What is the sharing economy? How and why does it work?

sharing economy jpgWith a head spinning success of Uber, Airbnb and hundreds of other startups we keep hearing the term “sharing economy”. What is it? How does it work? Most importantly, why?Well, let’s start from the beginning. Investopedia defines sharing economy as “an economic model in which individuals are able to borrow or rent assets owned by someone else. The sharing economy model is most likely to be used when the price of a particular asset is high and the asset is not fully utilized all the time.Basically, what it says is you have something of a value and there are people outpwc there  willing to pay for goods and/or services at your disposal. This new trend frees you from necessity of purchasing something you won’t need that much or use it frequently enough to spare the cash. Studies show this recent phenomenon is here to stay, and will continue to strive as the future unfolds. PwC predicts just five peer-to-peer economy sectors will generate $335 billion worldwide by 2025.Recession to be blamed?!Why does a business model based on sharing and trust gain momentum so fast? Well, it is no coincidence that most of the successful startups were founded back in 2008-09 when financial collapse took the regular consumers by surprise. People started looking into new ways to save money or make some. Financial disaster for some, business opportunities for others.In strangers we trust.
Business handshake
Credit: Peter Fiedler
Watching TV, following media outlets, or simply scrolling down your Facebook news feed can get overwhelming with intensity of tragedy, inequality, war and crime happening around the world. In this day and age when social media takes citizen journalism to the next level and makes the world a more transparent place, it is understandable when fear, occasionally, takes over and dominates our perceptions of the world around us.And yet.. People, instead of cutting themselves from the world and staying “safe” in their cocoons, become increasingly more open to the world. The answer to “why”, although contra intuitive, but simple, is trust. There is a whole new trend in an economy that is  based on basic human trust.The father of economics, Adam Smith viewed trust as a fundamental necessity for a prosperous economic model across industries. As he pointed out how much the modern economy relies on the division of labor, he argued that without trust the whole model was deemed to collapse in a blink of an eye. Will an online profile replace a resume?TechCruch argues that the reason this trust economy is blooming is the changed attitudes to what matters and what is perceived as trustworthy in the communities across the globe.  “Codified trust” based on peer endorsements reflected in “5 starts” next to a complete stranger’s name is the driving force behind unexpected success of many startups including Uber, Airbnb, Etsy, Handy or Upwork to name a few.“Collaborative consumption enables us to match wants and haves in a more democratic way, ” says Rachel Botsman in her Ted talk The Currency of the New Economy is Trust. She argues that every new trend in technology only further increases efficiency and makes it easier to trust.  This in turn makes sharing a lot more accessible across the world.What makes the trust based economy so great and unique is that ratings are important for all involved parties. Just like the Uber driver rates the passengers, the passengers have to rate the driver’s performance. Same applies to CityCarrier.net users. Both individual carriers and the businesses involved subject to ratings. The better reputation you as a carrier or a business have, the more reliable you will be perceived and more transactions will be coming your way.In fact, reputation we build over the course of our lives is immensely valuable in determining what people around think of us and how much they trust us. Botsman claims reputation capital will be the currency of the 21st century. The feedback we receive from peers, colleagues and pure strangers we professionally interact offline will be reflected in online ratings, and those in return  will become the most valuable asset in the resumes of the future.Traveling is the new shopping.Experience over things- the trend, many young folks embrace is also gaining momentum. More and more people realize that anticipation of getting something new is more valuable than actually owning it. Studies after studies confirm this trend. Thomas Gilovich and Amit Kumar have conducted extensive surveys that suggest that spending money on memorable experience, for instance, travel will make you happier than buying a car of the same value. It might sound contra intuitive as a car lasts longer than a few weeks long vacation. The tricky spin is that the anticipation of a travel, the experience itself and the memories it generates all added up make one happier than joy the novelty of a new, upgraded car brings.Peer-to-peer or the sharing economy is here to stay and grow. So, buckle up and enjoy the ride with this new trend before it overtakes the industry you are currently in. By Aylan Ashumoff

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