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one are the days to fret over the fact that you have no car and the weather is perfect to dine out tonight. Call yourself an Uber. If you are in China Didi will work. Peer to peer lending, fashion sites like Le Tote allowing women to “rent designer gowns for a special event at a fraction of the price of buying a new one” and Neighborgoods that allow you to borrow resources are changing the way we use to do and perceive business.

What is this? A new era? A new addition to the economy? Yes, it certainly, is. There is no need to burn in the feelings of envy. No need to chafe at thoughts of deprivation. If you cannot have it all at-least you can use most of it. “Only if I had this”, such phrases are becoming rare. Everything is on rent.

Collaborative Consumption, Collaboration Economy or Sharing Economy. It has been given many names. But what’s in a name? What matters is the effect it is going to have, from a “fringe concept it has grown into an economic powerhouse”. Sharing economy is an economy wherein owners of a particular underutilized asset rent out the belonging to others, using a digital platform, in lieu of some amount.  First things that come into the consideration set: Uber and Airbnb. But the business has gone far beyond from cars and rooms. “You can also rent camping spaces in Sweden, fields in Australia and washing machines in France.” To understand the concept of sharing economy there is an important idea to observe in all of its forms: The integration of traditional services with new technology made possible only by the use of big data.  A platform, website or an application, algorithms matching sellers and buyers, that is the paraphernalia required to contribute to the sharing world.

Why the importance of Data and Algorithms? Bernard Marr, an author and expert at technology and big data, explains in an article for Forbes, that without using an algorithm, service providers for example like Uber, cannot match riders and drivers. Both are already there, the customers waiting on the sidewalks, and drivers touring the roads. The application and algorithm makes it possible for both to meet, resulting in a successful business transaction. And for these algorithms to carry out their calculations, data is required. The trust issue, in renting your apartment, car or skateboard to a complete stranger, is not an issue anymore. Facebook and other social sites (see Traity, explained below) have rendered contacting anyone in the world at a click- away. One click and you can know where the person dines, what does he like, his attitude and so on and so forth. Moreover, the rating system in which the user and the provider both rate each other on different dimensions makes it easy to find about the customer/service provider. If an Uber driver had an altercation with some customer he might chose to not to entertain him next time as he can easily identify the man with the use of mobile application.

There are many benefits to this sharing world as well. Sharing economy is growing by leaps and bounds. It is projected to grow to $335 billion in 2025 from $15 in 2014. The pace at which the businesses in this economy are burgeoning is astounding. It took 93 years for Hilton Hotels to build 600, 000 rooms while Airbnb can tout that number only after four years. Didi completed 1.4 billion rides in 2015. Uber took 6 years to cross the 1 billion mark. Moreover, this new economy is changing the way we do business. People are buying assets only to rent them out. With applications like Traity, that allows users to make a “reputation passport” and where anyone can run a credibility check, the long standing trust issue we faced is fading away. Also, there will be more “citizen-led innovations”. Two years back at Davos, there were discussions about utilizing this sharing economy to meet Sustainable Development Goals.

In future we will see entrepreneurs shifting focus from simple “production to coordinating production”. Firms like Airbnb are based on models that have no resources of their own. The barriers to entering in a business are low in this collaborative economy as compared to the traditional one. As one article puts it, “Finding investors and funding is one of the biggest challenges facing entrepreneurs, especially in the early stages of business growth, so a sharing economy that dramatically reduces the need for starting capital means more opportunities for the best ideas to succeed.” The focus will also shift from ownership to maintenance. A man who owns an object that can be put to use to earn some income will continue to strive for “users”. There can be business models in which the traditional manufacturers take the excess capacity to these peer-to-peer sites.

China is a leading example where the sharing economy is proving beneficial to its economy. From Basketballs to Umbrellas and Bi-cycles you can rent almost everything. In China the sector can account for 10% of GDP in 2020 with estimates reaching up to 20% by 2025.

But there are some issues that remain to be addressed. For example, an article in The Economist highlights the problem of taxation for these peer-to-peer businesses. Also, the factor of “taking responsibility” is a major factor, writes Steven Poole for The Guardian. “When something goes horribly wrong with an Airbnb or Uber transaction, the companies just say: “It wasn’t me.” (The mega-corporation is purportedly neither buyer nor seller but innocent middleman.)”

Regulations might be needed to keep a check on these companies and discourage them to build a monopoly. However, the Sharing Economy is, with its lots of pros and a modicum of cons, a profitable and useful innovation of 21st century, bound to grow in the future to come.

Osama Rizvi

Independent Economic Analyst, Writer and Editor. Contributes columns to different newspapers. He is a columnist for Oilprice.com, where he analyzes Crude Oil and markets. Also a sub-editor of an online business magazine and a Guest Editor in Modern Diplomacy.

His interests range from Economic history to Classical literature.

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