UPDATED 15:00 EDT / AUGUST 07 2015

NEWS

The Sharing Economy market is exploding “at the speed of trust”

Out of the dozens of industries spawned from the internet revolution that began in the early 1990s, few are more closely tied with modern connected culture than the sharing economy model (also called collaborative economy).

While the term “sharing economy” is used fairly liberally to describe a wide variety of business models, it is typically understood to mean a platform that allows users to participate directly in the business as both providers and consumers of a service or resource. For example, ridesharing apps like Uber and Lyft allow users to be both drivers and passengers, and platforms like AirBnB allow users rent out their homes to travellers.

According to a report currently being compiled by Crowd Companies founder Jeremiah Owyang, sharing economy companies have received over $21 billion in funding in the last 10 years, and the sum valuation of the top 30 funded and IPO’d sharing economy startups is nearly $119 billion. Uber Inc and AirBnB Inc together are responsible for  nearly two-thirds of that number, and more sharing economy startups are launching all the time.

A lawsuit against Uber could change everything

While the sharing economy industry as a whole has grown rapidly and only seems to be getting bigger, there are a few undeniable juggernauts leading the charge in the market. The largest of these is Uber, which recently became the second privately owned venture backed startup after Facebook to break $50 billion in valuation. The ride sharing service, which was founded in San Francisco in 2009, has become the most successful sharing economy company in only a few short years, and it has become the model for countless other businesses that have sprung up since Uber officially launched in 2011.

While Uber has been the poster child for a successful sharing economy company, it has also been the most high profile example of the many challenges faced by such businesses.

One of the most persistent challenges has been the legality of operating a taxi-like service without any real employees. While Uber has occasionally been able to skirt past some regulatory issues because its drivers are considered independent contractors rather than employees, there is a possibility that could change soon.

Right now in Uber’s home state of California, the ridesharing company is potentially facing a class action lawsuit on behalf of its drivers that could reclassify them as employees rather than independent contractors. If this were to happen, the consequences would deal a serious blow to sharing economy companies as a whole, forcing hundreds of businesses to reevaluate their business models.

Building trust: the challenge of creating a sharing economy

Regulation is not the only challenge facing sharing economies. As with any community driven platform, sharing economy companies need a certain critical mass of users before they can start reaching wider audiences, but driving around random people or renting your home out to strangers is not a decision most people could make overnight.

Anabella Watson is the founder of Dallas-based sharing economy startup RentBillow, an online marketplace that allows users to rent out their seldom used possessions ranging from lawnmowers to bounce castles. According to Watson, one of the biggest challenges facing sharing economy companies is not regulation but trust.

“I think that it can only grow at the speed of trust,” Watson told SiliconANGLE in a phone call. “The sharing economy has an advantage because we are not just consumers, we are providers.”

She added, “When the internet just started, you were scared of providing your credit card online. The same sort of thing happened to the sharing economy, and it has been tough for a lot of people to trust other people in their cars or homes.”

Watson pointed to AirBnB as an example of a service that requires a high degree of trust between users.

“It’s hard to trust to stay in someone’s house, but it is getting there,” she said. “We’re getting to trust each other more, not just because we want to trust the other people in the sharing economy, but because we also want them to trust us.”

When asked why sharing economies have become so successful in recent years, Watson explained that aside from saving or earning money, people want to feel personally connected even in the global age of the internet.

“Before the internet, you had a small world around you,” Watson explained. “Then, things got bigger and more separated, but now the sharing economy is creating more links in society through sharing things. It’s bringing the globalness of the internet to the localness of the people around you.”

The internet is still in its infancy compared to most modern technology. Automobiles have been around now for more than a century, as have airplanes, telephones, radios, and movies. The internet as we know it has only existed for about 20 years, but in that time it has disrupted nearly every existing industry and created dozens of new ones. Whether or not sharing economies will also last 100 years or are simply a young internet fad is impossible to tell, but $119 billion in value is hard to argue with, and they could be just getting started.

Photo by bengrey 

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