The Collaborative Economy: How Digital Platforms Are Creating A New Transactional Model

Everywhere we turn these days, there’s a new app or website available to make our lives easier. For consumers, this opens them up to an exciting world of new possibilities. For the global economy, however, it signals an enormous and unpredictable shift. A world that was once neatly divided into producers and consumers is now a Wild West of transactional relationships.

Today, the biggest taxi company in the world, Uber, owns no cars. The biggest accommodation company, Airbnb, owns no property. The biggest media company, Facebook, produces no content of its own.

These Silicon Valley disruptors have used the Internet to turn traditional business models on their heads. By creating digital platforms that connect users to each other in innovative ways, they’re dramatically reducing the need to invest in infrastructures that were once considered essential in their respective industries.

The new game is to algorithmically match users so that they can share and exchange assets. This phenomenon is known as the collaborative economy – and it’s changing everything.
“Digital platforms are creating new spaces where individuals are empowered to work together, to transact in new ways, and to trust each other like never before,” says Martijn Arets, a collaborative economy consultant based in the Netherlands and author of the book Brand Expedition, which examines the impact of digital platforms globally. “The collaborative economy encompasses things like the sharing economy (the sharing of things), the gig economy (the sharing of labor), and crowdfunding (the sharing of money).”

According to a PwC report produced on behalf of the European Commission, the collaborative economy will generate annual global revenues of $335 billion by 2025. The report reveals that most of this money will not end up in the hands of the companies that create and administrate the platforms themselves, but instead will be retained, for the most part, by those sharing through the platform, with companies like Airbnb and Uber taking a relatively modest transaction fee of around 15 percent.

PwC says there are five key sectors feeling the impact of this economic shift: accommodation, transportation, finance, professional services, and household services. Disruptors in some of these areas are already well known, boasting millions of users and their own TV advertising campaigns, while others are only just emerging from the startup incubators and offices of venture capitalists.

Industry Disruptors

Given that it’s been around for 10 years now, most people will already be familiar with Airbnb. The house-sharing platform has transformed the way people travel, whether they’re going on vacation or taking a business trip. More than a decade on from its launch in 2007, the platform is expected to facilitate more than 100 million stays around the world this year.

The traditional hotel industry has been critical of Airbnb, but it has allowed millions of people around the world – everywhere from Beijing to Kigali to Paris – to become hosts and earn extra money from their spare bedrooms or their homes while they’re not using them. On the other side, travellers have been able to enjoy more authentic and affordable accommodation in the destinations they visit, often in neighborhoods they otherwise never would have visited. And all of this is facilitated through a simple app and website.

As Airbnb co-founder Brian Chesky puts it, “We used to live in a world where there were people, private citizens, and there were businesses. Now we’re living in a world where people can become businesses in 60 seconds.”

The transport industry has proven to be much harder for a single digital platform to dominate than the accommodation market, but it has certainly faced disruption. Uber has allowed drivers all over the world to earn money by giving people rides across cities, just as taxis have for many decades. The difference is how much more efficient the company’s technology makes the process. Once upon a time, a taxi driver would spend a significant proportion of each hour waiting for his next fare. Uber has changed the game through an algorithm, so that drivers spend much less time waiting each hour.

Today, Uber operates in 737 cities across 84 countries, but it has struggled to establish a monopoly. In August 2016, Uber announced that it would no longer try to compete with Chinese ride-sharing app Didi Chuxing. Instead, it agreed to merge its operations with the state-backed platform. Similarly, in November 2017, Russian regulators approved a deal that would see Uber merge with the country’s largest tech company, Yandex.

An Economic Shift

Both Uber and Airbnb have faced criticism in the media for skirting regulations and damaging local economies. Airbnb has been banned in Berlin over concerns that it was artificially inflating housing costs. In London, Uber was banned by the local transport authority for failing to treat its drivers as employees. But while these two companies have suffered setbacks, it’s clear the economy as a whole is shifting.

“The collaborative economy is really hyped right now, but too much of the focus is on Airbnb and Uber. In reality, there is so much more going on and governments are starting to question how to regulate it,” says Arets. “The next 10 years could be really disruptive as we see more platforms like bike-sharing initiatives start to reshape entire cities.”

What Next for the Collaborative Economy?

The biggest and best-known platforms are still expanding to new markets, so we can expect to see many more people becoming aware of and beginning to use the collaborative economy in 2018 and beyond.

Proponents of the collaborative economy have emphasized that sharing assets through digital platforms can reduce the impact of consumption on the environment. When users share items like bikes, taxi rides, or even their own homes, it reduces the need for others to buy their own.

Digital platforms are drastically reshaping the way consumers think about ownership. Appliances like vacuum cleaners and power drills, items that are rarely used, can now be shared dynamically within networks, reducing the need for as many to be purchased in the first place. Anybody is able to monetize their unused assets and become both a consumer and a provider within the collaborative economy.

For hundreds of years, competition has been the engine that drives national economies forward. But today, the world’s most innovative companies are beginning to realize that the old rules no longer apply. Ownership is overrated, and competition is wasted energy. The future of the economy is collaborative, and those that create the platforms where collaboration can happen will profit the most.

Content originally published by Eureka.


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