Sharing Economy: Meaning, Types, Pros, and Cons

What’s it: Sharing economy refers to an economic model in which people share goods and services facilitated by digital channels and the internet, either for free or by paying a fee. Advanced internet and big data allow you to use your assets more productively. Through the internet, you can find people who need these assets and share usage. That way, you can make extra money.

Although relatively new, the sharing economy is an important part of our life going forward. In its report, “Sharing or paring? Growth of the sharing economy ” PriceWaterhouseCoopers estimates that the company’s revenue in this business will reach USD335 billion in 2025, growing 22 times compared to the figure in 2013 (USD15 billion). It only considers five platforms: c2c lending and community financing, online distance work, c2c home sharing, car sharing, online music, and video streaming. Thus, the more varied the business model (platform), the higher the money turnover going forward.

How does the sharing economy work

The sharing economy is growing as activities become more online. Big data and storage capacity and increasingly sophisticated computing programs have led to various new business models. You can rent other people’s goods or services, from money, workspace to clothes.

Types of sharing economy platforms include:

• Peer-to-peer lending. This platform allows you to borrow and lend money without going through traditional banks. The platform acts as an intermediary between borrowers and lenders. Interest depends on the borrower’s creditworthiness history, usually without involving collateral. Several platforms provide day-to-day loans, which are unavailable at conventional banks.
• Crowdfunding. This business model connects people who need money with those who are willing to provide it. Unlike peer-to-peer lending, funding is usually to fund a project or startups. Entrepreneurs can sell the product or offer a share in return.
• Freelancing platform. This is an online model of the labor market. On this platform, some people offer freelance jobs, and some are looking for them. The types of work range from writing articles, building financial modeling to data entry to programming.
• Coworking. Here, service providers offer a shared workspace. The enthusiasts can come from freelancers, those who work at home every day to entrepreneurs. You share the cost of utilities, storage, office rent, and office supplies with other professionals, thus saving you money.
• Fashion sharing. Here, you can sell or rent the clothes you have for those who are in need.
• Apartment renting and Couchsurfing. Platforms like Airbnb connect those who need temporary accommodations when they travel.

Distinguish between the gig economy and the sharing economy 

The two terms have become increasingly popular in recent years, especially with many startups offering new business models. The term “Gig Economy” refers to changing employment conditions, where part-time work or project-based work is becoming a common and fast-growing phenomenon.

In conventional jobs, the company recruits a full-time workforce. You must be present at the office to complete your assignment. On the other hand, under the gig economy, you can work anywhere, at home, cafe or library.

Meanwhile, the sharing economy refers to the shared use of goods or services. Several business models in the sharing economy give rise to the gig economy because companies do not hire full-time workers. For example, in a freelancing platform, service users offer several projects to certain individuals. After the project and payments are completed, the contract between the worker and the service user ends.

Pros and cons of sharing economy

Benefits of sharing economy:

• Monetizing underutilized assets. You can share the usage of some items with others, increasing their utilization. For example, suppose you have some money to pay bills in the next month. For less than a month, you can lend to other people for several days via the peers-to-peers lending platform. That way, you get interest income. Banks often don’t offer daily savings or loans.
• Save money and resources. You don’t need to have a few items that you need in the meantime. You can rent a car or clothes instead of buying them. Long story short, platforms give people access to items they can’t or aren’t interested in buying and using over the long term.
• More flexible. Now, to earn extra money, you don’t have to work in the office every weekday. You can take some jobs on online sites and do them anywhere as long as there is an internet connection. To interact with colleagues, you also don’t have to meet face to face. You can use several online applications.
• More efficient allocation of resources. Supply and demand for platforms, such as freelancing, come from various locations across countries. Because of this, the market has become more competitive.
• Get more reasonable prices. You have more opportunities to compare the prices or costs of the goods or services you need. Many platforms have built-in ratings and reviews, helping you get the best price and quality.
• Reducing environmental impact. The sharing economy increases the use of goods. It reduces the number of goods that must be produced, reduces industrial pollution.

Despite increasing asset utilization and generating extra cash, the development of several business models has also raised several criticisms. The following are various problems in the sharing economy:

• Regulatory uncertainty. Regulators are usually unable to keep up with the speed with which the business model is developing. In the end, they were late in launching related regulations, for example, related to consumer protection. Finally, regulations are outdated, allowing some business models to escape scrutiny. It is mainly for cross-border platforms, which are outside the jurisdiction of the user’s country.
• Unclear taxes. The platforms can operate outside the host country. That makes it difficult for tax authorities in user countries to determine taxpayers and collect taxes.
• Missing out on allowances and other benefits. When you become a freelancer, you don’t get some benefits such as insurance and bonuses that are usually available to permanent workers. Also, your income is uncertain, depending on how successful you are in getting the project.
• Lower security. Fraud and insecurity of privacy and personal data are becoming more prevalent. No warranty providers or other users will act according to your expectations. The platform works on the principle of trust between users and providers. Consequently, more people will use it to deceive and do evil. Lack of regulation also increases the odds.