What is the sharing economy?

(picture: http://meridian-180.org/sites/default/files/sharing.economy.forum_.image_.jpg)

What is a sharing economy?

A quick search online and you would notice that there is no formal definition for the concept of a “sharing economy”. However, most definitions have something in common: the share creation and consumption of goods and services. By engaging in such an economy, the amount of under-utilized assets would be greatly reduced, leading to a more efficient economy. Such “sharing activities” are conducted off digital platforms through the use of websites or applications. For example, the most famous case would be Uber, a mobile application that matches individual car drivers to consumers who need them to get around.

There are many types of goods and services that can be shared. This ranges from the most basic of consumer durables to the more rare cases of intellectual property. Other examples also include transport, accommodation and even human capital. There is no doubt that there is a huge potential for the sharing economy, seeing that it affects many functional areas of life.

Below is a simple illustration on how the sharing economy works:

(picture: http://www.sharingskills.eu/project/what-is-sharing-economy/)

What then, fuels the growth of this economy?

First, the rise of technological advances. In the digital era that we live in, the rise of social media is indeed a defining innovation. Social media sites like Facebook, Twitter and Instagram allows us to form communities and thus develop relationships among each other. Each individual in the community have the power to be heard and impact the community they live in, as they now have the voice and access to resources. Over time, this social network can also act as a support group as they start to share ideas and resources among each other. Thus, bringing us closer to the notion of a “sharing economy”.

Next, the changing economic conditions. The financial and economic crisis in 2008 has resulted in the suffering of households purchasing power. Households are increasingly thriftier and some even need to find additional sources of income to supplement their current levels of spending. This, coupled with the fact that consumer goods are used for only a fraction of the time, led to the idea that a more productive model could be in place. Instead of owning the resources and assets, these products can be leased and rented among the users, for a much lower cost.

Lastly, the increased environmental awareness. We have seen the emergence of many green initiatives in companies and green movements (Earth Day) in the turn of the century. This shows that consumers are more aware of the consequences of our actions on the environment that we live in. Thus, the model of sustainable development – one that respects the environment and promotes the efficient use of resources, is becoming more popular than ever before. This idea of creating a green economy is indeed in line with sharing economies, as assets and resources can be shared among many users, reducing the amount of purchases being done by an individual consumer.

The sharing economy is the most recent value that the age of technology has brought to its consumers. It will disrupt the different business, social and regulatory environment for sure, but it will bring about immense benefits.