Cusumano On “The Sharing Economy”

Michal Cusumano writes in January CACM about ”How Traditional Firms Must Compete in the Sharing Economy”.

He comments that, while companies such as Airbnb and Uber have highly publicized challenges from governments and trade associations, the bigger issue is how should “conventional” companies compete with the “sharing” economy?

First, he says, make sure the playing field is level by making sure the “sharing” economy plays by the rules. This box has been checked for sure, as most local authorities are now actively struggling to apply their rules to Airbnb, Uber, etc.

(I would say that in many cases, evasion of taxes and laws is so essential that the “sharing” enterprise may not be viable on a level playing field.)

Beyond that, there are many obvious ways that hotels and chains can compete, including consistent, quality services, large events, and personal loyalty. The “sharing” economy competes mainly on cost, so competitors must offer something worth the price difference.

In the case of Uber, differentiation is less easy, though I have pointed out that the on-demand dispatching can and will be implemented for conventional ride services. In short, conventional companies can emulate aspects of the so-called “sharing” economy, backed by the not inconsiderable advantages of a global organization and brand.

Also, as he notes, taxi services are regulated with the intent to provide universal, common carrier service, (as is hotel lodging). Unregulated “peer-to-peer” services that discriminate and/or abuse customers—and Uber has invented new modes of discrimination and abuse—will surely face customer dissatisfaction.

Cusuman also notes the question of long-term sustainability. As he says, it is easy to launch a web start up, but most fail. A business model based on “network effects” can grow fast, but it can also shrink fast.

I will add one more approach Cusumano didn’t mention, and that is: buy them out. There isn’t any reason why Airbnb can’t be bought by a hotel chain (well, there might be anti-trust issues). What happens after that, I couldn’t say.

I would add some other points.

One of the original purposes of regulations was to seek to create relatively tame local markets, restricting competition to gain some peace.  As we have seen, competition between segments of the “sharing” economy can be brutal, and could become violent.  Who needs gun fights between rival taxi companies?  Rival mafias moving in to the game with their own brand of “sharing”?

I have complained that the “sharing” economy is basically a really bad deal for the workers.  Another purpose of local regulations is to protect workers and provide for a living wage.   One way or another, there will be political pressure against this new form of Internet-enabled serfdom.

 

1. Michael A. Cusumano, How Traditional Firms Must Compete in the Sharing Economy. Communications of the ACM, Vol. 57 No. 7, Pages 42-49, 58 (1):32-24, January 2015.http://cacm.acm.org/magazines/2015/1/181613-how-traditional-firms-must-compete-in-the-sharing-economy/abstract