When Airbnb first appeared, for many people, it was simply a welcome alternative to the perilous world of Craiglist’s short-term rentals. With the added ingredient of trust, renting a sofa, spare room or entire apartment from a stranger was now a bit less risky.
Shortly after the platform’s launch in 2009, few people predicted that Airbnb would soon play a major role in restructuring traditional businesses, but this is precisely what happened. By late 2011, Airbnb’s growth in popularity was sending shockwaves through the hotel industry.
In many jurisdictions, industry leaders turned to local legislators in search of protection from what they now saw as a major threat. But do sharing economy platforms, such as Airbnb, HomeAway, Uber and Lyft, necessarily pose a threat to traditional businesses or approaches to business financing?
Depending on who you ask, you’ll likely get one of two answers.
On the one hand, sharing economy proponents maintain that rather than cut into markets served by traditional businesses, platforms like Airbnb are primarily making a service available to people who were previously unable to afford the service in question. On the other hand, sharing economy detractors argue that platforms like Airbnb and Uber are simply a way for a new brand of entrepreneurs to circumvent both the taxes and regulations that have long structured traditional industries.
In reality, both the proponents’ and detractors’ stances on the sharing economy are at least partially true.
The sharing economy both expands existing markets by providing new and affordable options to a wider range of consumers and subverts many of the taxes and regulations that structure traditional businesses. As the sharing economy grows, however, it is becoming increasingly apparent that it is also restructuring traditional businesses on an even more profound level—a level that is arguably best represented by four major paradigm shifts that are impacting everything from how businesses are defined to how they are financed.
Businesses will be Defined by Delivery Models not Services and Products
Traditionally, businesses were defined by the services or products they delivered. If a business provided short-term rentals, it was part of the hotel industry. If a business ferried people from place-to-place, it was in the transportation industry.
In the sharing economy, delivery models rather than services or products are increasingly defining businesses. As seen in the ongoing lawsuit between Uber drivers and Uber, the company has repeatedly claimed that they do not employee drivers, because they are not even in the transportation business. In short, Uber has sought to define itself as exempt from regulations pertaining to the transportation industry by defining itself on the basis of its delivery model (a technology platform) rather than on the basis of the service it facilitates.
The argument, however problematic, reflects a broader paradigm shift that has several implications, especially with regards to regulations. After all, if a business facilitates rides but it is in the technology rather than transportation industry, who is accountable for ensuring that transportation industry regulations continue to be met? While we may not be living in a post-regulatory economy yet, this paradigm shift is a potential cause for alarm.
The Employee/Contractor Paradigm Will Collapse
In the past, the distinction between employees and contractors was more or less clearly defined. Over the years, precedent-setting legal cases combined with state and federal legislative initiatives have established a clear distinction between employees and contactors along a number of distinct grounds. With the rise of the sharing economy, however, the line between employees and contactors has begun to collapse.
Uber, for example, maintains that the drivers who use its platform are contractors. As a result, the company doesn’t guarantee a minimum wage or provide healthcare benefits. Yet, unlike traditional contractors, Uber drivers are subject to several employee-like restrictions (e.g., they are unable to set their own prices).
While the employee/contractor debate will continue to unfold—with much riding on the ruling in the Uber lawsuit, which is expected to be announced in June 2016—all signs point to the fact that the once clear distinction between employees and contractors is collapsing and along with it, another longstanding business paradigm.
The Consumer/Provider Paradigm Will Collapse
The final and perhaps most profound paradigm shift currently unfolding is the collapse between consumers and providers and the broader implications this has for business financing. For example, in the sharing economy, someone who does not define himself or herself as a hotelier may from time to time participate in the industry as a provider and/or as a consumer.
Likewise, one may be a consumer and provider simultaneously (e.g., renting out their apartment on Airbnb or HomeAway while also using one or both sites to rent flats). In short, in the sharing economy, anyone can be a provider and consumers and providers are increasingly roles that we simultaneously occupy. But with the collapse of the consumer/provider paradigm, something bigger is beginning to happen too.
The Profile of Investors Will Shift
As crowdfunding continues to be recognized as an effective way to kick-start small projects and large-scale business ventures alike, the profile of investors is shifting. In the sharing economy, investors are no longer simply people with large amounts of money to invest. Just as one may choose to be a hotelier just a few days a year, with crowdfunding, one can be an investor with just a few dollars or a few hundred dollars.
What are the implications? Among other major changes, the shift from traditional business financing (e.g., obtaining a business loan from a national bank) to crowdfunding means that micro entrepreneurs, even those with no credit history, will increasingly be able to obtain funding for their proposed endeavors. The shift also means that new types of business ventures and business models will have a greater chance of being established and flourishing over time.
But do any of these paradigm shifts pose a threat to traditional businesses and established forms of business financing? While only time will tell, it seems likely that neither traditional businesses nor business financing models will disappear. Hotels and yellow cabs will continue to exist and so too will small business loans and venture capitalism. What seems certain to change, however, are the possibilities available to consumers, as well as existing and aspiring providers of services and products.
