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GBA | 23 September 2017

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A Model Transforming Industries: Sharing Economy

A Model Transforming Industries: Sharing Economy

Sharing economy is a popular trend all over the world. Starting with accommodation and transport, the sharing economy trend has grayed the line between personal and professional and showed a future where everything can be transformed into a service by using the power of the technology.

Person-to-person rental marketplace alone has a volume of 26 billion dollars. Investors are aware of the huge potential of this marketplace that has been taken further by sharing economy companies. Airbnb’s 10 billion dollars valuation and that Uber, substantially a sharing economy venture, is the most valuable private company of the world are the latest evidences of this.

Providing a service to people with a higher quality, similar or cheaper prices than the common channels lie behind the success of the sharing economy companies. On the other hand, technology makes it possible for sharing economy to change the industries by making access to these services easier than ever before.

However, sharing economy is not an applicable model in every market. In order to create a model with a chance of success, a number of “musts” need to come together.

A problem is needed…

If you look at the areas where sharing economy works best (e.g. accommodation and transport), you can see that there is a great customer dissatisfaction. The dissatisfaction exploited by the model may be due to price or service quality. When viewed from this aspect, it would not be wrong to say that the motto of the trend is “if it ain’t broke don’t fix it”. In most markets, the customers are satisfied with the present situation, and it is difficult to transform the market with sharing economy and to achieve the desired user participation.

To design a good sharing economy model, you need to hack a problem that is encountered by people every day, and to do this, you need to find a problem. Thereby, a service which will be used by people several times a week can be founded.

We all experienced the ‘problem’ in the field of transport. Before the initiatives such as Uber and BiTaksi, it was not possible to praise taxi transport in many large cities; inability to pay by credit card, cash payment condemnation that has become a problem in itself in every field, unpleasant travel experience and the behaviours of some taxi drivers casting a cloud over the good works of their fellow workers were the main problems.

Sharing economy services eliminate the exchange of money through digital payment as well as increase the quality of service in the field of transport, and prevent the users from finding themselves in uncomfortable situations through the scoring system in almost each service.

The focal point is user experience.

It is advantageous that your sharing economy app looks great and in order to achieve this, simply find a master designer. But the important part is experienced offline and this is the part that is difficult to perfect. What the users remember at the end of the day is the experience brought by the button allowing them to use the desired service rather than how the button looks.

Quality and security risks are high in sharing economy model, because the service provider is neither a brand nor a professional. Therefore, offline service control will satisfy the users, make them feel safe, and the stability is of critical importance; especially when people make word-of-mouth recommendations in the early stages of your sharing economy brand.

Until the brand and culture of your service develop and the feedbacks from the users become as positive as you desire (those are directly related), you had better carefully choose all the providers to be included in your sharing economy model and keep them under control. For a sharing economy model, it can be an attractive idea to open doors for all the providers and to make it possible for people to make the choice, but it may put your brand in a difficult position that a number of bad experiences spread abroad and become viral. For example, it irreversibly tarnished the image of the company in the country that an Uber passenger was raped in India.

Another sharing economy venture Lyft that has earned reputation with the importance it attached to the service quality, asks itself the question “Could I charge this person in the reception of a luxury hotel?” when evaluating the driver applicants.

Not technology, but interaction between people and community make it possible for a sharing economy model to work. In this system, technology is only a means and its function is to help offering the services better and more easily.

You cannot ignore the laws.

One of the biggest challenges in sharing economy is regulatory laws. The laws may not make it possible for you to render the service you designed ideally or may prohibit this new service totally. Turkey’s conditions are positive for sharng economy models, but it goes without saying that this positiveness is due not to the fact that the regulations are professionally considered but to the fact that they are loosened.

The companies ignoring regulations have never had a success story. They can start, but they will collaborate with the state and establish win-win relationship sooner or later at one point. If you want a regulation to be extended to involve your sharing economy model, remember to ask for support from your users on this point before requesting an amendment to the regulation. If it is you who request an amendment, it will be your place to prove that it is necessary.

Laws need to change to keep pace with the daily life that is transformed by technology. For example, California is a good example as the first governance designing a new regulation to pave the way for the industry by coming together with car-sharing ventures. Of course, on this topic, the first step should be taken not by the state but by the ventures seeing the need for change.

Sharing economy is not a cheap business.

One of the misconceptions is that sharing economy needs a little capital and that a good code and design are sufficient. Airbnb, Lyft and Uber trio got hundreds of millions of dollars investment to remain functional and to grow. On a smaller scale, entrepreneurs need capital to create and initiate a sharing economy model and to include their service in the market.

To prove why these thoughts are far from the truth, we had better take a look at the processes through which a sharing economy model should pass.

Having solved a problem that should be focused by the ventures in the early stages and providing services optimally. In most scenarios, it is an important detail to support the best providers included in the model and to win their loyalty. Uber and Lyft made their efforts meaningful by paying to the drivers in the cases where they are unable to estimate whether the demand will be sufficient. On the other hand, as sharing economy models work at local level relatively, you should attach importance to local marketing campaigns. After you make your model work in a city or region, it becomes time to do it in a new city. This process is similar to setting up a company from scratch.

The point where sharing economy initiatives are lucky is that the talent hunt is not as difficult as in the industries such as technology. However, the expertise needed to do the job is more expensive and varied (such as local marketing, logistics, market experts and lobbying). It may not be costly to improve your app, but it is certainly a costly business to provide stable and high-quality services in multiple regions.

While many sharing economy companies run towards success globally, the entrepreneurs have been continuing to research which businesses can be considered with this model. It is not yet possible to speak of satisfaction for this model, rather everything is just beginning.

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