What drives the growth of the sharing economy

02 August 2018

By Pinar Ozcan and Mareike Möhlmann

There has been a 60 per cent increase in people using the sharing economy in the UK in the 18 months between January 2016 and July 2017, our survey revealed.

It is a phenomenal rise in the use of sharing platforms like Uber, Airbnb, TaskRabbit, JustPark and MealSharing, to name a few, and there is reason to believe this trend will carry on.

With the help of our colleague Chandy Krishnamorthy, our UK representative survey of 1,220 people found that 78 per cent of 18 to 24 year-olds have already used sharing platforms at least once before, providing evidence of how Millennials are eschewing possessions.

It points to a future where everything will be shared - cars, bikes, spare bedrooms, food, clothes even solar energy; possessions will be a luxury most people can do without.

Proponents of the sharing economy say it drives more efficient use of resources. A prime example are platforms like JustPark and Your Parking Space, which allow people to rent out their drive while they are at work and so reduce the burden on local authorities to build parking spaces. Similarly, renting out spare rooms is a more efficient use of space, allowing towns and cities to grow organically with less demand for new houses.

Similarly, it can reduce over-crowding in city centres. Studies show that Airbnb apartments are a lot more dispersed than traditional hotels, which are usually located in the centre of cities, so different parts of a city or town also become available to tourists, evening out income generation from tourism and boosting business opportunities in those areas.

It has also been argued that some sharing economy businesses allow people to access work more easily, for example becoming an Uber driver with other opportunities for people to further supplement their income through platforms like TaskRabbit.

sharing economy
Millennial: Usage of the sharing economy by age groups

Indeed, our survey found that 84 per cent of those earning under £40,000 a year said they used sharing platforms to save money, and for many it has become a lifestyle choice with many using multiple platforms every month.

It shows the sharing economy is engrained in the lives of many people and it is not just those looking to make or save money, environmental concerns are another reason, particularly providers of services and for women. Interestingly, educated people are also more likely to use sharing economy services.

It all points to a booming new opportunity, with the evidence from our survey showing demand for sharing economy services is only going to grow.

How big is the sharing economy in the UK?

At the same time, the arrival of sharing economy platforms has been met with plenty of resistance around the world, causing tensions, conflict, protests and costly court cases - as Uber can testify.

“Keep Chicago Uber. Join us in advocating for more economic opportunity, choice and competition - sign the petition today! Ask the Chicago City Council to reject Alderman Anthony Beale’s anti-consumer plan.”

This was one of the many emails sent to Uber customers around the world in 2016 to put pressure on local lawmakers to allow Uber to operate.

Similarly, consider the 6.2 magnitude earthquake on August 23, 2016, which completely destroyed several small villages in central Italy. Shortly after, Airbnb activated its disaster response programme that waived all service fees for hundreds of hosts in the region, making it easy to offer free shelter to disaster victims.

Such community-building initiatives helped Airbnb further legitimise and solidify its place in the hospitality sector.

sharing economy
Mastered: Use of sharing economy by education

Meanwhile, a woman in Egypt who rated an Uber driver poorly upon experiencing sexual harassment in the vehicle was contacted 30 minutes after the incident by Uber Egypt’s head of operations, who apologised, explained the procedure Uber had taken with the driver, refunded her trip, and gave her extra ride credits. Within 72 hours this was the most shared story on Egyptian social media and Uber rides skyrocketed.

The effective management of government regulations and public perception is no less important to organisational performance than business success in the marketplace.

Uber and Airbnb purposefully and strategically shape their institutional environment to improve their chances of success in different countries. However, while these strategies are effective in helping Uber and Airbnb legitimise their services and grow in these particular countries, it is unclear whether they work equally well in all country settings.

In a research paper with colleagues at Utrecht University Professor Ozcan contrasted countries with well-developed and functioning infrastructural conditions, such as an efficient public transport system – as seen in the UK and Netherlands for example - to those with significant institutional voids, like Egypt, to find out how the country context influences the type and effectiveness of the strategies employed by Uber and Airbnb.

What are the benefits of sharing economy?

Let us first start with the striking success of Uber in Egypt. Would you expect in a country with only two per cent of the population carrying credit cards, poor transportation infrastructure and limited GPS coverage that a company like Uber would be successful?

If the company is able to tackle some of these societal challenges, then the answer is, yes. The findings show that Egypt has no established taxi stations or on-demand cab services, and some areas do not have access to public transportation at all. Combined with high unemployment rates, this provided Uber with the opportunity to address these problems and leverage the power it gained to transform institutions to their advantage.

An Egyptian parliament member told us that the most important challenge Uber addressed in Egypt was public safety and, in particular, the sexual harassment of women - 81 per cent of women report frequent harassment while using public transportation - unemployment and access to public transportation.

Furthermore, Uber is currently investing approximately $27.9 million to optimise the quality of the GPS system in Egypt.

sharing economy
Lifestyle choice: Consumers who use multiple sharing categories

Comparing Egypt to the Netherlands and the UK, the study discovered that in developed countries, the legitimacy and commercial success of sharing economy firms has much less to do with their ability to solve grand societal problems and much more to do with how they approach existing institutions and key stakeholders in their environment.

For example transformative strategies aimed at quickly changing the country’s regulations and institutions, as Uber has used, can provide rapid gains. However, they are likely to backfire and lead to resistance from key stakeholders, such as regulators and incumbent firms.

In comparison, softer and more additive strategies, as used by Airbnb, allow for more opportunities to co-develop regulations that provide more sustainable legitimacy gains.

And yet there is a limit to applying additive institutional strategies. As firms grow over time, other non-market stakeholders - such as Amsterdam residents protesting at a housing shortage because so many landlords had put their apartments on Airbnb - may be affected negatively.

If firms do not adequately address such misalignments in their value proposition, they risk losing legitimacy.

Finally, the research found that despite acting locally and addressing the needs of the community to gain legitimation, market penetration largely depends on the approach of the national government regarding the regulation of the new service or product.

When governments play a more proactive role, as the UK is doing, politically active industry associations and lobbying various higher institutional actors, such as ministers, offer additional opportunities to gain legitimacy and influence regulation.

These institutional strategies also provide sharing economy firms with better opportunities to pre-empt or counter resistance by other stakeholders.

Overall, the quantitative and qualitative results from our various studies show that the sharing economy is not just a fad, but well on its way to making a difference in society. This road is not free of obstacles, however, as obtaining the awareness and trust of citizens is not easy for sharing platforms, particularly when news about negative experiences are diffused so quickly in today’s digital world.

As outlined above, sharing platforms need to keep up and adjust their strategy to their local environment to reach acceptance. Time will tell whether these platforms will get absorbed into existing industries with hotel chains offering homes as several recent acquisitions, such as AccorHotels’ takeover of Onefinestay, have shown.

What is clear is that consumers will have more options to share rather than to own in the future, which, considering the overpopulation and global warming issues facing Earth, is certainly a good thing.

Pinar Ozcan is Professor of Strategic Management and teaches Strategy & Practice on the Distance Learning MBA.

Follow Pinar Ozcan on Twitter @cpozcan.

Mareike Möhlmann is Assistant Professor of Information Systems & Management and lectures on Digital Marketing Technology and Management on the suite of MSc Business courses and MSc Management of Information Systems & DIgital Innovation. She is also teaches Design Thinking for Digital Innovation on the Undergraduate programme.

Follow Mareike Möhlmann on Twitter @mareike_online.

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