Wednesday, June 24, 2015

Bloomberg On the Sharing Economy

Bloomberg Brief, June 15, 2015:

The Sharing Economy: Friend or Foe?
“The sharing economy” is a sobriquet to warm hearts. Think of it as a claim that while grubbier businesspeople sell, buy and rent, the ones in the sharing economy collaborate, facilitate, build trust. Or so they say. 

Sharing-economy flag-bearers like Uber, Airbnb and Homejoy give people easy, cheap access to products and services that would otherwise go unused, free of the burdens of ownership. Their fans say this brings social benefits like community building and diminished inequality. Skeptics predict that it’s more likely to lower wages, raise housing costs, undermine health and safety rules, and expose women to harassment and assault. A 2015 Harvard Business Review headline had this to say: “The Sharing Economy Isn’t About Sharing at All.”

The notion that sharing constitutes a distinct economy has been emerging at least since publication of a 1978 academic paper called “Community Structure and Collaborative Consumption,” about car sharing. So what’s new? Smartphones. Today’s sharing economy got its start in 2008, when Apple introduced its App Store. Suddenly, it was easy to summon a business partner in minutes. Expansion has been aided by innovations like cloud computing and by economic circumstances, notably more people looking for work in weak economies since the financial crisis.

Nowadays, it’s hard to find more exuberant sharing-economy enthusiasts than investors. Uber, the ride-hailing company, is raising $1.5 billion at a valuation of $50 billion — theoretically making the six-year-old business the equal of Target and Kraft Foods. Airbnb, for home sharing, is valued at $20 billion. Uber competitor Lyft is valued

Uber is reportedly raising money at a $50 billion valuation, which would put it among the largest 500 companies by market cap globally. Airbnb, meanwhile, would be almost as big as Marriott if it raises money at the $20 billion valuation it is reportedly seeking.
at $2.5 billion. Instacart, for grocery delivery, is valued at $2 billion and Postmates, another delivery service, is valued at $150 million to $200 million. 

Companies say rapid growth supports the valuations. Airbnb claims more than 35 million guests since it launched in 2008 and 1.2 million listings; more than 600 are castles. Dogs can share homes too, on DogVacay, with 20,000 sitters on its platform. It's hard to figure out if revenue is growing as rapidly at these closely held companies, but a leaked Lyft fundraising document showed that the company took in about $140 million in 2014.

Ideological opponents say the sharing economy creates employee-serfs who go without benefits like health insurance and job security, and that peer-to-peer transactions aggravate inequality. In big cities, for example, apartments used for “sharing” become unavailable to long-term renters, worsening housing shortages and driving up rents. Cities and countries around the world are having to decide whether to treat sharing companies as innovators or scofflaws. 

As sharing companies adjust to regulators, they become more like other businesses. Houston makes Uber drivers pass a background check and provide disability access. What makes car-sharing there different from cab services? We explore this and other questions throughout this supplement....

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HT: The Big Picture