What is the Sharing Economy Business Model?


About a decade ago, what did you do when you wished to hire a cab? You went down the road and hailed one. Wasn’t it simple? Or, you had service providers like Fast Track who provided cab-on-phone services. It was more convenient. Now, what do you do? Open the Ola or Uber app on your smartphone and book a cab or an autorickshaw. Within minutes, you get the confirmation and the vehicle at your doorstep. Is this not the most convenient mode of ordering a taxi? If yes, we welcome you to the world of the sharing economy business model.

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What is the Sharing Economy Business Model?

Investopedia defines the Sharing Economy Business Model as a P2P-based activity of providing, acquiring, and sharing access to goods and services, generally using a community-based online platform.

So, our Ola example ideally describes the Sharing Economy Business Model. Here, the customer uses an online mobile app to look for available cab rides and order one. Ola connects the customer’s request to several drivers servicing the particular area by dropping a notification on their smartphones. The driver who accepts the proposal offers the services at the rates specified on the app. Ola gets its commission and the driver the remuneration for his services. The customer gets the ride he wants. Thus, all the parties benefit from this transaction.

Ola is just one of the hundreds of examples of the shared economy business models we encounter daily. Other examples include Swiggy (The Food App), OYO (the hotel booking app), Rentomojo (furniture rental), WeWork India (co-working), etc. 

Benefits and Drawbacks of the Sharing Economy Business Model

Here are the pros and cons of the sharing economy business model.

Pro – 1: The sharing economy has given rise to a new breed of workers known as freelance workers who work independently and are available on demand. The business saves money by not having to hire full-time employees and pay them salaries and other benefits that come with employment. In addition, the freelancers benefit by getting the freedom to charge for their services accordingly.

Con – 1: The sharing economy has drastically reduced the presence of professionals in the workforce. It can lead to a rise in unemployment levels.

Pro – 2: The situation is beneficial for the business because it enables them to take advantage of the variety of skilled freelancers available globally. Activities like Coworking allow entrepreneurs from different fields to share the same working space, thus, learning from each other.

Con – 2: The sharing economy can give rise to a wage degradation problem because businesses can get poor-quality or inexperienced workers to do a specific job at lower rates. 

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Other Benefits of Sharing Economy

Another significant advantage of the sharing economy is that it has enabled people to find creative ways to make money. People are always looking for Paise Kamane Ke Tarike, where they can make money fast. The sharing economy allows them this opportunity to make money in ways that were once considered unimaginable. One such example is the Refer and Earn platforms, where you can refer other people to download and use various business apps and thus make a cool income in the bargain. 

Even Ola, Uber, and other apps like Cred, etc., offer incentives to existing users to refer other customers to their business. 

P2P lending is another excellent advantage of the sharing economy. Borrowers can connect to lenders directly and avail of loans on mutually agreeable terms. Hence, it reduces the chances of defaults because both parties have mutually agreed upon the conditions in advance. It also reduces litigation, which otherwise drains the economy considerably.

The Challenges Faced by Sharing Economy

The most significant challenges the sharing economy faces are the regulatory and taxation issues. For example, Airbnb initially ran into a lot of legal trouble because the home rentals did not comply with the state’s short-term rental rules. Similarly, Swiggy and Zomato faced a lot of constraints and issues with the partner restaurants and service providers because there was no clarity regarding various aspects like pricing, collection and remittance of taxes, fixing delivery charges, etc. 

Final Thoughts

Despite the hiccups in the sharing economy space, it has come to stay. Besides, the COVID-19 pandemic has hastened the arrival of various shared economy businesses that would have taken a long time to arrive otherwise. Anyway, the sharing economy benefits all, the service provider, the online app manager, and the end-user. So, one can say that the sharing economy concept has indeed arrived in India.