The share economy is here to stay, and businesses should stop wasting their time trying to fight it.
In the 1920s, H. Armstrong Roberts founded one of the first stock photography agencies. This started a trend whereby companies of the sort would build stockpiles of images and sell their rights to individuals looking to use them. By the late 1980s and early 1990s, Getty and Corbis ruled the marketplace, and essentially had the luxury of setting their own prices – one that comes with any (dare I say it) monopolistic or oligopolistic market structures.
But in 2000, something happened.
With the advent and excitement of the fast-moving information superhighway we fondly refer to as the Internet, online services started popping up offering photos at a fraction of the cost of these major brands. Slowly but surely, as competition opened and there was no overcoming it, prices shifted downward with the seemingly endless supply made available online, and the marketplace became incredibly saturated. Now we’re at a point where Getty offers completely free images and asks only that they be placed on a website with a backlink to the site.
Oh, how times have changed.
Communications platforms are much more than selling tools – they are an integral part of economic shifts. So why do some major brands feel as though they should be fighting the share economy when history (and economic theory) dictates that sooner or later, they will have to adopt it?
The Rational Consumer’s Decision Process
Let’s say I, the rational consumer, am going a vacation to (name sunny destination here). I’m excited, but budget constraints have left me searching for a great deal. I’m not particularly picky when it comes to the lavish lifestyle; I simply need a place to eat, sleep and apply copious layers of sunscreen. A cost analysis by Pricenomics comparing hotels in major US cities to renting an entire apartment or a room on AirBnB found that when renting an apartment, travellers could save an average of 21.2%, and when renting a room (roughly the same amenities you might expect to find in a hotel room) travellers saved a whopping 49.5%.
Now I, the rational consumer, know a good deal when I see one. So I will take it. And if I can’t take it on AirBnB – say, for example, the site is banned in my place of residence – I’ll find another site.
When I was in Chicago recently, I used UberX for the first time. We have Uber in Canada, but UberX has yet to make its way to the Great White North and I had heard plenty about it, so I thought I would give it a try. When I took a regular taxi from O’Hare International to my hotel in Downtown Chicago, the fare came to roughly $57. From what I heard, that’s pretty standard. When I took UberX at the height of rush hour back to the airport, my fare came to $30. Now unless you don’t discriminate at all when it comes to prices, why would you not consistently take the option that is 47% less expensive?
Considering the hour-long drive, I also had a chance to chat with the driver of the car. He told me that he was a real estate broker who decided to download the UberX app because it was an easy way to make some extra money on the way home from work. Now, behavioural economics dictates that I would be uncomfortable asking a stranger for a ride to the airport, or even accepting a free ride from a stranger making the offer. But the beauty of a product like UberX is that the process is mutually beneficial, and everyone walks away having benefitted from the transaction.
Demand Trumps Tradition
How many New Yorkers do you know that absolutely love going to Times Square for New Year’s Eve? Yeah – I don’t know too many either. But the revenue potential for an apartment-dweller at that time of year in (or near) that location is phenomenal. Imagine making your month’s rent (or close to it) in exchange for a four day vacation?
Now, put yourself in the renters position. The average cost (any day of the year) for a hotel in New York City is $245. (Source) The average cost for an entire apartment in New York City with AirBnB? $180. (Source) With savings over 26.5% (on average) you would be hard pressed not to go with the latter option. (Of course, this is assuming a price discriminating consumer.)
As demand remains consistently high, there will always be a market for the share economy. Where there is a market, there are entrepreneurs trying to capitalize on the potential. As long as information is free flowing, people will find a way to exploit these opportunities. And rest assured, for as many businesses as there are looking to stop the share economy, there are just as many looking to retire off of it.
The one thing that stands in the way of the share economy really taking flight as a mainstream commercial marketplace is taxation. So long as the government can find a way to regulate and effectively tax the earnings coming from activities within the share economy, it will thrive. There may be some barriers to getting that done quickly, particularly with the processes and red tape involved. But that has never stopped these kinds of markets from flourishing and eventually being regulated in the past. Maybe the best example of that in recent memory is Colorado.
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