SHARING ECONOMY 101: A Brief Economics Lesson For Entrepreneurs

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The Sharing Economy has disrupted mature industries, such as hotels and automotives, by providing consumers with convenient and cost efficient access to resources without the financial, emotional, or social burdens of ownership.

Before there was a sharing economy, there was a rental industry, which created excess capacity at a scale that could be commercialized. Hotel companies built large structures and then rented out individual rooms to make a profit. Car rental companies purchased large fleets of cars, which they rented out by the day very profitably. But such rental-based business models demand not just capacity but also infrastructure. Hotels have to maintain properties, clean rooms, take reservations and provide a host of other services. Similarly, car rental companies have to maintain and store cars that are not in use, schedule pick-ups and drop-offs, build and staff rental offices and provide customer service.

Uber and Airbnb, on the other hand, don’t have to worry much about infrastructure. Airbnb doesn’t own any hotels and yet it has more rooms for rent than Marriott and Hilton, according to The New York Times. And Uber said in a blog post that it provided 140 million car rides in 53 countries and more than 250 cities in 2013 without owning any cars or employing any full-time drivers.

This is the new normal in business. The video below is a discussion on Charlie Rose show on what the Sharing Economy is really about: Watch and Learn