Platform Innovation // Blog

Services Wars: The On-Demand Economy is Swallowing the Sharing Economy

Sharing was supposed to change the world. Just a few years ago, the so-called Sharing Economy was taking over. Companies like Airbnb, Uber, Postmates and Taskrabbit were revolutionizing travel, transportation and work. Barely a day went by without the Sharing Economy getting headline attention in the press. But today the so-called Sharing Economy is no more.

What happened? Well for one, most of the companies in the Sharing Economy had little to do with sharing.

The Sharing Economy typically referred to technology businesses that enabled latent inventory to be sold and consumed. For example, Airbnb let you rent out your apartment while you were away. Another Sharing Economy platform, RelayRides, let you rent your neighbor’s car and take it for a spin. Even Lyft and Uber started out championing themselves as a leader in the Sharing Economy because you could get a ride from a “regular” person.

However, none of this activity involved actual sharing. Almost all of these “sharing” businesses actually were marketplaces that enabled the more efficient exchange of goods and services. You paid to rent your neighbor’s car, and you paid the producers on TaskRabbit. But the idea of a more efficient form of capitalism didn’t summon quite the same warm, fuzzy feelings as sharing did. Yet over time, many saw these businesses for exactly what they were: better marketplaces. Not surprisingly, the “sharing” moniker has fallen out of favor. In its wake, the On-Demand Economy has risen.

What’s the difference? In a sense, not much. Many of the same companies that were included in the Sharing Economy phenomenon are part of the On-Demand Economy. As a result, it would be easy to write this change off as simply a shift in nomenclature. After the Sharing Economy lost its luster, sharing is out and on-demand is in. But this change in terminology actually reflects an important underlying shift in how these businesses operate.

Inherent in the “sharing” idea was that these weren’t professional service providers but simply other people that had unused assets. By participating in the Sharing Economy, you were getting back to your roots, becoming part of a “global village.” But as this sort of economic activity became more mainstream, consumers demands have changed and the producers have become increasingly professionalized. The producers on Sharing Economy platforms were mostly casual. But the On-Demand Economy is largely populated by dedicated, professional producers. At the same time, consumer expectations are rising, specifically, as it relates to how fast they can receive the service. .

In a previous article, I spoke with Handy CEO Oisin about how he first started the business with merely a website where it took 4 or 5 days to complete a handyman. Handy wouldn’t be around today if it still took the same amount of time to fulfill a request. Instead, consumers expect the Handy service to be fulfilled in 1-2 days, if not the same day.

This presents a problem for the Sharing Economy. When you consume something from a Sharing Economy platform, you “feel good.” You are reducing waste because otherwise the latent supply would’ve gone unused. And, you get a good deal for exactly the same reason. However, people want things now and the sharing economy is bound by the availability of  latent inventory. In a world of “free” Amazon Prime next day delivery and Uber rides within minutes, consumers are trained to get what they want, when they want it.

The On-Demand Economy is primarily responsible for this shift in consumer behavior. Uber, Uber Rush, Uber Eats, Glamsquad, Postmates, Instacart, the list goes on and on. As these platforms grow, they get more scale. More scale means more market power and stronger network effects. Therefore, the platform’s ability to deliver timely, low cost services to the consumer gets stronger. A friendly monopoly if you will.

Here’s the catch: every service marketplace wants to harness more supply. The service marketplace with the best supply at scale is at a huge advantage, assuming they can generate good demand (but, that’s the easier part). What’s the easiest way to create more supply? Incentive your top producers (homeowners, drivers, etc.) to spend more time creating value on the platform i.e. increasing the availability of their homes or cars. This incentive approach has its limitations because of the previously discussed dynamics of the Sharing Economy.

So, if you are a successful Sharing Economy service marketplace, you will eventually want to morph into the On-Demand Economy. Make sense?

Airbnb launched “instant bookings” and a variety of other features to give greater visibility to hosts who actively list their place, can ensure timely response and bookings to their consumers. There are countless stories about people running businesses full-time to rent apartments on Airbnb. And, Lyft dropped their positioning focused on “regular” drivers and has been in a heated battle with Uber for dedicated drivers.

In summation, every Sharing Economy service marketplace should want to graduate into the On-Demand Economy.

The way they do this is by securing enough traction that they can train producers to provide more timely delivery of their services. This will result in more demand, which then justifies the producers of value to dedicate full-time because of the compensation prospects from the increased demand.

**Although I use the words “full-time,” I by no means condone the prospect of contractors needing to be classified as W2 employees. It will destroy the On-Demand Economy and all the value these service marketplaces have created.

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