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The sharing economy spooking big business

Earlier this year, I travelled to Melbourne for a conference. Instead of paying to stay in a hotel like I normally would, I paid a local couple to stay in their spare room. On arriving at their clean and…

Sharing programs such as Melbourne’s bicycle network encourage a ‘collaborative consumption’ culture. flickr/avlxyz

Earlier this year, I travelled to Melbourne for a conference. Instead of paying to stay in a hotel like I normally would, I paid a local couple to stay in their spare room. On arriving at their clean and tasteful apartment high above the city streets, my hosts handed me a cold cider and we chatted about our lives.

This warm welcome was a sharp contrast to the experience of arriving alone to a lifeless hotel room. I thoroughly enjoyed my stay, it cost less than a typical hotel room and I was within a few minutes walk of the conference venue.

The business that facilitated this experience was Airbnb, one of the poster children of a movement known as collaborative consumption. Established in 2008, Airbnb hooks up people who have room to spare with people who need somewhere to stay. More than 500,000 properties are listed worldwide and more than 8.5 million people have stayed in them. Clearly, others are getting as much out of the Airbnb experience as I did. Last year, the company was valued at US$2.5 billion.

Airbnb is only one of a plethora of businesses that are buying into the collaborative consumption model. It’s an economic model based on access rather than ownership. Collaborative consumption startups use the internet and social media to facilitate peer-to-peer exchanges, allowing people to share assets and services directly with those who require them.

This emerging sharing economy includes marketplaces like eBay and Gumtree, car sharing services like GoGet, bike sharing services like Melbourne Bike Share, peer-to-peer rental services like Open Shed, errand services like Airtasker and clothes swapping services like the Clothing Exchange. Many more startups focusing on diverse products and services are operating in Australia.

Clearly, this emergent sharing economy is a potential threat to established business models. If consumers are sharing things they already have, then they don’t need to buy something new - or at least, they don’t need to buy so often. If I stay with a local in Melbourne, I’m not giving my money to a hotel chain. In short, if the sharing economy takes off, existing businesses will be selling fewer products and services.

Shared car services are becoming increasingly common in Australia. flickr/avlxyz

Collaborative consumption initiatives tap into idle capacity in the economy - unused rooms, tools that are gathering dust, spare seats during the morning commute and unused skills - and make this capacity available to consumers at a lower price than the incumbents.

As well as being financially attractive to consumers, participation in the sharing economy reduces environmental impact by making more efficient use of existing resources. On top of that, participants can make new social connections with the people they share with. It’s a win-win-win proposition for consumers - they can feel good about their environmental impact, build new social relationships and save money at the same time.

Despite this attractive business case, the sharing economy has so far been too small to pose much of a threat to existing business interests. For example, only 1% of tourists visiting New York stay in Airbnb properties. Globally, there are about 1 billion cars, but only 2.3 million members of car sharing programs. Nevertheless, the sharing economy constitutes a new disruptive element that is growing rapidly. Revenue in the global car sharing market is expected to grow from US$1 billion in 2013 to more than US$6 billion in 2020.

Just how big the sharing economy could grow remains uncertain, but there is some research on its market potential. In a Masters research project, more than 84% of the Dutch respondents expressed interest in participating in collaborative consumption of some sort. While current uptake in Australia falls well short of these levels, new collaborative consumption startups are appearing on a regular basis and participation is growing.

Recent legal responses to the disruptive emergence of the sharing economy may indicate that it is indeed seen as a threat to the establishment. In New York, Airbnb is caught up in an investigation into possible breaches of a 2010 law that makes it illegal to rent out your own apartment in the city. New York City’s Attorney General filed a subpoena for data on all Airbnb hosts in the city. Ride sharing startups in the United States have also run into legal trouble in several cities.

The responses of businesses that may be threatened by the sharing economy are also instructive. Several car manufacturers have responded to the threat posed by car sharing startups by launching their own car sharing services. Earlier this year, Ford launched its FORD2GO car sharing service in Germany. BMW also offers a premium car sharing service called DriveNow in Germany and San Francisco. Presumably, these manufacturers are entering the market in response to the competition posed by car sharing.

Given the clear financial, environmental and social benefits of collaborative consumption, it makes sense for existing businesses to find ways to tap into the sharing economy. Rather than seeing the sharing economy as a threat, smart businesses will recognise it as an opportunity to find new, more sustainable ways to connect to consumers.


This is the second piece in our series on the disruptive forces hurting big business.

Read the other pieces:

Why there’s no Pepsi in cyberspace

Clouds bear down on computer hardware companies

Big data and big business: it’s what you do with it that matters

Join the conversation

39 Comments sorted by

  1. Paul Weldon

    Research Fellow

    That is fascinating. Thanks. I love the idea of staying somewhere other than a hotel/motel as you did. I hope the idea takes off but I'm nervous about issues such as insurance and legal liability - we live in such nanny-state times. I mean, if you had a meal with the couple you stayed with, and that meal was included in the price you paid, I'm sure food handling requirements would probably come into play - and for that matter what about licensing laws for alcohol?
    Both of which, imo, would be ridiculous, but I could point to a lot of other similar issues which are real enough...

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    1. Chris Riedy

      Associate Professor at University of Technology, Sydney

      In reply to Paul Weldon

      Really interesting point Paul. I guess I would argue that the meal (or in my case, the bottle of cider) wasn't part of the price I paid but a nice gesture from a new friend :)

      But this is exactly the kind of legal issue that Airbnb is running into in New York, where there is a 2010 state law forbidding people from renting their homes for under 30 days unless the owner is also present. It was brought in to prevent dodgy hotels but now it's catching people that want to list their home on Airbnb. There will be some interesting legal battles ahead!

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  2. Mike Swinbourne

    logged in via Facebook

    Hi Chris

    It all sounds too good to be true - and I suggest it probably is. I have heard stories of people having their possessions trashed by users, such as cars coming back with damage that costs to repair than the money made from 'hiring' them. Whether or not these are urban myths produced by disaffected businesses remains to be seen (and is possible I must admit), but it does suggest there are issues that need to be addressed.

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    1. Lydia Isokangas

      Australian

      In reply to Mike Swinbourne

      Hi Mike,

      I don't know about the car sharing business, but I know a little about airbnb since I've been an avid user of their website while holidaying in Europe. Airbnb as far as I know offers pretty good insurance to the hosts against damage, and for the users they vet the providers of property and if you turn up and there's no place for you to stay airbnb's insurance again covers your expenses. Airbnb places are also reviewed by other people who have stayed there in the past, so you can get…

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    2. tim brennan

      mostly harmless

      In reply to Mike Swinbourne

      Hi Mike

      You are right that these systems can be susceptible to abuse by people who have a criminal motive or are simply negligent. However the success of companies such as Airbnb (and even more so couchsurfing where the resource owner receives no material benefit) suggests that these experiences are rare enough that they don't outweigh the benefits.

      I think these models tap into important elements of what creates human communities - that most individuals have a natural preference to be both…

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  3. David Stein

    Businessman

    Thank you Chris. These are the sorts of productivity improvements new technologies are facilitating.
    Another example is the rideshare / taxi-alternative services now available like lyft in the US. Insurance is provided for all drivers by the organization centrally and smart attorneys are able to get around taxi regulations. I expect these sorts of productivity improvements to continue as people figure out more creative ways to use their capital assets. Of course, traditional cabs, hotels and…

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  4. Andy Cameron

    Care giver

    "Earlier this year, I travelled to Melbourne for a conference. Instead of paying to stay in a hotel like I normally would"
    Chris, just a quick question, who pays for these hotels? And airfare?

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    1. Chris Riedy

      Associate Professor at University of Technology, Sydney

      In reply to Andy Cameron

      Well, it comes out of the budget for the Institute for Sustainable Futures, which is mainly (5/6 or so) funded by contract research projects and partly (1/6 or so) funded by University of Technology, Sydney. I get an annual allowance to travel to conferences or participate in training courses. Why?

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    2. Andy Cameron

      Care giver

      In reply to Chris Riedy

      Cool. So you are voice for commercial interests. There's nothign wrong with that, I've been the same, and will again. That kinda gets lost in your identification as a UTS academic, but silent on the reality.

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    3. Andy Cameron

      Care giver

      In reply to Chris Riedy

      Chris, another problematic factoid - when I was living in the UK, politicians were exposed claiming their per diem for staying in properties owned by their wives.

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    4. Chris Riedy

      Associate Professor at University of Technology, Sydney

      In reply to Andy Cameron

      Oh please. Are you for real?

      I've never had a contract for anything to do with collaborative consumption and certainly never from commercial interests that would benefit from me writing about collaborative consumption. Otherwise I would have mentioned it in my disclosure statement.

      I do this work because I love it and I care about the planet and its people. If I was in it for the money I'd be working in the corporate sector for a damn sight more than I can get as an academic.

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    5. Andy Cameron

      Care giver

      In reply to Chris Riedy

      Chris, I don't doubt it. All I'm saying is that there is a lot more to this issue than just having a nice chat to interesting people living in Melbourne penthouses.

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    6. Daniel Boon

      logged in via LinkedIn

      In reply to Chris Riedy

      I enjoyed the topic Chris.

      having just come back from 40 days overseas and comparativley pondering costs here in OZ to elsewhere, I believe we Aussies are / have been goughed for some time in the widest spectrum of any commidity from cars and motor-bikes to fertalizers and food-stuffs

      Overheads in Australia are probably higher, but the existing business model is under threat from rising energy costs (when factored into everything), which corporate government is working on addressing by a not so subtle attack on wages and now, the likes of Airbnb

      packaging is the attraction and in a lowering disposable income market, established (inflexible business practices?) is the string and Airbnb the new kid on the block, sticky-tape ...

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  5. Andy Cameron

    Care giver

    "Clearly, this emergent sharing economy is a potential threat to established business models"
    Chris, I hate to tell you, but your paid night in yuppie high-rise Melbourne was buying into a very old global business model - the illegal backpackers.

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    1. Andy Cameron

      Care giver

      In reply to Henry Verberne

      Nothing, except that paying money to Melbourne penthouse owners, instead of Melbourne hotel owners is not "a threat to established business models". It is just funding a very old business model.

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    2. tim brennan

      mostly harmless

      In reply to Andy Cameron

      Andy you seem very focussed on the 'yuppie high-rise / penthouse' angle, despite the fact airbnb includes all types of housing stock and more importantly the article is about much more than just the housing industry.

      Your correct in the sense that both airbnb & illegal backpackers are poorly regulated and i assume by conflating them your trying to play on the negative connotations of illegal backpackers (cramped conditions, lack of fire escapes etc). I've stayed in illegal backpackers but i think the difference is you only ever stay in them when there is a missing niche (usually at the cheap end) in the legal accommodation market, so they complement rather than challenge the business models of hotels. Airbnb is something you could legitimately choose over a hotel even if the prices were the same and thus is directly competing with the existing business model of hotels.

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    3. Andy Cameron

      Care giver

      In reply to tim brennan

      Tim, thank you for contributing some nuance to this conversation.

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  6. Don Aitkin

    writer, speaker and teacher

    Interesting stuff, and we prefer B&Bs to hotels anyway. But if Airbnb is worth $2.5 billion, it sounds a bit like big business to me...

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    1. Alan Carpenter

      Project Director

      In reply to Don Aitkin

      "Ah yes we've seen it all before - nothing new happenning here" is the flavour of some of the sage mutterings here. We might equally say the same of ebay - "Just folk buying and selling stuff - nothing new".

      There may be no invention, but there is a profound innovation here in the use of the web to enable society to better utilise its hard won capital. It's not for nothing that big business, where it can, runs its capital (trucks, machines, factories) 24 hours a day.

      So - yes a VERY big business, albiet comrising a multitude of small actors. Bring it on I say.

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    2. Andrew Smith

      Education Consultant at Australian & International Education Centre

      In reply to Alan Carpenter

      Agree, Australia is very slow to take advantage of digital while preferring conventional ways of doing business.

      Digital breaks down organisational boundaries and hierarchies this requiring new ways of doing business, to survive or like in AirBnB's case, prosper through bottom up.

      How many organisations (especially promoting abroad) whether that be in tourism, hospitality, education etc. still persist with top down management structures and conventional communication via job descriptions designed for the 1980s ?

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  7. Eugene Schofield-Georgeson

    Lawyer/PhD Student

    Sounds wonderful. Good for you and your new Melbourne friends. But sharing? Isn't this just small business - contracts for sale of private goods and services by businesses of 20 people of less? ...And isn't it also part of a more global, "race to the bottom", in which trade and exchange values are unregulated by the State, particularly across borders? The award-winning Australian site, "Freelancer.com", is another example of 'collaborative consumption' - an online labour marketplace in which the workers of the first world compete with those of the second and third. Workers become contractors who bid for piece work by undercutting each other's labour price to the satisfaction of a first-world "consumer" of labour.

    I'm not being facetious here Paul, but could someone please explain to me the difference between both forms of capitalism?

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  8. Peter Boyd Lane

    geologist

    it's far from just penthouses for rent. We rent out a teepee, it assures us that the guests are just as interesting as the accommodation.

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  9. John Armstrong

    Retired Environmental Consultant

    Some years ago when I was a travelling musician we found Bed and Breakfast places far better than motels or hotels ansd would use them when we could find them.

    Airbnb, as the name suggests is simply a better way of finding them. BnBs have to be registered and meet certain standards and are completely legal.

    These days I use the net to find everything so this new company is simply facilitating that and ensuring that the standards of host and guest are met.

    I must admit, I didn't find a BnB in New York back then but I can't see the problem. It seems like an idea whose time has come but is being fought by big business interests who want to hold on to their monopoly.

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  10. Brian Keyte

    Potter

    Thanks Chris, good article. Friends in Cairns are on airbnb and have made many new friends out of having total strangers stay with them. To my knowledge only one downer, a proselytiser who will not be staying again. To their way of thinking it is not so much a business model as a way of life. And they do airport pickups!

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  11. Julian Cribb

    Science communicator

    Welcome to the Brave New World in which consumers make their own decisions about what to consume, instead of being told by large corporates what to buy. Thanks to the internet, consumer free choice is rapidly spread worldwide. It can especially be seen in farmers markets (increasingly patronised by concerned families who don't want to risk the toxic exposure of the industrial food system), organisations of concerned citizens who don't want products that emit a lot of carbon, consumers of electronic goods who don't want to kill third world children forced to recyle e-waste, women who don't want to risk breast cancer as a result of what's in big brand cosmetics, people who avoid fashion brands that are based on cruelty to humans or animals . And so on. Something is happening at species level that is going to give 'commerce' a mighty shake in the next ten years - mainly for the better. It will be interesting to see who is competitive and who isn't.

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    1. lavinia kay moore

      child and family counsellor

      In reply to Julian Cribb

      I have never heard of this possibility. In my travels I have preferred to choose B&Bs or old small hotels (not the high price ones!) simply because their ambience suits me better. I would now explore this option.
      I think it is a positive to have many options so tat all of us may be able to find somewhere to stay that feels simpatico.
      And being someone who tries to do my best not to over-consume and over pollute, I like the idea of sharing space in houses and sharing cars etc.
      Regarding insurance, don't travellers have the option to cover themselves? And what do B&B owners do? And don't householders have insurance cover in case someone falls over the cat in the house?

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    2. Henry Verberne

      Once in the fossil fuel industry but now free to speak up

      In reply to Julian Cribb

      I like and support services such as AirBnB which provide genuine choice and foster a more co-operative society rather than a traditional consumerist one where the many negative and destructive aspects, economic, environmental are becoming ever more apparent.

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  12. Scott O'Keeffe

    logged in via Facebook

    Sure are a lot of nay-sayers commenting on this article. Mostly just sounds like sour grapes, maybe envy.

    Good article about an interesting idea. Doesn't matter whether it's a new take on an old idea or a new idea in its own right.

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  13. Dorothy Button

    logged in via email @optusnet.com.au

    Interesting to read the scepticism and ignorance about Airbnb. I have been a member of Airbnb for four years.I have hosted people from all over the world
    and have stayed with Airbnb hosts from Washington to Wangaratta and countless stops in between.

    Without exception all of my guests and hosts have been happily uplifted to be part of the network, have respected the rules and obligations, have been unfailingly gracious toward me as a host and as a traveller and all have firmly believed in the…

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  14. Katherine W

    logged in via email @minterellison.com

    Thanks for the article. I recently used Airbnb - it is a great way to identify alternatives to hotels (compared to finding them via travel guide books) and in that sense a significant change to the competition for accommodation services. We did have two problems - one where our host needed to change the dates of our stay; Airbnb doesn't protect you where this occurs more than 7 days out from your date of stay. The second was that a plumbing problem developed the day before we arrived (different place) - a hotel could have switched us to different rooms, but instead we had the plumber's company until 8pm. So Airbnb may ultimately not work reliably enough for business travellers or large groups. This is probably the risk posed by all of these 'community' based transactions, but worth it for the right kind of trip.

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  15. Iain Wicking

    Director

    This is the tip of the iceberg in terms of how we could reorient our communities to have an increasingly localised focus. It is not just about ‘Collaborative Consumption’ but also the adoption of a range of localised and community centric trading models that are not solely based on monetary exchange – these may include barter models and variations thereof or units of value that do not involve money. People are not aware that ‘chains’, which are large regional, national or international corporations…

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  16. Kira at GetMyBoat

    Community OutReach Coordinator at GetMyBoat

    The sharing economy is just taking off around the world. it is exciting to see where it will lead us!

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    1. Dorothy Button

      logged in via email @optusnet.com.au

      In reply to Peter Boyd Lane

      Many thanks Peter for your and other comments. It is indeed a quiet revolution happening.
      Airbnbers are spending money in a more dispersed way.

      The personal contact is extraordinary.
      I am looking forward to sharing my view of St KIlda beach with Israelis,, Bulgarians and Germans in the next few weeks. The complexities of world politics and the strength of life will be mulled over as it has been with Indonesians, Queenslanders and Californians.
      There is hope and optimism emanating from a simple act of seeing another view first hand, If your mind is open your home becomes a melting pot of remarkable human energy and sheer fun.

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  17. Peter Banks

    retired Civil Engineer

    Interesting article, and opening many eyes judging by the comments.

    I've only used AirBnB and suchlike sites once - travelling around southern Germany and to Paris this year. About half the price of hotels for my wife, myself and our (adult) daughter and son - and far more comfortable not having to fit into a hotel routine.

    Other bits of the sharing economy I've not used, but been impressed with by the reports of users, are bicycles in Brisbane, cars in Paris, the Wood School in Perth.

    On a recent trip to Sydney (from Perth) I looked on such sites for accommodation, but could only find it on the beaches and inner city, unlike Germany where we stayed in small towns and outer suburbs. Hopefully the idea will take off in Australia and I can in future stay in better accommodation than a small hotel (all that was available) in suburban Sydney.

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  18. Mike Lane

    retired computer services manager (amongst lots of other things)

    There's also the home swapping scheme where one swaps homes with someone living in an interesting place who would like to visit your region. Several web sites are keen to facilitate this.
    If this becomes BIG then hotels and BnBs will feel the draught resulting in redundances, bankruptcy, longer dole quueues, less tax revenue etc... You get the drift?
    I agree in principle in using things until they wear out or are otherwise unusable but worry about the consequences of nobody buying anything.
    Then, who's going to pay my pension???

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  19. Comment removed by moderator.