The sharing economy, on-demand, peer to peer, or crowd-based capitalism, these are just a few of the terms used to describe a technology-based market place where communities pool, loan and share their resources at limited or lowered prices than in a traditional business model.
Not necessarily a new concept, sites like Kijiji and e-bay have been around for decades, but the evolution of social media and smart phones has led to a rapidly evolving and growing market that encompasses everything from transportation and accommodations, to food and services.
What’s in a Name?
In a 2017 report released by Stats Canada, roughly 2.7 million Canadian adults "participated in the sharing economy" between November 2015 and October 2016, to the tune of $1.31 billion.
The report, however, only looked at ride-hailing services, such Uber, as well as short-term home rental services, like Airbnb, and helps demonstrate one of the complexities and challenges of this growing market—the language used to describe it.
“I think the term sharing economy can be reserved for the sub-type of multi-sided markets that focus on reducing waste [through] resource allocation,” shares Mohammad Keyhani, Associate Professor of Entrepreneurship and Strategy at the University of Calgary’s Haskayne School of Business. “But it’s not just this sub-type that is taking the world by storm. It’s the entire multi-sided market phenomenon that is changing the world. So the terms you use will depend on what you want to learn and what you want to focus on.”
According to some experts the use of terms like “sharing economy,” especially by government agencies, can warp public perception about companies, how they’re evolving, and the different ways in which they are impacting the economy and society.
A study released in 2016 by the Pew Research Center, showed that 40% of Americans surveyed, who had heard the term “sharing economy,” used it to describe services that emphasized sharing, mutual help, or charity.
The reality, however, can be very different from the perception of the little guy making a difference locally, and does very little to address Canada’s monopoly culture.
“Sharing economy business models and multi-sided markets more generally give rise to monopolies because of the network effect phenomenon,” says Keyhani. “I think the danger here is that the monopolies are global.”
The Issues and the Push Back
Monopolies are not something new to the global economy; some of the biggest brands around the world, stem from singular locations, but exist physically around the world. Now, thanks to technology, companies use virtual platforms to do business directly with customers and avoid, or at least drastically reduce, some of the biggest expenses that traditional companies are regulated by.
In Alberta, across the country, and around the world, one of the industries feeling the most pressure from multi-sided platforms is hospitality, and their biggest threat are short-term home rental services, like Airbnb and Flipkey.
“The biggest impacts are on the major cities and so you look at Toronto, Vancouver, and Montreal, those are the cities where you have by far the most units,” explains Dave Kaiser, President and CEO of the Alberta Hotel & Lodging Association. “But it's growing rapidly in cities across Alberta and in other communities. So there's a point where we'll have the same issues to the same degree, it's just a matter of time.”
As an industry, Kaiser says the concern for those working in hospitality is not with the users that fit what many consider to be “home sharing”, someone renting out a spare room or converted garage, but rather the loop holes it creates for bigger businesses to make a bigger profit.
“What we’re concerned with is when commercial operators own, or are buying, numerous properties [for] those platforms and they’re operating it like our business, but the rules are different.”
In 2018, private short-term accommodations in Canada generated an estimated $2.8 billion in revenue for hosts and platforms, while Alberta saw $1.5 million.
Demonstrating the concern hotels have across the country, Kaiser pointed to a 2017 report done by CBRE Limited, at the request of the Hotel Association of Canada, which showed that multi-unit entire-home hosts account for 30% of Airbnb’s revenue in Canada, the company saw an estimated $277 million in revenue in 2015/16 alone.
According to Kaiser, the report also shows that it’s the communities themselves that also lose out when hotel usage declines due to ‘home sharing’ competition.
Taxes alone see hotels invest in the areas where they’re located, but many others invest further through tourism initiatives and events. The average consumer tax rate for major cities across Canada sits at roughly 15%, meaning there is the potential for more than $2 billion in taxes, while if Airbnb was taxed in the same way an additional $85 million could potentially be fed into public resources.
Touching on other issues, such as the decreases in affordable housing and the possibility for disruptive behavior at whole housing units, Kaiser says regulations are the only was to create a level playing field that benefits citizens and businesses alike.
“Regulations are there for a reason and as much as we may not like them they're there for sound reasons,” he says. “If you look at property taxes there’s such a disparity between what a business pays and what residents pay, so that hurts the cities, and, ultimately, it hurts the people who live in the cities because the cities need to get their money from somebody.”
The Need for Regulations
In Kaiser’s view, regulations should be created sooner rather than later as the longer governments allow multi-sided platforms to operate without them, the greater the pushback will be when it does happen.
Airbnb, for example, has been seen taking government bodies to court in the US and internationally battling what they view as restrictive regulations.
Other companies within the industry however, don’t necessarily see regulations as a hindrance, but rather a sign that the sharing economy and multi-sided platforms are here to stay.
“I think regulations are a good idea,” says Chad Ball, CEO and co-founder of Wheel Estate, a multi-sided platform offering RV sharing services. “To regulate the industry is to recognize it, but I don’t think you should start with these [large] blanketed [rules] on all the sharing economy [platforms].”
Acknowledging that it’s important to have regulations in place to protect consumers, businesses and the general public, Ball says that he hopes governments don’t move too quickly or broadly as the industry is still so new and so much still needs to me learned.
“It’s just going to take time and I hope they give it room to grow,” he says. “To really understand how it operates and how it works.”
Although no regulations have been passed down from the federal level, provinces and municipalities across Canada are taking a look at the two biggest pieces of the puzzle, ride sharing and short-term rentals.
It was 2016 was when the country first began to see major changes to how governments approached the industry with Alberta becoming the first to regulate and require ride-share companies to provide insurance to drivers, while Quebec focused on short-term rentals with varied success.
Since then, the number of municipalities and provinces looking to make their own changes has increased significantly. The City of Edmonton, for example, imposed further regulatory requirements on ride-share companies and drivers, covers things, such as licensing, vehicle markings, and the use taxi stands, as well as regulations that require short-term rental owners to obtain development permits and business licenses.
For some, this hodgepodge approach to regulations may seem counterproductive and unfair as it can put the burden on some users but not all, others however, see it as a best case scenario that will allow governments and businesses to learn more about the impact of regulations and how to realistically impose them.
“I think it’s a good idea to tackle a new and experimental phenomenon with a large number of policy and regulation experiments,” says Keyhani. “So the municipality-by-municipality approach is actually pretty useful in that way, as long as the regulators are open to learning from the experience of other locations and revising regulations accordingly.”
Currently, much of the sharing economy is subject to too few restrictions, if any at all.
The Future of “Sharing”
Despite being part of the Canadian economy for some time, those who work within the industry say that the sharing economy is only in its infancy.
According to Keyhani the platform-based economy is a natural evolution, but because it is still so new it’s hard to say where it will go or even what today’s companies will look like in the future.
“It’s a logical step for any society to find ways to make better and more efficient use of its resources,” he says. “It will never reverse course completely, but you could say that many of the companies today are still experimenting with their sharing economy business models and may end up having to change the way they operate to get it right.”
One of the challenges facing digital based platforms are peoples’ sometimes negative experiences with online services, something that businesses say requires them to go that extra mile to provide peace of mind to their customer base.
“I guess that’s part of this transition,” says Naomi Pereira, CEO and co-founder of JobJar, a platform that connects homeowners and small job contractors. “How do you convince the consumer that in a world where there’s so much out there that’s unreliable on the Internet? How do you make sure that you differentiate yourself from that?”
“We have to play smarter,” she says, explaining that JobJar does this a variety of ways, such as 15-day service guarantees, vetted contractors, and flexibility when it comes to payment and working with insurance.
This dedication to staying ahead of the curve and offering more security to their customers is something that can be seen in many platforms, with some even influencing other industries to expand their own services.
“At the time insurance companies didn’t see the value of offering insurance plans that fit the sharing economy style of ownership,” explains Ball of the challenge they faced working to offer inexpensive and worry free family vacation opportunities. “We weren't even ready to entertain the idea (of not offering insurance), we didn't write one piece of code until we had that insurance in place.”
Going live in 2017, Wheel Estate’s commitment to customer protection was ahead of the curve and demonstrates how new industries and businesses can influence and change the way established ones do business.
Sharing Won't Eliminate Traditional Businesses
The introduction of competition can always be threatening, but according to some how any businesses approaches these changes and challenges will determine whether or not there is any future success.
“I believe that businesses are born out of necessity,” shares Pereira, who started JobJar after working in the residential renovation industry for years and seeing the need for small job contractor access. “We’re just responding to that need, so in terms of the traditional businesses, I don’t think that industry is going to die, I just feel that there is a need that wasn’t addressed before and [they] will still [thrive] if they keep what’s important and learn who their client is and what’s important to them.”
Echoing this sentiment, Ball says that it’s important and beneficial for traditional businesses to look beyond how the new market may be negatively impacting them and look at how it can assist with their own business goals.
“It doesn’t have to be a zero-sum game,” he says, sharing Wheel Estates success in establishing collaborative efforts with RV companies to offer more services and benefits to their customers.
“Many are coming around and many are starting to trust what we're doing, so they're coming to us and asking how we can work together,” says Cherie Ball, COO and cofounder of Wheel Estate.
“We have a few more actually reaching out to us, now that they see leaders in the industry like Arrkann doing it,” adds Chad.
“It always starts with one, and then trust develops and eventually they start realizing that it's not a competition, it's just about getting more people outside and anyway we can do that in an affordable way, that's really at the end of the day what it's all about,” says Cherie.
For others, however, what it’s all about is continuing to help move progress forward and find exciting ways this growing market can change the way we look at business, collaboration, innovation and success.
“One 'next big thing' for multi-sided platforms that I am working to theorize myself is the possibility of moving beyond just 'allocative' platforms that improve the efficiency of resource allocation, to platforms that are 'generative' and foster innovation, new ideas, and the growth of knowledge," says Keyhani. “Most sharing economy platforms have not figured out the secret to generativity yet, but it can be a huge source of value.”