The Inexorable Logic of the Sharing Economy

By Nobel Prize Winning Economist Michael Spence. Excerpts:

"The insight (obvious in retrospect) underlying Airbnb’s model – and the burgeoning sharing economy in general – is that the world is replete with under-utilized assets and resources. How much time do we spend actually using the things – whether cars, bicycles, apartments, vacation homes, tools, or yachts – that we own? What value do office buildings or classrooms generate at night? 

Answers vary by asset, individual, household, or organization, but the utilization numbers tend to be astonishingly low. One recent answer for cars was 8%, and even that may seem high to someone not burdened by long commutes. 

But those numbers are changing, as the Internet enables creative new business models that increase not only a market’s efficiency but also the utilization of our various assets. Hundreds of experiments are being conducted. Clearly, not all of them will experience the astonishing growth of Airbnb and Uber. Some, like Rent the Runway for designer clothes and accessories, may find profitable niches; others will simply fail. 

The digital platforms that act as the basis of all this e-commerce need to meet two related challenges. The first is to produce a network effect, so that buyers and sellers find one another often enough and rapidly enough to make a business sustainable. Second, the platform must create trust – in the product or the service – on both sides of the transaction."

"The power of these platforms derives from overcoming informational asymmetries, by dramatically increasing the signal density of the market. 

Indeed, in order to encourage infrequent e-commerce users, innovators and investors are exploring ways to combine the evaluation databases of separate, even rival, platforms."

"the Internet is lowering the costs of dispersion that once compelled the concentration of work in factories and offices."

"the Internet-led process of exploiting under-utilized resources – be they physical and financial capital or human capital and talent – is both unstoppable and accelerating. The long-term benefits consist not just in efficiency and productivity gains (large enough to show up in macro data), but also in much-needed new jobs requiring a broad range of skills. Indeed, those who fear the job-destroying and job-shifting power of automation should look upon the sharing economy and breathe a bit of a sigh of relief. "