The Impact Investor | ESG Investing Blog

Investing for financial return is only part of the equation.

JOIN

Updated on

Our posts may contain links from our affiliate partners. This supports helps support the site as we donate 10% of all profits to sustainability organizations that align with our values. However, this does not influence our opinions or ratings. Please read our Terms and Conditions for more information.

“Sharing Economy” is a term used to describe the many ways that people and companies are embracing new technology to share or rent assets, whether it’s cars, homes, or office space. The sharing economy has been growing exponentially in recent years and shows no signs of slowing down.

According to The Economist magazine, the global value of all goods and services exchanged through online platforms rose from $15 billion in 2005 to over $100 billion today.

What is the Sharing Economy?

Hand clicking on virtual screen

The sharing economy is a phenomenon that has grown in recent years. It is a way of living, where people connect to share resources and services within a community. The sharing economy is a broad term used to describe companies and individuals who use technology to share, rent, or trade goods and services.

This includes companies like Uber, Lyft, Airbnb, VRBO, and TaskRabbit, but it also includes peer-to-peer networks like Craigslist and eBay. Businesses like Uber and Airbnb have become popular for their ability to connect people with each other on a global scale. The sharing economy is more than just a business model; it’s the way we will live in the future.

See Related: What is a Circular Economy? Here’s How it Works 

How Does the Sharing Economy Work?

This model allows people to rent out their excess capacity, whether that means renting out an empty room in their home or driving people around town using their own car. The sharing economy has been around for decades, but it was only recently that companies like Airbnb and Uber began to make a name for themselves.

The fact that people are now willing to rent out their unused capacity is indicative of the growing trend toward more sustainable consumption. Let’s get into the key sharing economy pros and cons to help you understand how this economic model can work in today’s age.

Sharing Economy Examples

Close up of hand giving money

A good example of this is car-sharing platforms and car-sharing services, where users can rent cars from private owners on a short-term basis. This type of peer economy has enabled people to save money while allowing car owners to make extra income.

Another example is peer-to-peer lending, which allows individuals to borrow money from other individuals instead of banks. In addition, the gig economy enables workers to take up short-term jobs with flexible hours and wages based on performance.

All of these examples demonstrate the power of collaborative consumption in today’s modern world and how it has created new forms of economic opportunity for both consumers and producers alike.

See Related: Best Circular Economy Books to Read

Different Types of Business Models

There are a few different types of business models that exist along with different sharing economy platforms as examples, including:

  1. Peer-to-peer (P2P) sharing: This is the most common type of sharing economy model, in which individuals share resources or services directly, often through an online platform. Examples include Airbnb (home sharing), TaskRabbit (task outsourcing), and Zipcar (car sharing).
  2. Collaborative consumption: In this sharing economy model, individuals or organizations share resources or services temporarily, often for a fee. Examples include coworking spaces, car rental companies, and equipment rental businesses. The collaborative economy has grown significantly in the past few years.
  3. Crowdfunding: This model involves raising small amounts of money from many people, often through an online platform, to fund a specific project or venture. Examples include Kickstarter (creative projects) and GoFundMe (personal causes). Another example would be in the peer-to-peer lending space where individuals can lend money to others as a way away from traditional banks.
  4. Crowdsourcing: This model involves outsourcing tasks or projects to a large group of people, often through an online platform. Examples include Wikipedia (knowledge creation) and InnoCentive (innovation challenges).
  5. On-demand services: This peer economy model involves providing services on demand, often through an online platform or mobile app. Examples include ride-sharing companies like Uber and Lyft and delivery services like Postmates.

Overall, the sharing economy is characterized by the use of technology and the internet to easily facilitate sharing resources and services among individuals or organizations.

Pros of the Sharing Economy

Women holding tablet explaining to her friends

More Affordable

The sharing economy is an innovative way to access things you could not otherwise afford. For example, if you wanted to hire someone to help clean your home each week but could not afford it, the sharing economy would allow you to save money with lower prices for services by allowing them to use their time and equipment for other jobs or businesses.

The sharing economy also allows people who own items that are in high demand (like cars) to make money off of those items when they are not using them themselves. This reduces the need for buying these items outright, which saves people money while providing others with the opportunity of owning things they might not have been able to otherwise afford.

The most significant benefit of this system is that it allows users more choice over what they want out of life and what type of lifestyle they want to lead!

More Efficient

The sharing economy is more efficient because it reduces waste. It allows for more efficient use of resources and infrastructure, as well as time.

For example, if you use a private car service instead of the public transportation system to commute to work every day, you are wasting the resources of both your car and its driver—and they’re not doing any productive work while driving you between A and B.

A ride-sharing service like Uber or Lyft can help reduce this waste by allowing people who need to go from point A to point B at the same time to share their rides. This way, everyone gets where they need to go without wasting any assets (cars or drivers).

Increased Choice

four people with teaglasses are sharing a teabag

One of the major benefits of participating in the sharing economy is increased choice. Consumers can choose from a wider range of products and services, including more options in terms of pricing, location, and payment methods.

For example, you can use an app like Airbnb to find a place to stay almost anywhere in the world, while Uber provides car-sharing options you may not have been aware existed before. Some apps help connect people who need things with those who have those things: TaskRabbit (for tasks) or ThredUP (for clothing).

Income Generation Potential

One of the most appealing aspects of the sharing economy is its ability to help people generate income. It’s a way for people to make money in ways they previously would not have been able to, and this can be especially helpful for those who are between jobs or are retired.

For example, you can use sites like Airbnb or TaskRabbit and make extra cash by renting out your home or completing tasks from other people’s homes.

This can be an excellent option for those who want to earn some extra cash while traveling or during breaks from work, with minimal effort required on your part aside from setting up profiles on these platforms.

See Related: Best Circular Economy Jobs to Start Your Sustainable Career

Sustainable Alternative

Hand holding earth model with Circular economy concept

The sharing economy is a sustainable alternative to owning things. The emergence of the sharing economy has created new ways to think about the use, reuse, and repurposing of resources. The environmental benefits are massive. In this business model, you no longer have to create more goods to grow your business. You can be focused on monetizing underused assets that already exist.

Shared resources are better for the environment because they reduce the carbon footprint of cities while simultaneously reducing waste. When people share resources, they consume less and reduce their carbon impact on the planet.

Shared Resources

The sharing economy is based on a shared economy of resources. When you use the sharing economy, you take advantage of someone else’s resources rather than purchasing your own. This can benefit both sides:

In addition to using someone’s car, you could reduce their costs by taking up less space in their garage or driveway! On the other side, services like Airbnb allow hosts to make money off their property while away and provide travelers with cheaper accommodation options.

Cons of the Sharing Economy

stack of silver coins with trading chart

Lack of Regulation

The sharing economy can potentially create a more efficient and healthy economy, but it also has some drawbacks. One of those drawbacks is the lack of regulation in the industry. For example, by law, Airbnb hosts are not required to register with any local or state government agencies when they host people at their properties.

This can lead to problems with the safety and quality of services, goods, accommodation, and transportation because there are no regulations to ensure quality control or safety standards for hosts or guests.

No Guarantees or Safety Net

The sharing economy is a great way to get more out of your money, but there are some major drawbacks. It’s important to recognize that you aren’t working for anyone in particular and, therefore, have no guarantees or safety net.

The sharing economy has allowed employers to eliminate several costs associated with hiring full-time workers, such as health insurance, Social Security, Medicare, and unemployment insurance. These expenses are often an important factor in a company’s decision to hire employees. By eliminating them, companies can save on overhead costs while still getting the same labor done.

If you’re considering becoming an independent contractor in any capacity, consider these issues before signing on with any company offering this type of employment opportunity. No insurance, no pension, no health benefits, and no sick leave or paid vacation days are all things you will want to consider before signing up.

Tax Loopholes and Consequences

man pushes down the tower of cubes

Tax avoidance is when you do something to legally reduce your taxes. This can include setting up a corporation or trust, moving money overseas, and taking advantage of tax loopholes.

On the other hand, tax evasion is when you take illegal actions to reduce your taxes — like creating a false invoice or filing a fraudulent return. Tax fraud is when someone uses false information on their tax return or withholds certain information from their return altogether.

Tax avoidance can be just as harmful as evasion or fraud: it all depends on how much money you’re trying to avoid paying taxes and why you’re doing so. However, it’s not always illegal.

Most people don’t realize they’re participating in tax avoidance until they see an audit notice in their mailbox. They might also be surprised by how common this practice has become among many small businesses and corporations across America today.

Social Equity

The sharing economy can widen the gap between those who can access and participate in it and those who cannot. By relying on peer-to-peer connections rather than traditional economic models, those with greater economic resources have an advantage over those with fewer resources.

This could lead to greater inequality in our society, as those without access are increasingly left behind. To ensure social equity and equality for all, we must strive for everyone to benefit from the sharing economy.

Shortage of Skilled Workers

Man explaining work to team member

As you can see, the sharing economy has many benefits, but it also has its downsides. For one thing, as a global phenomenon with many workers in high demand, it’s growing faster than the overall economy and could lead to a shortage of skilled workers.

For another, the sharing economy is currently dominated by large corporations that can take advantage of economies of scale and network effects. As a result, these companies have been able to undercut their smaller competitors or put them out of business altogether.

Data Privacy

In the peer economy, data privacy is an important topic for participants. Sharing economy platforms often collect and use data about their users to facilitate transactions in their digital marketplace and have access to extensive data sets, which can create potential risks if not managed responsibly.

The collected data could include everything from user preferences and activities to financial information. As such, proper data management on these platforms is imperative to protect user privacy and ensure that unauthorized parties do not misuse data.

It’s important for sharing economy participants to become aware of the data requirements and data protection policies of the platform they use to protect themselves appropriately when entering online platforms.

Final Thoughts

Man showing sharing economy concept

The sharing economy provides a number of benefits to consumers and society, but there are also some disadvantages – honestly, it’s a pretty even spread between positives and negatives. The key is to balance out these pros and cons to make the most of this new trend in business.

FAQs

What are the pros and cons of sharing economy?

Pros of the sharing economy include increased access to goods and services, cost savings for providers and users, improved efficiency in the use of resources, and greater job opportunities for workers. On the other hand, some potential cons are associated with this type of business structure. These include decreased job security for workers, a lack of regulation in some areas, which can lead to exploiting workers, and a lack of control over pricing by service providers.

Overall, the sharing economy has many advantages as well as some drawbacks, depending on how it is implemented. With proper regulations in place to protect workers’ rights while still allowing businesses to thrive within this framework, the benefits could potentially outweigh any potential negatives.

What are some problems or disadvantages of the sharing economy?

One of the major disadvantages of the sharing economy is that wages are often low and unstable. Many people working in the sharing economy are independent contractors, meaning they don’t receive benefits or job security, making it difficult to plan for their future. Additionally, the chaotic nature of this type of work can be draining and leave workers feeling overworked and undervalued.

This type of work also tends to be particularly vulnerable to economic downturns since ongoing employment is not guaranteed. Furthermore, due to the relatively high competition among workers, companies can offer lower wages than they otherwise would. As a result, many people don’t have access to livable wages or enough work to make ends meet. These are some of the main cons and problems of the sharing economy.

What are the benefits of a sharing economy?

This type of economy has numerous benefits and advantages, including increased flexibility for workers, cost savings for consumers, and more efficient use of resources. The sharing economy allows workers to decide when and how much they want to work. This provides them with greater freedom and flexibility than traditional employment models.

It offers consumers a more economical way of accessing goods or services than purchasing them outright. Additionally, it can result in more efficient use of resources due to increased collaboration between individuals and businesses. Overall, the sharing economy provides many benefits for producers and consumers.

What explains the success of the sharing economy?

The sharing economy’s success is largely explained by its efficiency and sustainability. It offers a unique model for work that allows people to make money quickly, easily, and securely. The model also encourages collaboration, making it easier for people to find or provide goods and services.

Furthermore, the sharing economy promotes sustainability by reducing waste and energy consumption. Through this model, businesses can operate more efficiently while reducing their environmental impact. People are increasingly recognizing the advantages of this model and opting to participate in the sharing economy as both consumers and providers. The success of the sharing economy is therefore due to its efficiency, sustainability, and collaborative nature.

Related Resources