Less is More

This brings me to my final post of this series on sharing economies. A lot has been said over the past few post on the benefits and costs of sharing economies. On one hand, it could pose as a solution for our crisis of overconsumption and overproduction, thus reducing pollution, emissions and environmental degradation that comes with production and consumption. Yet the sharing economy treads delicately on a fine ethical line. Benefits and risks are distributed unevenly and unfairly.

I asked at the start of this series whether sharing economies can be the solution to sustainability. In all honestly, I was quite enthusiastic about the idea of sharing economies when I first started blogging and doing research on it. It sounded like a brilliant idea in theory – a win-win situation for all. But as I delved deeper into the topic, I realised that there were indeed a number of shortcomings. For one, the sharing economy doesn’t always work. I saw that for every successful sharing platform reported, there were countless others that failed. Simply put, not everything can be shared.

Then there was the legal and ethical issues – tax evasion and the unequitable distribution of benefits and risks. Sharing platforms benefit at the expense of its independent contractors. Poor taxation regulations also give sharing platforms an unfair advantage over traditional providers. How then can such unjust practices be sustainable?

I had a discussion about sharing economies with a friend of mine recently. Interestingly, he argued that sharing economies causes antagonism in societies [1].

The first antagonistic relationship is between consumer and the government. As the government tries to cover the gaps sharing economies are currently exploiting, consumers will constantly try to skirt around any regulations implemented [1].

The second antagonistic relationship is between consumers and producers. With the sharing economy, every consumer can now become competition to the very producer who made the product [1]. For example, if I’m a consumer and buys a camera, I could now rent it out on a sharing platform. In renting it out, I now go in direct competition with the producer of the camera.

The third and final antagonistic relationship is between the consumer and the sharing platform. He argues that this is formed when a sharing economy embarks on anti-competitive measures such as restriction peer-to-peer reviews [1]. I’m going to give sharing platforms the benefit of the doubt on this since not many platforms have moved into this form of restricting information.

Yet in light of the antagonism they bring, the reality is that sharing economies are not going to go away in the foreseeable future – the sharing economy is here to stay, whether we like it or not. Sharing platforms, the larger ones anyway, are getting more and more profitable. Where there was inertia from consumers to participate in sharing economies in the past, this inertia is fading away. More people have participated in sharing economies and have had positive experiences. With these positive experiences, they more likely to participate in sharing again and promote these experiences to others.

Given that the sharing economy is here to stay, there is an even greater need for the government to step in and regulate these sharing platforms. A more broadly defined tax over sharing platforms could be implemented to prevent the unfair advantage they have from tax evasion. Sharing platforms must also start taking more responsibilities and liabilities should damage occur over the course of the transaction.

Despite its shortcoming, I do concede that the sharing economy is still an extremely brilliant idea. The idea of sharing and reciprocity, of cutting down consumption – these are steps in the right direction. So where did the sharing economy fall short? I believe that the motivation behind the sharing economy is inherently flawed. The sharing economy was never meant to be a solution to sustainability. It wasn’t made for that. It was made to solve a gap in the market, and in the process make profits. If the fundamental intention of the sharing economy was to maximise profits, it is no wonder that these issues have surfaced. The sharing economy is merely a means towards the ultimate goal of more profits.

What motivates platforms to skirt around regulations and avoid tax? Profits. What motivates platforms to push liabilities and risks to independent contractors? Profits. These selfish motivations are the very reason why I believe the sharing economy will never be a true solution to sustainability. Sharing platforms do not hope that consumption will decrease in the world. Their hope is that consumers stop patronising their competitors and patronise them instead.

Yet sustainability is altruistic in nature. It is putting aside our own wants and desires so that others in the future can enjoy what we are enjoying.

The problem we have in the world today is the misconception we have that more is always better. More is not always better. So long as we fail to curb our desire for more – more goods, more services, more needs – these crises of overproduction and environmental degradation will not go away. The key to sustainability isn’t technological advancements, policies and regulations, or sharing economies. These measures are merely reactive. The key to sustainability is a change in mind-sets. We need to start thinking about our future. We need to do away with this insatiable appetite for more. So let us do away with greed and work together towards a more sustainable future. So long as we continue along the philosophy that less is more, we can slowly move towards a path to sustainability.

To end of this series of posts, I just want to give a shout-out to a friend who embarked on this journey towards sustainability with me. He too writes about the sharing economy and sustainability at his blog https://brandonfoo2012.wordpress.com/. Do give it a follow. I promise you a good read.

[1] Foo, B. (2016). The Sustainability of sharing economies. Retrieved April 06, 2016, from https://brandonfoo2012.wordpress.com/

To go or not to go? (3)

I ended the previous post arguing that the increase in competition caused by the sharing economy could lead to existing companies downsizing, thus leading to higher unemployment rates in affected industries. A proponent for the sharing economy could then argue that although employment decreases in these affected companies, informal employment through the sharing economy increases. Moreover, the sharing economy provided flexible employment opportunities to those who have under-utilised resources.

There are, however, a number of problems with that argument. Firstly, traditional employment cannot be easily replaced by informal “employment” in the sharing economy. A job in a hotel, for example, provides the employee stability. Wages and benefits are fixed. Seeking “employment” as an independent contractor in a sharing economy does not provide that same stability. Income demands solely on consumer demand. Should there be less demand for a good or service, there is less income. Therefore, “employment” in the sharing economy is not a viable substitute for a stable job in a traditional industry.

Moreover, an important condition for suppliers in the sharing economy, whether as a renter or an independent contractor, is the availability of under-utilised resources. Those primarily affected by downsizing in traditional industries would tend to come from lower income groups. Should they come from these lower income groups, the availability of under-utilised resources would be put into question. To be an Uber driver or a host at Airbnb, you would first need a car or an apartment to participate in the sharing economy. So it is with most sharing platforms. Without the necessary assets, participation in the sharing economy becomes impossible.

Moving away from the question of employment altogether – even if participation in the sharing economy is for extra income (not as a primary source of income) – a more pressing ethical issue is at hand.

Sharing platforms are fully reliant on participation of renters or independent contractors. For without them, these platforms are no longer able to maintain their low cost – thereby their profit margins. What makes the sharing economy so successful is that they have low overhead cost. They do not need to own any assets apart (from a few servers) or hire many employees. By relying on these independent contractors, sharing platforms essentially shift their business risk to these independent contractors, yet take a share of the profits. Any damage or liability is borne primarily by the independent contractors, not by the sharing platforms since these contractors aren’t employees and the assets they use aren’t company property. A brilliant business model, but I argue that it is rather unethical. Sharing platforms take the benefits without the risks.

In recent times however, there has been a debate on whether these independent contractors are in fact employees, and how much of liability should be borne by the sharing platform. An example previously cited was the California Labour Commission ruling that an Uber driver who knocked a bystander was indeed an Uber employee. Homejoy too is facing multiple lawsuits by their independent contractors who believed they are actually employees but misclassified as independent. [See Same, same but different (3) for links to these examples] I believe that these are steps in the right direction. The sharing economy needs to be more accountable and liable for damages. More regulation is needed to protect these independent contractors and renters from the risk of sharing. Risks need to be divided more fairly between the platforms and those who participate in the sharing economy. Sharing platforms cannot continue to exploit the goodwill of those who participate in the sharing economy.

Yet another regulatory issue with the sharing economy is the problem of tax evasion. Independent contractors who earn some form of income from the sharing economy are not required to pay taxes. As such, traditional industries are unfairly penalised as they have to pay taxes. In Singapore for example, the road tax for a petrol taxi is $510 [1] while the road tax for a car with an engine capacity of 1,600cc is $298 [2]. The same can be said for Airbnb host (who doesn’t pay rental taxes) when compared to traditional providers like hotels who has to pay hotel tax.

The role of the government in a free-market capitalist economy is precisely to weed out unfair and unethical practices. I therefore believe that this issue of tax evasion in the sharing economy has to be regulated properly. Cities like San Francisco, Portland and Amsterdam have already implemented hotel taxes on accommodation platforms like Airbnb [3] [4] in an effort to prevent landlords to skirt around rental laws. Similarly, I do think that regulations such as these are necessary in preventing the sharing economy from continually circumventing around laws and regulations to gain unfair advantage and maximise their profits.

[1] Tax Structure for Taxis. (n.d.). Retrieved April 05, 2016, from http://www.lta.gov.sg/content/ltaweb/en/roads-and-motoring/owning-a-vehicle/costs-of-owning-a-vehicle/tax-structure-for-taxis.html

[2] Tax Structure for Cars. (n.d.). Retrieved April 05, 2016, from http://www.lta.gov.sg/content/ltaweb/en/roads-and-motoring/owning-a-vehicle/costs-of-owning-a-vehicle/tax-structure-for-cars.html

[3] All eyes on the sharing economy. (2013, Mar 09). The Economist, 406, 13-S.15. Retrieved from http://libproxy.smu.edu.sg/login?url=http://search.proquest.com/docview/1315947560?accountid=28662

[4] French, S. (2015, October 26). Airbnb’s battle in San Francisco is getting more intense by the day. Retrieved April 05, 2016, from http://www.marketwatch.com/story/airbnbs-battle-in-san-francisco-is-getting-more-intense-by-the-day-2015-10-26

To go or not to go? (2)

The most obvious problem the sharing economy face is also economic in nature. It isn’t always working. Many sharing platforms have since shut their (proverbial) doors. These platforms simply weren’t profitable. I have already analysed reasons why they were not able to remain profitable. It could be have been one or a combination of the following:

  1. Poor pricing strategies;
  2. Difficulties with customer retention [1];
  3. Failure to meet market demand;
  4. Issues with legislation and lawsuits or;
  5. Failure to maintain a supply of independent contractors.

Yet assuming that the sharing economy is self-sustaining and is fully functional, it brings about detriments to other stakeholders involved in society. First and foremost, the rise of the sharing economy has brought about an increase in competition for existing companies in many industries. An article from PricewaterhouseCoopers (PwC) reported that in 2014, Airbnb averaged 425,000 guests per night – which is nearly 22% more than Hilton Worldwide [2].

So what does this mean for these existing companies? Simply speaking, it implies less profits. With less profits and lower demand for their goods and services, these companies are less able to tap on economies of scale. As such, the cost of production would then theoretically rise – and the rise on cost might eventually be passed on to consumers. Also, lower profits could also imply that companies have less resources to allocate to research & development (R&D). R&D is a crucial element in driving the economy forward. Apart from that, R&D can bring great benefits to consumers through better goods or lower cost (if processes are made more efficient). R&D can also contribute positively to the environment if it is focused on reducing waste, pollution or making processes more efficient or environmentally friendly. Therefore, should a reduction in profits affect the allocation of resources into R&D negatively, it could have a detrimental effect on society at large.

Yet it is also entirely possible that an increase in competition due to the rise of the sharing economy would in fact increase the resources allocated to R&D. Competition from the sharing economy could serve as incentive for existing corporations to engage in R&D. R&D could help make their existing products cheaper to produce, and hence more price competitive. R&D could also be used to innovate. These corporations could come up with new products to differentiate itself from the existing products offered in the sharing economy. With new products on offer, these corporations could conjure needs (see Conjuring Needs) and create new demand.

Regardless of its effect on R&D, an increase in competition caused by sharing economies could have serious social consequences. One of such consequence is an increase in unemployment. With increasing competition and less profits, firms might be motivated to downsize in an effort to reduce cost. This might cause unemployment, especially in these traditional industries. The rise in prominence of Uber has posed problems for taxi drivers. In 2014, thousands of taxi drivers in major cities like London, Berlin, Paris, and Madrid protested against Uber and other taxi-apps [3]. Besides the fact that apps like Uber provided extra competition, these drivers believed that it was unfair competition. And they are not the only ones who think so.

The largest shortcoming of the sharing economy is its ethical and legal concerns. Issues such as tax evasion, or the unethical shift of risks to consumers and independent contractors have started much debate about whether the sharing economy should be allowed to run undeterred or be regulated. This issue shall be discussed in greater detail in the next post.

[1] Jao, J. (2015, August 11). Déjà Vu: How Homejoy, Like Fab.com, Neglected Customer Retention And Paid The Price. Retrieved April 04, 2016, from http://www.forbes.com/sites/jerryjao/2015/08/11/deja-vu-how-homejoy-like-fab-com-neglected-customer-retention-paid-the-price/#6518b16e5773

[2] PricewaterhouseCoopers (2015, April). Consumer Intelligence Series: The sharing economy. Retrieved from http://www.pwc.com/us/en/industry/entertainment-media/publications/consumer-intelligence-series/assets/pwc-cis-sharing-economy.pdf

[3] Fleisher, L (2014, June 11). ‘Thousands of European Cab Drivers Protest Uber, Taxi Apps’. Wall Street Journal.

To go or not to go? (1)

Previously we analysed what caused sharing platforms to succeed or fail. We came to the conclusion that there are certain factors that explains why they succeed or fail. Now that we know what it takes for a company to succeed, we need to ask ourselves one thing – do we want the sharing economy? Sure there are benefits to having sharing economies – but there also are costs. Sharing economies might be good for the environment as overconsumption is reduced – but there are other cost that come with it (social, economic and legal). Is the sharing economy worth the cost and the risks? What are some of the measures that must be taken to mitigate some of the harmful effects of sharing economies? I will seek to address these questions before concluding if the sharing economy should be considered as a solution to sustainability or not.

The most obvious benefit of the sharing economy is that it provides some sort of a win-win situation for consumers, sharing platforms and independent contractors. These benefits that I speak of are primarily economic in nature. Consumers enjoy the benefit of having lower cost alternatives to buying a completely new product. Independent contractors or renters enjoy the benefit of having an extra source of income. Sharing platforms enjoy the benefit of profits from their business venture.

Sharing economies can also enhance the consumption experiences of their users. An example used in a previous post was the enhanced experience of accommodation provided by Airbnb. Apart from providing a roof over their customers’ head, Airbnb also offers unique host experiences traditional accommodation providers like hotels do not offer. This form of product differentiation can further motivate traditional providers to offer new services or features in an effort to remain competitive with platforms like Airbnb. This could mean even more options or more enhanced experiences for the customer.

Apart from these obvious economic benefits, sharing economies also have the potential of solving our crisis of overproduction and overconsumption. By offering the alternative of sharing, we might be able to reduce our demand for new products. This in turn could offer some environmental benefits. By reducing demand and thus production, we too might reduce pollution and emissions that come from production.

One also might argue that sharing economies have social benefits too. The concept of sharing and reciprocity could play a significant role in increasing interdependence and integration among members of society. This is especially vital given the increasingly individualised societies we live in now. Anomie (normlessness) and individualism is a common fixture in most developed countries. As argued in a previous post, this is a modern phenomenon that came about with the market economy and capitalism. Perhaps the sharing economy is a good compromise between the market economy and the pre-industrial economic concept of house-holding and reciprocity.

Is the sharing economy therefore a step it the right direction?

In this post, I argued for the benefits of the sharing economy. Indeed these benefits gave scholars reasons to rave about the sharing economy when it first came up years ago. Yet, we are blessed with hindsight. Few years down the road from the initial hype brought about by this seemingly good idea called collaborative consumption, we now know that the sharing economy isn’t entirely a bed of roses. A host of new issues and potential stumbling blocks have arisen. These issues will be further expounded in the next two posts.

Same, same but different (3)

Yet another possible reason why these platforms did not work out is because of our intrinsic desire to own things for ourselves. As mentioned before, it can be argued that it is human nature to desire ownership. Ownership brings a sense of security and identity. This is especially so for goods which are symbolic in nature, like apparel. Fashion, after all, can communicate our identity and give us a sense of belonging. If we then place value even in ordinary objects, surely we would prefer ownership to sharing. If we intrinsically prefer ownership to sharing, even for utility goods like power drills, sharing will always remain a second option. We borrow only when we have no other option to own. In that case, Airbnb and Turo works simply because owning cars and houses is not possible for many of us.

This (our desire for ownership) again, is highly debatable and perhaps not generalizable. But what is undeniable from looking at these eight companies is that not everything can be shared; not all capital can be successful in the sharing economy. For many goods, it simply is not worth the effort to share. As such, demand for these goods is not sufficient for it to make these platforms profitable.

A lack of demand, however, is not the only reason why sharing platforms have failed. Homejoy, for example, faced multiple lawsuits before eventually shutting down. Homejoy is a labour platform that sought to link independent cleansers with those in need of cleaning services.

Homejoy’s CEO, Adora Cheung, cited multiple lawsuits as the deciding factor in closing down the company. Their independent contractors sued the company as they believe they were misclassified as independent contractors when they felt they were in fact employees [1]. Given that the California Labor Commission recently ruled that an Uber driver was indeed an employee [2], Homejoy struggled to source for funding, thus eventually closing [1].

Homejoy, Uber, and almost every other labour platforms face a difficult problem here. One of the main reasons why these platforms can remain profitable is because they can keep their costs low by maintaining on a small team of employees. They instead rely on independent contractors to perform the service being sold to consumers. [1]. However, the difficulty arises when standards need to be maintained to protect the company’s brand name. As such, these companies might have to exert a certain form of control on their independent contractors, such as regulating service standards, supervision, or implementing training. Should they do so, they flirt dangerously close to controlling their independent contractors as if they were employees [1].

What implications does this problem have on our conversation on sustainability? It necessarily implies that not every service can be outsourced successfully. Those that require training (or standards to be met) can’t be done through sharing economies.

If not every good or service can be shared successfully in the sharing economy, sharing economies are much less likely to be able to meet present needs and be that solution to sustainability.

[1] Huet, E. (2015, July 17). Homejoy Shuts Down, Citing Worker Misclassification Lawsuits. Retrieved March 27, 2016, from http://www.forbes.com/sites/ellenhuet/2015/07/17/cleaning-startup-homejoy-shuts-down-citing-worker-misclassification-lawsuits/#33b6478f7780

[2] Sanders, S. (2015, June 17). California Labor Commission Rules Uber Driver Is An Employee, Not A Contractor. Retrieved March 17, 2016, from http://www.npr.org/sections/thetwo-way/2015/06/17/415262801/california-labor-commission-rules-uber-driver-is-an-employee-not-a-contractor

Same, same but different (2)

The first condition I laid out was demand. There must be raw demand for sharing a type of good. Yet for many of the goods offered by these companies, demand simply wasn’t enough. That’s not to say that no one needs a power drill or a bike. They do, but it is simply too much of a hassle to share [1]. Why share when it doesn’t cost the individual that much more just to own it?

To borrow that power drill for the hole I need in my wall, I would first need to search for a suitable drill on the platform. Then I need to make transaction and arrange for a meet-up. I would also need to get transportation to and from the meet-up place. All that for a hole in a wall. Should I require yet another hole in the wall on a subsequent occasion, I would need to repeat this arduous process. Alternatively, I could visit a DIY store nearby and just get a power drill. Should I require the drill in the future, it’s conveniently kept in my store at home. Why share when it doesn’t cost the individual much just to own it?

Therefore for a platform to work – for sharing to work – it needs to be worth the effort. It needs to be convenient. Turo and Airbnb works because sharing is worth the time and effort. Sure, I might have to go through the same long, arduous process at Turo or Airbnb. But it is worth the time and effort because it makes much more economic sense to rent a car or apartment rather than buy one for myself. It is also far more convenient and practical than owning a car or apartment.

Another problem with sharing on capital platforms is pricing. Renters tend not to know how much their goods are worth. As such, overpricing tends to happen; renters tend to over-estimate the worth of their goods. When overpricing occurs, it makes it even less attractive to potential customers. As such, consumers are more likely to purchase goods from traditional suppliers instead. That said, there are mechanisms in place that can mitigate this problem with self-evaluation of a property’s worth. Such mechanisms include having recommended prices or maximum price of a good.

Curiously, for many of the start-ups listed above that weren’t successful, another common factor is that they tend to offer a huge variety of goods. After a quick glance at the goods offered on NeighborGoods, I realised that the sheer number of goods on offer makes it terribly difficult to find a good that I want. Perhaps a lack of specialisation and niche might be going against these companies. After all, successful companies like Airbnb or Turo tend to focus on offering one type of good – accommodation or vehicles. If variety does indeed make it more difficult and inconvenient to engage in sharing, it might explain the lack of success of these eight companies. That said, this is merely a hunch. More analysis and market research would have to go into this to determine if this variety works for or against sharing platforms.

[1] Kessler, S. (2015, September 14). The “Sharing Economy” Is Dead, And We Killed It. Retrieved March 23, 2016, from http://www.fastcompany.com/3050775/the-sharing-economy-is-dead-and-we-killed-it

Same, same but different (1)

Given our current crisis of overproduction and overconsumption, we have two demand-side options in solving this crisis. We either curb our demands or we start sharing.

Curbing our demand is difficult. Our needs aren’t shrinking, but ever expanding. I’ve covered in previous posts about how as we progress, we seem to be needing more and more. These needs are sometimes even created by large corporations. Curbing our demand thus requires a shift in mind sets, not only of consumers, but of large corporations as well. And paradigm shifts are one of the hardest things to achieve. We humans are creatures of habit. Change in these ‘sacred’ practices are generally met with great displeasure and resistance.

Therefore perhaps a more feasible solution is to share what we have with others, especially what we aren’t using. Could sharing economies, therefore, be the solution to our crisis? Is sharing economy the feasible solution to sustainability?

In my post, What if, I posed two questions. 1) Can sharing economies meet the needs of the present? And 2) Does it compromise the needs of the future? The second question, I have already addressed – concluding that sharing economies certainly does not compromise the needs of the future.

But does it meet current needs? I do not believe it does. Some companies in the sharing economy succeed, but many others failed. In the previous 7 posts, I laid down some conditions and factors that contributed to the success of many sharing platforms like Airbnb, Uber, or Turo. For any platform to be successful, they need to be effective in attracting not only consumers, but also independent contractors and suppliers. Blessed with the gift of hindsight, we now can see that the hype of sharing economies as a solution for sustainability remains largely unjustified. Apart from some successful sharing platforms, many other platforms have struggled to remain afloat. A host of problems arisen, causing many sharing platforms to close.

Let’s begin with capital platforms. Rachel Botsman, the author of the book The Rise of Collaborative Consumption, famously shared her example that a power drill will be used around 12 to 15 minutes in its lifetime [1]. She found this absurd because she felt we don’t need the power drill, we only need to hole it makes. Yet most of us have our own power drills. So why not share?

Indeed, people did listen. Eight start-ups opened between 2007 and 2010 intended on facilitating such sharing – the sharing of appliances or goods. Ecomodo, Crowd Rent, Share Some Sugar, NeighborGoods, Thingloop, OhSoWe, Neighborrow, and SnapGoods [1]. Yet as of now, only NeighborGoods is still in operation [1]. This begs the question, why?

The simple answer is that these companies aren’t making enough money. They simply aren’t profitable. As to why they are not profitable, let us look back at some of the conditions I set over the past posts and see if these companies failed in part because of their failure to meet these conditions.

[1] Kessler, S. (2015, September 14). The “Sharing Economy” Is Dead, And We Killed It. Retrieved March 23, 2016, from http://www.fastcompany.com/3050775/the-sharing-economy-is-dead-and-we-killed-it

Why people share? (3)

In hope of coming to a better understanding of what motivates an individual to become an independent contractor for a sharing platform, I went and did an informal interview with someone who had first-hand experience as an independent contractor in the sharing economy.

My interviewee is a 60 year-old retiree, who in his free time performs delivery jobs for a local labour platform lalamove. Lalamove [1] is essentially a courier service that relies on independent contractors to perform delivery jobs. Drivers (or even riders) first sign up and register on the platform. They then download the lalamove app which displays customers’ orders. Orders range from single delivery trips to multiple trips or even two way trips. Drivers can deliver anything from letters to parcels or even furniture. They are then paid according to rates listed together with the customers’ order.

Since this was an informal interview, I did not record the interview, write a transcript or take detailed notes. I only took sparing field notes with key points. As such, I might paraphrase what my interviewee said. I asked him three main questions during the interview:

What made you decide to become an independent contractor for lalamove?

Being a retiree, he told me that one of his main reasons was that he had a lot of free time on his hands. Given that he already owns a car, he felt that it made sense that in his free time, he could do some jobs to earn additional income. He said, “there isn’t much (money), but if it pays the petrol and other small expenses here and there, why not? I have time on my side anyway.” Another important factor to him was the flexibility. He ferries his family to and from work or school. That was something that he did not want to compromise. He believes that this sharing platform suits him because he can take jobs that fit his schedule, and that he is not obliged to work at hours that does not suit him. He said, “I got nothing much to lose doing these (delivery) jobs. If I don’t feel like working, I just don’t take the jobs.”

What was your experience like working for this company? Were they generally positive or negative?

He feels his experience was generally positive. This is because he the work he does isn’t physically taxing or demanding. As mentioned above, he does jobs that fits his schedule. The company occasionally calls the drivers to ask if they want to take up jobs (jobs that are unpopular and hence were not taken up by other drivers using the app), but there is no penalty should he decline the jobs.

That said, he did share one bad experience. He qualified that is wasn’t particularly related to anything the company did. During one of his jobs, he had to deliver a package to a unit in a condominium. The driveway was extremely narrow, so to leave the place, he had to make a three-point turn. While reversing, he failed to see that there was a small pillar that was not visible in his mirrors. He then accidentally backed into the pillar, causing his car to be damaged in the process. He said, “no choice, I had to repair the car. Paid for it from my own pocket.”

Do you see this as a feasible form of employment? Or does this only work as a side-job?

He stated once again that though you can make a living out of simply taking up many jobs, he did not think it was a feasible form of primary employment. “It’s too uncertain. Sometimes there are good jobs, but sometimes there isn’t.” He does admit that he knows some people who do this on a more full-time basis. That said, he firmly believed that jobs like these are unstable. It works for him because he is retired and isn’t strapped for cash.

Many of my interviewee’s responses were very much in line with what was discussed in the previous posts. His main motivation for participating in a sharing economy was taking advantage of under-utilised resources (in his case, time). He also stressed the importance of flexibility. His greatest frustration was the damage he had to pay from his own pocket. There was no scheme to cover accidents like this.

In summary, though the risks of participating in sharing economies tend to be higher for suppliers and contractors compared to consumers, successful sharing platforms have undertaken measures to continue to attract members of society to participate as contractors or suppliers. The main motivation for these independent contractors is the extra income sharing economies can bring to them. Sharing platforms allow them to take advantage of their under-utilised resources to make additional income in a flexible and non-committal manner. Successful platforms also provide assurance to these contractors by offering insurance coverage, giving autonomy to contractors in decline transactions, and actively acting as mediator to resolve conflicts like damage claims.

Ultimately, no business is successful without an able and efficient supply chain. Companies like Uber and Airbnb remain successful in part because they are able to maintain a stable stream of high-quality independent contractors. They achieve this by providing contractors incentive to remain a provider, and also by mitigating any risks involved in becoming a contractor. Only when platforms are able to convince contractors that sharing is worth the risk, can these platforms remain successful.

[1] Lalamove (2016). Delivery and moving service in Singapore. Retrieved March 17, 2016, from https://www.lalamove.com/sg-eng/personal-home

Why people share? (2)

Extra income from our underutilized resources and altruism are good reasons to enter the sharing economy as a supplier. However, contracting your goods and services to these sharing platforms bring about its own fair share of risks. Hence, before any individual decides to become an independent contractor of a service or renter of a good, they would need to perform their own utilitarian cost-benefit analysis to see if the benefits of extra income and satisfaction from helping others outweigh the many risks involved. This post will look to cover some risks suppliers faced.

For capital platforms, there is this fear that capital loaned out may return damaged. There are also concerns with safety and security for suppliers in both platforms. Once in a while we would hear of horror stories of Airbnb apartments being trashed [1] [2] and goods being damaged. An individual even reported that he had his car stolen after he rented it out on a peer-to-peer car sharing platform called Turo [3].

To make matters worse, sharing platforms are generally not liable for any damage or lost caused during the rental [4]. Insurance costs and damages are borne personally by each individual contractor. Platforms merely act as the middleman linking the two parties together. Furthermore, personal insurance does not cover damage incurred during rental (capital platforms) or work (labour platforms). Should a renter desire insurance coverage, he would have to purchase his own commercial insurance, which have higher premiums.

Sharing platforms tend to take the stance of avoiding responsibility whenever possible. In the case of an Uber driver who hit and killed a 6 year-old in San Francisco, Uber quickly distanced itself from the incident; they argued that the driver was not carrying any passenger at that time and hence they were not culpable [5].

Hence, before any supplier participates in the sharing economy, he will need to be willing to take the risk that damages might occur. To mitigate this risk involved, most sharing platforms allow not only guest and consumers to pick a suitable host or renter, they also allow renters the autonomy to accept or decline any transaction. Should an individual contractor feel uncomfortable engaging in a transaction with a consumer, he can decline the dealing. This gives both renters and consumers the opportunity to run background checks on each other, thereby giving them further assurance of safety and security before embarking on the transaction.

Also, they have been vast improvements with regards to sharing platforms trying to protect its contractors from damage caused by rental. Airbnb offers its Host Guarantee Protection, a secondary insurance that protects hosts from damages caused by guests. Turo too, provides all renters with a “$1 million liability insurance and protection against theft and damage” [6]. Though it can often be difficult to make claims at times [2], sharing platforms increasingly doing more to protect their contractors from destructive and unruly consumers. Airbnb, for example, have banned guests who damaged property [1][2] on top of providing secondary insurance. These surely are steps in the right direction and would make a huge difference in building confidence of individual contractors in sharing platforms.

The legal system too can protect suppliers and contractors in sharing economies. In 2015, the California Labor Commission ruled in favour of a San Francisco Uber driver, declaring that the driver was indeed an employee of Uber, not an individual contractor [7]. As a result, Uber was made to pay driver Barbara Ann Berwick employee expenses amounting to $4,152.20 [7]. Uber, however, was reported to have said that the ruling was non-binding, relating only to that one particular driver. That said, the ruling could set precedence for future cases, possibly providing more protection for independent contractors and suppliers.

[1] Mulshine, M. (2015, May 1). A bunch of people threw a rager and did $75,000 worth of damage to a house they rented and then trashed on Airbnb – Business Insider. Retrieved March 16, 2016, from http://www.businessinsider.sg/airbnb-damage-up-to-75000-2015-4/#.VukMpfl96hc

[2] Bort, J. (2014, March 19). An Airbnb Guest Held A Huge Party In This New York Penthouse And Trashed It – Business Insider. Retrieved March 16, 2016, from http://www.businessinsider.sg/how-an-airbnb-guest-trashed-a-penthouse-2014-3/?r=US

[3] Guru, B. (2016, January 22). My Car Was Stolen While Renting through Turo! Retrieved March 16, 2016, from http://www.travelcodex.com/2016/01/my-car-was-stolen-while-renting-through-turo/

[4] Malhotra, A., & Alstyne, M. V. (2014). The dark side of the sharing economy … and how to lighten it. Communications of the ACM Commun. ACM, 57(11), 24-27.

[5] DeAmicis, C. (2014). Uber driver hits, kills six-year-old girl. Is “Not our problem” still an appropriate response? Retrieved March 17, 2016, from https://pando.com/2014/01/02/uber-driver-hits-kills-6-year-old-girl-is-not-our-problem-still-an-appropriate-response/

[6] Turo. (2016). List your car. Retrieved March 17, 2016, from https://turo.com/list-your-car/about

[7] Sanders, S. (2015, June 17). California Labor Commission Rules Uber Driver Is An Employee, Not A Contractor. Retrieved March 17, 2016, from http://www.npr.org/sections/thetwo-way/2015/06/17/415262801/california-labor-commission-rules-uber-driver-is-an-employee-not-a-contractor

Why people share (1)

I have explained how successful sharing platforms like Airbnb and Uber took advantage of gaps in the market and used strategies like pricing or marketing to pull consumers over from traditional providers to sharing economies. However, should these sharing platforms fail to attract suitable individual contractors, hosts or suppliers, they would also not be able to fulfil their demand. Therefore, over the next two posts, I seek to understand better how these successful platforms attract suppliers. Why are people willing to lend their goods and services to others?

I identified two main reasons why individuals are willing to become independent contractors; willing to lend their goods or services. These reasons are: (1) extra income from underutilised goods (capital platforms) or spare time (labour platforms); and (2) altruism.

The main reason one would risk lending their good or spend time performing a service is for extra income. In economics, we learn that under-utilisation of resources cause market inefficiencies; we are not performing at our maximum capacity. It therefore makes economic sense for people to maximise their resources and earn some additional income.

This makes perfect sense for capital platforms. Most of us have goods and resources that are collecting dust in storage. We have them but barely use them, either because we don’t need it all the time or because we simple have no time to use them. These extra resources could be put to better use by sharing with people who need them [2] – benefiting both consumers (through cheaper products) and suppliers (through additional income earned).

I have a full drum-kit at home that I only use during the summer vacation (which accounts for 4 out of 12 months in a year). This means that for two-third of the year, this resource could be put to better use. I could be supplementing my study allowance with that additional income. All it requires it for “suppliers” to find suitable renters.

For labour platforms, however, extra income is earned through the efficient allocation of a different form of resource –time. Those with a car and some spare time can opt to become Uber drivers to earn some additional income. Others can use TaskRabbit to perform simple tasks to earn extra money. Time, therefore, becomes a resource that anyone can exploit to earn income.

That said, is time better spent working a separate job? That, of course, depends on the types of jobs available to that individual with spare time. Regardless, there are some benefits of performing services in sharing economies as compared to traditional jobs. Firstly, its non-committal and flexible. Performing tasks on TaskRabbit or driving for Uber does not require you to work at fixed times or clock in minimum hours. Also, you can easily decide to stop working without any penalty. Secondly, income earned through these platforms are not subjected to taxes. These factors surely further encourage individuals to spend their free time performing tasks and services for these platforms.

While most people do it for money, others have stated that they share simply because they like helping people – for altruism. Some Airbnb hosts cited their desire to help others as a reason why they host guests [1]. Psychologist have argued if true altruism exists or not. In this case, it can be argued that altruism certainly isn’t a good reason why people share. After all, if it is through true altruism that they partake in the sharing economy, they most certainly would not need to be payed to provide a good or service.

Whatever the motivations, it is more important that people are willing to share their capital or services; that they are willing to lend their time to others – even for a fee. For only when a steady supply of individuals willing to partake in the sharing economy is matched with demand for goods and services offered can the sharing economy begin to meet the needs of the present. And only when the needs of the present are met can the sharing economy be a feasible solution for sustainability.

[1] Hosts Love Using Airbnb. Retrieved March 12, 2016, from https://www.airbnb.com.sg/info/why_host

[2] Eisenmann, T. R., Parker, G. G., & Van Alstyne, M. W. (2006, October). Strategies for two-sided markets. Harvard Business Review.