Sharing Economy Platforms: Promises and Perils
Sharing economy is a land of promises but also great perils. In recent years, many innovative sharing economy platforms (SEPs) had a strong impact on their stakeholders: service providers and consumers alike. Platforms change the economy. Individuals renting out rooms or driving cars create competition for established hospitality and transport providers. SEPs also impact society as a whole. They prompt change in how people plan, travel, meet and eat. Their operation can modify the social and economic environment in entire communities (think of Airbnb’s effects on cities’ housing markets and quality of life).
From a supply chain perspective, the idea behind the physical internet is to push sharing capacities (transportation and storage capacities specifically) to the extreme, developing a unique international logistical network where goods are shipped seamlessly from any network node to another. It has raised the interest of the scientific community (European Technology Platform ALICE) and of practitioners (P&G, L’Oréal, Ford, etc.). This idea, which applies sharing economy principles to supply chains on a large scale, promises important economies of scale and flexible yet hard to control capacities.
Besides the cost reduction, the physical internet may also offer increased flexibility. Much like the digital internet, which hugely simplified information sharing, the physical internet could be an important lever to further the blooming of the sharing economy, particularly the sharing of products.
Despite several promises, the failure rate of SEPs remains high. Which platforms succeed and fail depends on how they navigate the economic, legal and operational challenges unique to these models. As far as for-profit platforms are concerned, economic viability is elusive. Fast-growing global platforms like Uber are still struggling to make a profit, while the failure rate of start-ups is higher than in other sectors. Many non-profit platforms also fail to reach their objectives and stay in operation. For both platforms, the road to success is paved with operational, economic and legal challenges directly stemming from their innovative business model. The recent closedown of two popular European platforms in the food sector is particularly illustrative. Take Eat Easy was a for-profit platform in the home food delivery market, while Menu Next Door pursued a more collaborative goal by connecting neighbours who would cook for one another.
Despite promising starts, both platforms were eventually forced to cease trading because they were unable to cover their costs, and their funders could not be convinced this would change any time soon.
In hindsight, it appears that both platforms struggled with operational constraints (difficulty to align demand and supply in time and space in a cost-effective way), their economic environment (very strong competitive forces), and legal or regulatory issues (for Take Eat Easy, uncertainty about the professional status of its couriers; for Menu Next Door, conflict with the Federal Agency for the Safety of the Food Chain).
From an economic point of view, SEPs are seen as a special instance of “two-sided platforms”. They facilitate the interaction between two distinct groups of users (two ‘sides’), namely service providers and consumers. The main vector of value creation for such platforms is the active management of the network effects. The more service providers join the platform, the better off the consumers as they gain access to a wider array of services. The reverse is true as well, with more consumers on the platform raising the service providers’ expected benefits. Thus, the economic success of platforms depends on how they choose their price and non-price strategies, their micro-environment (how they compete with other platforms or non-platform rivals), and their macro-environment (how they impact labour relations, the environment and urban planning).
From a legal point of view, SEPs have to navigate regulation and anti-competitive laws. Although traditional laws do not always cope with large, global, profit-driven companies which tend to escape regulation (tax or labour rules), small and local community platforms often struggle to meet the legal requirements imposed on professional operators.
The operations of SEPs are also intertwined with the exploitation of data. This raises important issues regarding competition law (a data dominance factor is now often included in the analysis), consumer law (consumer protection relies largely on information disclosures about how data is processed, while privacy protection relies on new requirements for data processing and management) and labour law (the control of more autonomous workers is largely left to constant reviews and reputation assessments).
From the perspective of operations, the core problem is to manage shared capacities efficiently, including transportation, production (temporary workforce) and storage capacity (renting of warehouse space). On the one hand, SEPs offer new avenues to increase the adaptability of the supply chain by providing a large and flexible source of capacity. On the other hand, SEPs also imply a loss of control on this capacity, its availability and its price. For example, DHL launched a B2B service, its “digital freight platform” called Saloodo, offering instant access to road freight providers for on-demand shipments. Storage services SEPs should soon emerge, as the concept of “dynamic on-demand warehousing” is quickly gaining attraction.
To operate efficiently, an organisation has to integrate mechanisms to guarantee the availability of the capacities it needs at the right time and the right price. This large and flexible source of capacity may also help design more robust and adaptable operations for reaching a sustainable business model in the long term.
To conclude, SEPs offer wide-ranging promises, as illustrated by the choice and flexibility brought by some well know platforms. However, the survival of these platforms depends on how well they meet the economic, legal and operational challenges.