Sharing Economy, With Uber
Sharing Economy refers to a business model, where the users borrow or rent the assets from their owner, the emphasis is on the product and not on the ownership.
The concept of sharing has prevailed since time immemorial but in the recent times there has been a surge in the ubiquity of sharing economy. With the development of the internet and the IT infrastructure, the search costs and transaction costs have gone down significantly, and information is readily accessible, enabling seamless peer to peer interactions; consequently, the sharing economy has undergone enormous growth. The sharing economy has reduced the deadweight loss considerably by increasing asset utilization for the owners and providing utility (value) for the users at considerable prices.
The key drivers for the sharing economy are:
i) Internet: Apart from lowering the search costs, and increased transparency the trust between the users and the owner is also increasing with the speedy P2P interactions and transparency
ii) Economic shocks: Sharing economy is an optimal way for minimizing losses for both the parties (the users and the owners) by improving utilization and by providing affordable services at the time of crisis.
The 2008 financial crisis was a testimony for the growth of the sharing economy, people were renting out their assets (not necessarily the real-estates) which was a source of their income.
iii) Cultural Shift: The has been a growing emphasis in creating an “Asset-Light” lifestyle foregoing the beliefs of the previous generations. People prefer using a service when in need rather than owning an asset and use it only occasionally, most prominent example would be the use of Zoom Car by recent college graduates rather than purchasing a car financed by debt/loan.
A survey conducted by Gartner, found that 46% of adults between ages 18 and 24 would prefer to have Internet services over owning a car, and only 15% of the baby-boomers preferred internet over owning a car.
iv) Social & Environmental Benefits: Generally sharing economies flourishes at a local scale, this enables the communication between individuals at local levels which has psychological and neurological
benefits in addition to strengthening the societal values.
One of the critical advantages of sharing economy is the reduction in overall carbon footprints which has been a global issue and a policy influencer. With sharing of assets the demand for owning the asset goes down as a result overall production comes down, which saves a considerable amount of carbon footprinting. Moreover, operating the assets also generates some carbon, which is foregone slightly in the sharing economy model.
The barriers in a sharing economy are Trust and Transparency; there must be trust between the user and owner to promote efficient sharing of goods and services. Regulatory barriers prohibit a sharing economy from practising antimarket practices like deep discounts, thereby giving a dent in the business model, which otherwise could have been successful.
Uber has been able to promote the sharing economy through its core offering of ride-sharing. It has been able to leverage the substantial positive network effects which they have garnered through a superior product and even superior offering (affordable and excellent service, transparency, ease of payment).
Uber has been continuously growing and expanding in different geographies. It was able to capture a significant market share from the traditional taxi services, with the expansion, Uber has been able to increase its community. They have emphasized on socialization; wherein the riders get to interact with the drivers and the feedback system is also an incentive to promote goodwill between the driver and the rider.
With ride-sharing, the number of cars on the road has definitely decreased, this has reduced carbon footprints significantly (reduced GHG emissions), thus making the practice environmental friendly.
The credit-card payment mode has helped the riders to engage in a seamless drive without any reference to money; this helps in promoting goodwill between the users and owner, by establishing a non-reciprocal relationship which further strengthens the trust between them.
Uber has faced regulatory pressures in Europe and has faced stiff competition in emerging markets like India and China; this has forced Uber to curate its
offering according to the market they are serving, abiding by all the regulations.