The dark side of the sharing economy – and how to fix it

The burgeoning “sharing economy” – estimated at $26 billion – benefits providers and consumers alike. Sharing platforms are proliferating and people use them to share rooms (Airbnb), tools (SnapGoods), bikes (Liquid), skills (TaskRabbit), cars (Getaround) and even meals (Shareyourmeal).

From a macro-economic perspective, using excess capacity and micro-entrepreneurship are societal gains. But dark sides of the sharing economy need to be addressed before the sharing economy becomes the real economy.

These dark sides could derail the promise of the sharing economy. They can lead to unfair and unequal gains for one side or the other and, in the worst-case scenario, the drawbacks taken as a whole could create a lose-lose situation.

Dark sides of the sharing economy need to be resolved so that the sharing economy can to fulfill its macroeconomic promise.

• No soup for you. What if providers don’t allow a set of people to consume their services?

• Review of reviews-based trust. Who intercedes if the consumers and/or producers bludgeon each other unfairly through the review- based system used by AirBnB, for example? Can reviews be “fixed” to mislead one side or to ostracize the other?

• Taxing the taxi. What if sharing economy becomes a massive scheme to avoid paying taxes? What would the macroeconomic impact be?

• Are these freelancers truly “free”? Much of “open innovation” is based on sharing intellectual resources and depends on individuals sharing their ideas or performing work – as with Mechanical Turk and TaskRabbit – “on the cheap.” Who will protect the rights of these freelancers?

• Subletting is not sharing. What if the provider’s asset is shared further by a consumer with others? What if this second-degree sharing causes more damage to the provider’s assets– or makes more money than what’s paid to the provider?

• I didn’t realize that I live in a hotel zone. While sharing economy is looked upon as a transaction between sharers, what are the implications for those near the sharers – such as the permanent resident in a building where tourists are renting an apartment through Airbnb? 

• Dark side of moonlighting. Many engaged in the sharing economy use “spare capacity,” but there are people whose livelihood is affected, such as taxi drivers and hotel employees. What is the macroeconomic impact at the bottom of the pyramid?

So how do you resolve these dark sides? In an article with Marshall Van Alstyne of Boston University, we suggest how to mitigate the risks.

• Manage risks that benefit the ecosystem. Protecting the sharers is the top priority. Platform providers have to bear the cost of insuring the sharers against risk, such as damage to the property “hosts” on Airbnb.

• Make the sharers be smart sharers. Platform providers like TaskRabbit must enrich the skills of their freelance workers on platforms. They could offer free online courses that improve the freelancers’ skills, which in turn makes their work more valuable and helps them earn a fair value for their work.

• Establish community policing and self-regulation. Sharing platforms must enable the community of sharers to police themselves and self-regulate. Establishing a reputation system (ratings) that is not biased and is a true indicator of the sharers (and their services) will go a long way to protect both the users and providers of shared services.

• Level the tax playing field. Taxing hotels and car rental companies but not taxing sharing platforms that offer similar services is not fair. We need new regulations to make sure that the sharing platforms do their part in contributing to society, not just skim from it.

By Arvind Malhotra, strategy and entrepreneurship professor