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Why own when you can share? Understanding the dynamics of the sharing economy.

The sharing economy is a hit with millennials. Need a car? No need to buy one. Hire one from Zipcar. Vacationing in Paris and need a place to bunk out for the night? No problem. Rent someone’s extra bedroom via Airbnb. Going for a party and want to flaunt a Hermes clutch? Rent one for the evening on Bag Borrow or Steal. The sharing economy, which allows you access to things you don’t want to buy or own, is bustling with activity. It is giving rise to business models that are gradually chipping away at the revenues of more traditional companies. Airbnb, for instance, is giving traditional hotels a run for their money. With an estimated valuation of $10 billion, Airbnb is already bigger than several more established hotel chains. Uber, an extremely popular ridesharing, cab and private car rental service, is valued at $18 billion.

So how big is the sharing economy really? And why is it becoming so popular? Will it disrupt traditional industries? To understand these questions, we sat down with Russell Belk, Professor of Marketing and the Kraft Foods Canada Chair in Marketing at York University’s Schulich School of Business. Belk, whose research has examined the ideas of possessions and sharing among other things, believes that the sharing economy will grow at a scorching pace to become a $115 billion by 2016. In this interview he explains why.

Q. The idea of the ‘sharing economy’ has gained a lot of currency in recent years. Why? 

A. There are several reasons. One is the development of the internet: we can share [things like music] digitally. [We can also] access other people who have tangible things that we might wish to share. General Motors automobiles, for example, have a device called OnStar that’s been built into the cars since 2010. They have a program where they facilitate getting people who want to lend their car for a fee to other people and people who want to borrow a car for a fee for a few hours. The internet is part of it. It facilitated sharing, not just digital but also non-digital, tangible things.

Another reason might be demographic in nature. In many countries, a generation of young people is moving to big cities, renting apartments and finding that they can rely on public transportation. They don’t want to have an automobile. If they can go online and book an automobile for 3-5 O’clock this afternoon, that can be more convenient. This generation is driving a lot of the sharing that takes place. The long-term question is: is this a permanent change or when they have a family, are they going to move out to the suburbs and buy an automobile and change their consumption habits?

The third reason is environmental: people are realizing that it’s wasteful to have duplicate possessions. For example, the electronic drills that you buy, how long would you guess that that product is in use over its entire lifetime for an individual? About 13 minutes. Does it make sense for us each to own an electric drill for a product that is used that seldom? Maybe it makes more sense environmentally to not buy them, but just to borrow or rent them for the short-term when you need them.

These are some of the factors that I think have caused the explosion of this so-called sharing economy which are really [about] short-term rentals. True sharing is something that happens typically within the family: we commonly pool our resources within the family.

The sharing economy takes some elements of that: one person owning something and someone else is using it, but it’s also built in the profit order. Maybe rather than ‘sharing economy’, ‘collaborative consumption’, or some other title would be more accurate.

Q. How big do you think the sharing economy really is? 

A. In 2012, it was a $3.5 billion economy [globally], by some estimates. It is predicted that by 2016 it could be $115 billion, which is a tremendous growth. Some people were saying that it could be bigger than the Industrial Revolution in terms of impact. It remains to be seen whether that’s an overly optimistic forecast.

Brands in the sharing economy (Click to enlarge)

Q. From your perspective, is sharing a more efficient model than the other ones that we are used to?

A. It’s certainly more efficient in terms of the use of resources, impact on the environment, and access to goods. In Melbourne, Australia, [there is] a neighborhood sharing organization called The Sharehood. The person who started it needed to wash clothes. He knew that there was a laundry man about 10 blocks away. He realized that in those 10 blocks there were probably hundreds of homes with washing machines sitting idle. So he developed this site where people could put things they are willing to share and things that they are seeking to get access to from other people. The ultimate benefit of that is partly the efficiency and convenience but partly also the feeling that you don’t know your neighbors any longer and this is the way [they are correcting] that.

Efficiency is [not] the only reason that this sharing economy works. In some cases it’s maybe less efficient. Right now with car sharing organizations, you usually have to take them from a certain place and return them to that place. So it’s not quite as convenient as having your car.

There is a study on Zipcar [that] found that although this for-profit car-sharing organization is trying to create a sense of community, they have tried to get people together in person or online, [but] people really don’t want to have any of that. They view this simply as an efficient use of resources and a cheap way to get access to a car. Whereas Göteborgs Bilkoop (previously known as Majornas Car Cooperative) in Sweden is very much personal. It’s operating under a somewhat different principle. The efficiency is probably more for for-profit organizations whereas the feeling of community is relatively more important in the not-for-profit organization.

Profit n Non-Profit Models

Q. What are some of the key obstacles in creating this new model?

A. One is getting people to find out where there are things that are available. Just finding enough of these organizations to make it feasible to access rather than to buy [is a challenge].

There are some people who get a feeling of security from having possessions. [They] insist: “I really like my own television. I don’t like the shows that other people are watching.” So they begin to ‘privatize’ to a greater degree. We even began to do that within a family. We used to have a family television, a family radio, a family automobile, telephone, computer… So that too will be an obstacle.

The extent to which it’s feasible economically to own things privately is making some people perhaps more materialistic. “I want to have my phone, because that’s my song, those are my contacts… If my partner sees that, they will see things that I don’t want them to see.” If children want things that are different from what their parents want, that will also be an obstacle, an impediment to a certain degree.

There are people that are possessive about things that they already do own. We talked with people about their childhood sharing experience. Some have positive stories. But other people would choose their childhood negative sharing experience as an excuse of why they didn’t want to share as adult: “I lent my jumper to my best friend and I never got it back”.

We can also think about this in an institutional context. If you have art, everyone has access to the art. You don’t have to own it individually. You can access a Picasso that you cannot possibly afford by going online, finding a copy of the painting or checking out in a library that has a copy. But somehow, it’s not the same. There is more status in saying I own a Picasso. So concerns with status and conspicuous consumption may be part of it, but that also is a two-edged sword. There is an organization in the US called Bag Borrow or Steal. You can pay a membership fee, and you can have a really good time having a Louis Vuitton handbag today, a Hermes Birkins tomorrow, a Gucci the next day and a Prada the next. It looks like you have a huge wardrobe of handbags. But in fact you just pay a very small fee and no one is going to see because they don’t see your closet. Rent the Runway, another company, let’s you access designer dresses for an evening or a weekend without having to buy them. This anonymity that [gets] some strangers [to] think that you must be quite wealthy to own all those fabulous designer goods is something that may also be facilitating the sharing economy.

[Watch the video below]

Q. At a more micro level, to what extent is intellectual property an obstacle to the creation of the sharing economy? 

A. It’s a big obstacle but it probably should not be. The way that the music industry, the film industry and publishing industry responded to the so-called pirate copies or other goods was to prosecute people or threaten prosecution to thieves on the internet with corrupted copies. Basically, to react in every way they could to resist the digitalization of fair property without instead finding business model that would work. Industries are realizing that we need to embrace the sharing economy. The resistance is futile and it may backfire.

We’ve seen music industry sales decline even though there are companies like Apple’s iTunes and streaming sites like Spotify and others where you can get access to the music or the movie temporarily. That hasn’t necessarily been the salvation for music companies and the film industry. The lesson for the film industry is not to follow the model of the music and the film industry but to find ways to work with the sharing economy, to think about new business opportunities and  business opportunities for existing companies, or present opportunities that didn’t exist before. The people who get their handbags from Bag Borrow or Steal are people who could not have afforded these. It’s a new market and it creates new consumers for these goods that wouldn’t have existed previously.

Q. Some months ago, Tesla released its patents. Would something like that fall into the broader conceptual framework of the sharing economy?

A. It’s sharing intellectual property. One of things that will hamper electric automobiles is that you have to have service stations where you can recharge the batteries. The more people own electric cars, regardless of the brand, the more infrastructure is going to be feasible. In this case everyone will benefit and Tesla will benefit accordingly. It’s the first-mover at least in terms of fast electric cars so they are likely to benefit more than their competitors. It’s a good example of a company that has embraced the sharing model of intellectual property.

Q. But as Tesla, how can a company deal with the tradeoff that comes with giving away its intellectual property and probably the things that give it the added advantages? 

A. I don’t think it has given away the things that give it the added advantage. The thing that gives you an added advantage is not just your patents, but also your innovation of being the first to offer these things. That’s not going to go away. People will recognize that and the goodwill that Tesla has generated by giving away their patents. The fact that it’s a company that in some sense is altruistic, they are trying to benefit everyone: the consumers, the environment, the competitors and themselves. We can do the mathematics and try to figure out the benefit and the cost. But my intuitive guess is that they are going to benefit more than they are going to potentially lose by this gamble.

Q. In your research you talk about the need to distinguish between sharing and collaborative consumption practices. Why?

A. Take the example of family and sharing in the sense of not keeping track [of who owes what for using something] as opposed to the business model of ‘the amount of time you use my car is going to determine the price you are going to have to pay for’. These are different sorts of business models and the one case of true sharing is out of generosity, not keeping track. If there is reciprocity, generalized reciprocity, we are giving without keeping track. We are giving to our children not only [out] of expectations that they are going to take care of us in our old age or pay us back in some sense: they’ll pass that along to their children by doing good to them. Paying-it-forward rather than paying it back becomes more of the model in true sharing as opposed to the for-profit sharing.

Couchsurfing got some capital from a venture capital firm… several millions of dollars for the principles of starting the company. People who belong to the company that share their homes or get access to homes were upset because they were saying we were doing this without any profit and the company should also be doing out of the goodness of their heart. That doesn’t work. Eventually, a business model has to be found to make it a sustainable business even though the people that participate in may not be doing it for commerce in the manner purposes.

Q. To what extent will sharing disrupt traditional industry?

A. It depends on the industry but I don’t think there is any industry that is totally invulnerable, that doesn’t stand somewhere being threatened or finding opportunities to look at it more positively from the sharing. We might think of clothing as something very private and personal but, in fact, we find ways to share these certain types of clothing. The second-hand market would be another way the clothing industry would benefit from certain form of sharing. It might seem as there must be something that is safe and not threatened by the sharing economy but I think there is literally no firm that’s totally immune from sharing or where sharing is not possible.

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