing economy platforms, such as Uber and Airbnb, as leading to a “dystopia, with increasingly powerful platforms facing disempowered workers” [“that deliver a latte in a rainstorm to the more fortunate ones”]. Optimistic observers spot utopian possibilities of a crowd- and trust-based economic system and the emergence of a “networked society of micro‐entrepreneurs”
Join me to see the arguments on both sides!
The social aspects
One widely-known researcher of the social aspects of the sharing economy is professor Juliet Schor. I am going to cite from two of her works. One of them talks more broadly about sharing platforms, the other paper focuses on for-profit platforms. The latter account is far more critical.
As innovators we need to face criticism even if it means taking a few jabs on the chin just to participate in finding innovative solutions to justified criticism. That certainly seems to be the way the new Uber CEO seems to be managing things.
A new utopia or just business-as-usual?
“Platforms such as Airbnb and Uber are experiencing explosive growth, which, in turn, has led to regulatory and political battles. Boosters claim the new technologies will yield utopian outcomes—empowerment of ordinary people, efficiency, and even lower carbon footprints. Critics denounce them for being about economic self-interest rather than sharing, and for being predatory and exploitative. Not surprisingly, the reality is more complex.
While the for-profit companies may be “acting badly,” these new technologies of peer-to-peer economic activity are potentially powerful tools for building a social movement centered on genuine practices of sharing and cooperation in the production and consumption of goods and services. But achieving that potential will require democratizing the ownership and governance of the platforms.
[…] will the sharing economy be the disruptive, world-changing innovation its proponents expect? And if it is, will it change the world for the better?”
A new household model – an opportunity?
“[…] a new household model in which people would have diverse sources of income, and would access goods and services through varied low-cost channels. These innovations can provide people with low-cost access to goods and space, and some offer opportunities to earn money, often to supplement regular income streams.
The introduction of venture capitalists into the space has changed the dynamics of these initiatives, particularly by promoting more rapid expansion.
By contrast, many of the initiatives in the sharing space, such as tool libraries, seed banks, time banks, and food swaps, are non-profits. They do not seek growth or revenue maximization, but instead aim to serve needs, usually at a community scale.
Beyond novelty and the pull of new technologies, participants tend to be motivated by economic, environmental, and social factors.”
Potential to empower
“Peer‐produced content such as Wikipedia and citizen science, as well as ratings and reviews sites (e.g., Yelp and TripAdvisor) accustomed people to providing reputational feedback. A subset of these peer‐to‐peer platforms was thought to have the potential to empower people, build community, and perhaps herald an alternative to market capitalism (Benkler, 2006).”
Motives for participating are multi-faceted but predominantly financial
“Benkler defines “social sharing” as something that takes place among large numbers of weakly connected people. They are participating in a collective practice and typically have multiple motives, including common good outcomes.
Although there are multiple motivations for participants in the for‐profit platforms, including some of the common good claims, after the earliest days, studies of users in a variety of countries have found that the dominant incentive has been financial (Balck & Cracau, 2015; Möhlmann, 2015; Schor, 2015a; Stene & Holte, 2015). For consumers, prices are low, for multiple reasons. Some economists believe platforms reduce the previously considerable transactions costs in person‐to‐person economies and mitigate the risks associated with stranger exchange through their ratings and reputational systems, rather than costly branding (Horton & Zeckhauser, 2016; Sundararajan, 2016). Others have pointed to the minimization of labor costs (Hill, 2015; Scholz, 2016) or the ability to evade regulations (Baker, 2014).
Questions of social interaction and trust have received broad attention in recent decades. Because exchange on these platforms is among strangers, sociologists are interested in whether these transactions can build social trust, an important variable of interest for the discipline (Parigi, State, Dakhlallah, Corten, & Cook, 2013). That question is also connected to whether platform experiences increase social interaction and connection. […] The platform economy has been mostly seen as having the beneficial effect of bringing strangers together in positive ways.”
For-profit platform businesses
The authors view the large for-profit platforms critically due to the power they are exercising over the labour/worker relations. Their views on the social impacts are more pessimistic than in earlier years.
“The platforms raise the issue of the restructuring of labor relations in a neoliberal era, particularly in terms of rising precarity and the risk shift from firms to workers […] Having interviewed providers over the period 2013–2017, we do see a trajectory of intensified competition, more platform control over workers, and lower earnings on some platforms, especially at the lower wage end of the market. However, we find there is still considerable variation in how laborers feel about their earnings, conditions of work, and overall experiences (Schor et al., 2017).
Our findings suggest that the question of whether platforms are empowering or immiserating workers depends to a significant effect on the specific platform being examined, as well as its temporal trajectory. Platforms not only change policies and procedures but also confront an evolving institutional ecology. Furthermore, platform workers are differentially positioned in terms of the assets they bring to the work and their dependency on these income streams. These dimensions are important for understanding why some workers praise platform work, whereas others are extremely critical of it.
[…] Uber, which has been criticized for its labor control practices and potential violation of antitrust laws (Gershman, 2016; Scheiber, 2017). For many critics, this latest iteration of capitalism simply enables the erosion of worker protections under the guise of technological innovation, ushering in a race to the bottom in which workers scramble over each other in the hopes of snagging scarce microwork (Hill, 2015). Under “platform capitalism” (Lobo, 2014), workers have reclaimed the means of production only to discover they have little control over the relations of production—in this case, the structure of the network.”
The authors see a correlation with the type of participation on the platform. They see state that those who generate incremental income on top of their full-time employment are in general satisfied. Those who are fully dependant on the platform work, they state, much less so.
“[…]is worker’s satisfaction correlated to incremental income (i.e. non-full time employment)
We find that satisfaction with platform work is associated with the extent to which workers are dependent on their platform earnings to pay their basic expenses. Dependency affects the extent to which platform workers can exercise some control over when and where they work, which jobs they choose, and their general degree of satisfaction.
This study also found that 44% of gig workers have full‐time jobs. This high rate means that nondependent workers are typically relying on their full‐time jobs or other sources of earnings to provide financial stability and benefits. Thus, the platform economy is free riding on other sectors and employers. If full‐time employment, especially with benefits, continues to decline, it will be much more difficult for platforms to reproduce satisfied workers.”
Worker entitlements are an issue that definitely requires platforms to cooperate in identifying solutions which they have started doing (as reported last time).
“Even more than wages, the classification of platform workers has been a point of controversy. Nearly all platforms designate workers as independent contractors, who lack benefits and the rights and protections guaranteed to standard employees.
In the absence of standard employment protections and labor unions, platforms have the right to make and enforce rules around participation. They are routinely exercising this power. In a study of company communications and online forums, Rosenblat and Stark identify a range of tactics used by Uber to control drivers, including notifications, performance metrics, surveillance, and punishments. They emphasize the asymmetries of information and power between the two sides (Rosenblat & Stark, 2015). Platforms can unilaterally deactivate accounts, shutting workers out of markets with virtually no recourse.”
Labour market dynamic
The authors are clear that the sharing economy is part of larger shifts in labour markets.
“[…] some workers praise platform work, whereas others are extremely critical of it. To understand these dynamics, one must situate the platforms in the history of 40 years of wage stagnation, the decline of benefited employment, and the rise of contingent, precarious labor (Kalleberg, 2013; Standing, 2011; Vallas & Prener, 2012). A recent study by Katz and Krueger (2016) finds that all net employment growth between 2005 and 2015 was in alternative, that is, nonstandard, work arrangements and that online intermediaries are now “employing” a full half percent of all workers. It seems likely that platforms’ choices in this regard are not mainly driven by requirements of their technology, but allow them to avoid costly employment. The weakness of labor in the postrecession era has made it possible for platforms to attract high‐quality workers even under these conditions.[…]
Nearly a decade in, a growing body of evidence suggests work intensification and deteriorating labor conditions. Platform competition, price wars, and pressures to increase transaction volume threaten to drive down wages and erode labor conditions (Calvey, 2016). Whether this trend continues will be determined in considerable part by conditions in nonplatform labor markets, as entry and exit to this sector are easy. Whether platforms move together in terms of their treatment of labor is another unknown, as it is possible they will diverge onto “high” and “low” road strategies. And finally, it is worth going back to the insight of Kenney and Zysman (2016), which is that the trajectory of the sharing sector may mainly be driven by developments in the larger platform economy.”
A recent survey of the US Bureau for Labor Statistic (BLS) clearly shows that the Uber’s and Lyft’s are just one player in a much bigger game and that people dump them for better jobs. Bloomberg observes: “The Triumph of the Gig Economy Is Postponed Yet Again – When economic times are good, people prefer regular jobs to irregular ones.”
“So there is some residue of the Ubers, Lyfts and Upworks of the world in the data after all! But all 12 of the other super-sectors tracked by the BLS showed declines. The gig economy’s reach is quite limited. This doesn’t mean jobs are what they used to be, or that bigger changes aren’t in the offing. It’s just that, at a time like the present when regular jobs are readily available, people seem to be less enthusiastic about doing irregular ones.”
And the last big question is whether or not the big for-profit sharing platforms contribute to widening inequality.
“[…] The platforms also raise the issue of class inequality of various types, including their role in fostering a new “servant” economy. By making cheap labor available at the click of a finger, these platforms and apps are leading to a world in which lower income people are deployed to perform everyday tasks for the more fortunate, whether it is delivering a latte in a rainstorm or picking up groceries.
Conditions for workers seem to be deteriorating. Instead of spreading efficiency gains and expanding equitably, platform capitalism is offering substandard work and increasing inequality within the bottom 80% (Schor, 2017). The biggest sharing economy players, Airbnb and Uber, may be on their way to becoming monopolies (Pasquale, 2016). Popular critical accounts that speculate on the trajectory of the sharing economy point to a neoliberal society that, ironically, resembles serfdom (Hill, 2015; Scholz, 2016; Slee, 2015).”
One key assumption here is that the biggest players become monopolies that will consequently dictate conditions. But there are other opinions on this. Firstly, there are already a number of well-capitalised competitors in the ride-hailing industry (Uber, Lyft, Ola, Didi – with Uber being a share holder in the latter). E.g. here in Sydney you will find all four competing for customers as well as drivers. Economic theory would suggest that the competition among the companies will give drivers more power and bring up their wages and conditions to the maximum that customers are willing to pay for.
David Evans, a renown economics professor, who has studied platform businesses has long been stating that platforms will not become monopolies: “The message is simple: beware of the siren song of network effects, winner-takes-all, and first mover advantages. Network effects can create great value rapidly, but they can destroy it just as fast.”
Another great researcher of platform businesses, professor Hagiu, who I have cited many times comes to a similar conclusion: “Network Effects Aren’t Enough”
We can’t discount the valuable work of sociologists on how innovation plays in the bigger picture and need to keep an eye on these themes as innovators. Professor Hagiu expresses this very well:
“The growing number of products and services available through online marketplaces will cause traditional corporate structures to gradually shrink and coexist with overlapping networks of independent workers who come together for limited periods of time to perform specific tasks. The result will be a much more fluid and flexible work environment that empowers both workers and customers. But the challenges of managing growth, building trust and providing safety, minimizing disintermediation, and shaping regulation won’t go away. The solution is not to follow the pack. It is to deeply understand the needs of customers, regulators, and society as a whole and, in a disciplined fashion, become an active player in shaping the future.“
How to harvest the social benefits enabled by sharing economy platforms?
Juliet Schor suggests that the benefits of sharing platform businesses can be harvested in different ways (pdf).
(a) organised participants
“An alternative to the co-optation path is one in which sharing entities become part of a larger movement that seeks to redistribute wealth and foster participation, ecological protection, and social connection. This will only happen via organization, even unionization, of users.
They may develop agendas of their own, including making demands of the company itself, such as setting price floors for providers, pushing risk back onto the platforms, or reducing excessive returns to the entrepreneurs and the venture capitalists. On the labor exchanges, where the need for organization is perhaps most acute, providers could push for minimum wages.”
(b) crow-owned platforms
“Alternately, organizations that are part of the solidarity sector, such as unions, churches, civil society groups, and cooperatives, could create platforms for their members. They could build alternatives to the for-profits, particularly if the software to operate these exchanges is not too expensive. These platforms could be user governed and/or owned.”
An opportunity for below-median income households?
A more optimistic view on the question of inequality comes from another important researcher of the sharing economy, professor Sundararajan. He sees sharing economy platforms as a way for below-median income households to improve their finances:
“We highlight this finding because it speaks to what may eventually be the true promise of the sharing economy, as a force that democratizes access to a higher standard of living. Ownership is a more significant barrier to consumption when your income or wealth is lower, and peer-to-peer rental marketplaces can facilitate inclusive and higher quality consumption, empowering ownership enabled by revenues generated from marketplace supply, and facilitating a more even distribution of consumer value. Our hope is that our economic findings will inform policy makers as they formulate appropriate regulatory policy for this increasingly important part of the economy”
“Thus, the collaborative economy will have a disproportionately positive effect on lower income consumers across almost every measure. This segment is more likely to switch from owning to renting, provides a higher level of peer-to-peer marketplace demand, is more likely to contribute to marketplace supply, and enjoys significantly higher levels of surplus gains.”
This view is not shared by prof Schor “their analysis is problematic because it assumes that low‐income households have valuable assets to rent, which is contradicted by the analyses of Airbnb cited above and to a certain extent by our findings among couriers”. One could counter-argue that renting their car out in the 95% of the time that it is not being used could be a way to make purchase of these assets more affordable by contributing to the repayments.
New ways to provide trust and social capital?
One of the most fascinating questions in my mind is whether or not platforms contribute to how trust is built within a society and what the long-term effects of this may be. A good source covering this from some practical perspective is professor Sundarajan’s European Union policy proposal (pdf) that I have cited last time.
“This re-integration of social ties into commercial exchange leads one to reflect on the fact that the social aspect of commerce has historically played a central role in facilitating trust. Since much of government regulation exists to fill gaps in commercial trust, and trust is the foundation of any economy, any discussion of regulation requires further exploration of this connection as a preamble.
[…] Put differently, trust relies on verifying identity ( Is this provider real?), intentions (Do these providers have good intentions) and capabilities (Is this person a good freelancer/driver/etc? / is it a good go) .
These cues include learning from one’s own prior interaction; learning through familiarity that comes from the nature of exchange being part of the “cultural dialogue”; learning from the explicit experiences of others; learning through brand certification; learning by relying on digitized social capital; and the reliance on digitized forms of real-world identity, validation from external institutions or entities, government and non-government, digital and otherwise […]”
“The government, of course, plays a central role in the validation within the final trust cue, in part through regulation of different forms. But to better interpret some of the stances around government regulation and trust relative to the collaborative economy, it is important to understand that regulation is an evolving system
Put differently, trust was built by creating a situation where one’s reputation mattered […] and by trust was built by creating communities of shared interest that connected reputation to economic selfinterest.”
“Because the collaborative economy creates new ways of providing familiar services that are traditionally often highly regulated, regulatory conflict is to be expected, and indeed, around the world, governments have struggled with how to best regulate this new form of exchange.
This historical parallel is provided to underscore the fact that today’s shift to the platform-mediated collaborative economy, with its new social aspects, introduces new trust challenges but also provides new solutions to existing trust challenges. Regulation, often interwoven with the provision of trust, doesn’t always have to originate with governments. Regulation can take on myriad forms, governmental and otherwise.
Responding to this ongoing shift requires a fundamental rethinking of how we regulate. We may need to imagine a regulatory system that works with, rather than against, the platforms of the collaborative economy.”
Trust-based reorganisation of economic activity?
And I want to conclude with the exciting thought that the sharing economy innovation may – in this optimistic scenario – lead to reorganising economic activity around trust-based interactions.
“I call this new way of organizing the world’s economic activity crowd-based capitalism. I believe that it could radically transform what it means to have a job, reshape our regulatory landscape, and challenge a social safety net funded by corporate employment. The way societies finance, produce, distribute, and consume goods, services, and urban infrastructures will evolve. New ways of organizing economic activity will redefine whom we trust, why we trust them, what shapes access to opportunity, and how close we feel to each other.”
A link collection on the topic
I am concluding this article (and our mini series on the sharing economy) with commented links to in-depth pdfs:
- The first two papers are from Deloitte and elaborate on the economic effects of Uber and Airbnb in Australia (I haven’t found the equivalent for the US). These are good sources on the stated topic:
- Economic effects of Airbnb in Australia
- Economic effects of Ridesharing (Uber) in Australia
- Similar studies from Cohen et al: “Using Big Data to Estimate Consumer Surplus: The Case of Uber“
- From the Institute of Public Affairs, a conservative public policy think tank (“The IPA supports the free market of ideas, the free flow of capital, a limited and efficient government, evidence-based public policy, the rule of law, and representative democracy”), comes “The sharing economy – How over-regulation could destroy an economic revolution” The merits of this paper are a good explanation of the economic principles of the sharing economy (they base the principles on the works of the conservative thought leaders Milton Friedman and Friedrich Hayek). The economic fundamentals section (chapters 2 & 3) are worth reading irrespective of which side of the political spectrum you are leaning towards
- Here are the two works of professor Juliet Schor that I have extensively cited from:
- “Debating the sharing economy” a more broader view with tentative judgements
- And one focusing on the large for-profit platforms with a much more bleak and critical view “The “sharing” economy: labor, inequality, and social connection on for‐profit platforms“
- The Pew Research Center has a few surveys among US citizens towards their usage of, attitudes towards and knowledge of sharing platform businesses:
- An resource that asks a lot of interesting questions on the potential impacts of digital platforms businesses “Choosing a Future in the Platform Economy: The Implications and Consequences of Digital Platforms” Here’s a teaser for you: “we are in the midst of a reorganization of our economy in which the platform owners are seemingly developing power that may be even more formidable than was that of the factory owners in the early industrial revolution … the consequences are dramatic.”
- Countering the view that the big platforms will become ever-enduring, over-powering monopolies is professor David Evans paper “Why the Dynamics of Competition for Online Platforms Leads to Sleepless Nights But Not Sleepy Monopolies” “Recent claims that online platforms have secured permanent monopolies, protected by barriers to entry from network effects and stockpiles of data, and should be the focus of intense antitrust and regulatory scrutiny, are inconsistent with the economics, technology, and history of online competition.[…] The last two decades of online platform competition demonstrate that category leaders are often toppled, unexpectedly, through some combination of technological change, business model innovations, and cross-platform rivalry.”
- If you are interested in this type of discussion, check out my last article with a listing of positive and negative effects, possible options and further in-depth resources.
What are your conclusions? Here are mine:
- There are many types of sharing economy platforms and they are doing a lot of good
- Some of the larger for-profit platforms have created positive but also negative impacts
- Some of the biggest issues to be resolved revolve around worker’s entitlements and conditions
- Innovators should get involved in finding innovative and mutually-beneficial solutions to these problems (and they have started doing so)
- There are also massive positive opportunities associated with sharing platforms
- These can range from additional income, participation in more equitable consumption, increasing the social fabric and potentially the creation of trust-based economic interactions among micro-entrepreneus
- Platform business model and sharing economy platforms are among the most exciting innovation areas and still in the early days, thus offering an abundance of opportunitites
Everybody is entitled to their own conclusions, extrapolations and views. It was my aim to provide view points from critical as well as supportive sources. I hope I have found a good balance. My appeal to any innovator is to try keep an eye on the wider aspects of our ideas and innovations. It takes a wide lens to develop innovation ideas you can be proud of!
I have covered the sharing economy in great detail over many articles. The figure gives an overview. Here is a quick link collection:
- Business models:
- The platform business model is the business model used by practically all sharing platforms. But not all who use a platform business model are considered a sharing platform (e.g. Expedia, TripAdvisor, Google, Facebook, etc). This is a comprehensive guide to this business model
- Sharing economy based business models: this is an article on the specifics of the platform business model applied onto sharing platforms
- The impacts:
- Can sharing platforms self-regulate? An important question that will have significant impact on the trajectory of sharing platforms (especially the major ones): if they can’t participate in the discussion constructively chances are they will be hit with heavy-handed regulations
- Utopia or Dystopia? The social impacts, risks and opportunities are what drives the necessity for regulation. Understanding this fundamental layer will help widen your horizon and the discussions (this article)
Whilst we are on the topic of sharing … please share:
I am being quite frequently asked by MBA students&holders and start-up founders why I am sharing this kind of valuable knowledge for free. Simply put, I am happy to do so. If you appreciate this, please share so we can reach a wider audience: