January 11, 2016

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The Sharing Economy

Peer-to-peer Commerce is Shaking up Traditional Business Models

By Sarah Ryther Francom

January 11, 2016

Cause and Effect

USU’s Mike Glauser spent the summer of 2014 bicycling across the United States. He wanted to find out why so many entrepreneurs were leaving Silicon Valley and Wall Street to start businesses in small communities. He recently published Building Your Dream on Main Street America, a book about discoveries he made during his months-long journey about small business, including the sharing economy.

While there’s no doubt that internet and app technology has made the sharing economy possible, Glauser points to two socioeconomic trends that are fueling this emerging business model. The first is technology-related job displacement. He points to a 2014 Oxford study that reported 45 percent of all American jobs today will be gone during the next 20 years. He also points to an AP study that found four out of five Americans will see a long period of unemployment at least once in their lives. This employment uncertainty is driving more people to find “gigs or freelance work,” Glauser says.

“We are using more and more robotics in manufacturing and that’s eliminating hundreds of thousands of jobs. Software is doing what accountants used to do. Online learning is replacing brick-and-mortar schools. What we’re facing is the middle class is earning less and there are fewer and fewer jobs. Anything that can be done through technology is occurring rapidly. The whole middle class is insecure about the world and the future.”

The second trend boosting the sharing economy is a generational shift in consumption habits, says Glauser. He points to the millennial generation—those born between 1980 and 2000—as leading the change.

“The Millennials are 32 percent of our population. They are very value-driven and minimalist. They don’t want material possessions—they believe in sharing and contributing to society,” he says. “They want to work for organizations with strong values and that give back to community. And many only want to work part time.”

As these two trends—employment uncertainty and minimalist consumption—converge, the sharing economy is a solution that in many ways makes sense, but the key to keeping it successful is trust between users and providers. Users are encouraged to provide honest feedback, and providers who receive negative reviews often go out of business. Because of this authentic review process, many argue the sharing economy is self-regulated.  

 “People are trusted until they prove they can’t be trusted—a reverse mentality from before,” says Glauser. “With all the consumer ratings about these products and services, people are very comfortable buying products from Etsy or renting places through Airbnb—but trust definitely has to be there. If it’s not, the sharing economy’s not going to work.”

Regulatory Conundrums 

Though the sharing economy has presented countless opportunities for individuals, it’s also presented several challenges. From local municipalities to the FTC, governing bodies across the country are struggling to develop sensible regulations that don’t impede growth and innovation. Questions about consumer protections, employee classification and rights, and fair competition remain unanswered.

Like many states across the country, Utah’s cities and state legislators have worked to address the array of issues presented by sharing economy companies. For example, Park City, St. George, Moab and Provo have already issued ordinances limiting Airbnb’s room rentals. The cities cite public nuisance concerns, such as noise and traffic, as well as impacts on property values. Tourist towns, like Park City and Moab, are especially concerned about how Airbnb could impact their tourism dollars. A Boston University study, for example, found that each additional 10 percent increase in the Airbnb market resulted in a 0.37 percent decrease in hotel room revenue. Though the decrease seems small, it adds up quickly, and organizations like the American Hotel and Lodging Association are warning tourist towns against welcoming Airbnb and other nightly rental platforms into their communities.

But the concerns Airbnb presents are much different than the concerns of ride-hailing companies like Uber and Lyft, which have taken the brunt of local regulation. In 2014, the Salt Lake City Council signed an ordinance restricting the ride-hailing industry. The council mandated driver background checks, vehicle inspections and insurance coverage of $1.5 million. While the traditional taxicab industry applauded the new rules, as they viewed it as leveling the playing field, Salt Lake City received public backlash.

“It was viewed as they were stifling innovation,” says Alex Lawrence, vice provost at Weber State University.

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