The "Sharing Economy": New services revolutionize taxi, hotel industries

July 2014

Disrupting industries is a good thing. Apple's iTunes Store disrupted the music industry, Netflix has disrupted the DVD rental industry, Amazon disrupted the book industry. The change is painful for some, but ultimately consumers benefit.

Smartphones, of course, are disrupting many industries, as they are increasingly being used for photos, videos, GPS, music, and more.

Most recently new services are trashing the taxi and hotel industries as they play a central role in the new "sharing economy." The concept is simple: if you have a car, a bit of free time, and are in need of some extra money, why not spend a couple hours using your car as a taxi? Or if you have an extra bedroom in your home, or an apartment that's empty, why not rent it out to a traveler who needs a place to stay?

A smartphone app-based taxi service called Uber is now in over 100 cities worldwide and rapidly expanding. If you need a taxi, you simply open the app, see what Uber taxis are nearby, check out the user ratings of the drivers, and then tap the one that you want to come pick you up. You can even follow the Uber taxi on the map as it approaches your location.

Uber users say this is a godsend. The story one hears from big city dwellers is that you can never get a taxi when you need one. You wait, you hail, and, if you're lucky, one will stop.

Uber changes all this. Supply meets demand. At the end of a show in New York City, everyone wants the same thing: a taxi. And because Uber's pricing responds to demand, you'll likely pay more than the fixed-rate official cab service. But people are happy to pay the extra cost, called surge pricing. Uber drivers, knowing the money will be good, converge in particular areas at particular times. Although in times of demand, the price may be higher, at other times so-called ride-sharing services can be cheaper.

Uber, the company, screens drivers (and their cars) and uses an eBay-like rating system so there's some guarantee that your driver will be reliable. No money changes hands: the app handles all that.

Of course, the traditional, official cab companies are fighting Uber. And some local governments are disallowing or regulating the service. But the trend is clear.

Airbnb is a service that lets you book a room, apartment, a castle, or a villa. It has listings in over 34,000 cities in 192 countries. While it's possible to do your booking online, you can also use the smartphone app, the advantage of which is that it uses GPS to know where you're located and can show you listings in the vicinity.

The listings include extensive information and photos, as well as restrictions (no smoking, etc.). Again there's a system of recommendations, ratings, and reviews, such that hosts can build a reputation, and users can have a good idea of what they're getting.

The hotel industry and local governments are resisting. As with the taxi industry, hotels are regulated, and the upstart service exists outside those regulations. Plus, Airbnb customers can often avoid paying the hotel tax that is typically assessed in cities.

The beauty of the sharing economy is that it helps get rid of inefficiencies. The hotel industry overbuilds in order to meet peak demand, but much of the time those rooms sit empty. That's a waste. Similarly, cars sit unused for an average of 23 hours per day. That's a waste. The sharing economy, facilitated by the Internet and smartphone apps, is helping to reduce inefficiencies.

While services such as Uber and Airbnb have garnered a lot of attention, the sharing economy now encompasses a vast array of goods and services, from power tools to wedding dresses. There are even dog-sharing services, such as City Dog Share, Borrow My Doggie, DogVacay, and Rover, which is described as the Airbnb of dog-sharing.

And speaking of disruptors, and hotel rooms, I'm eager to point you to the smartphone app Hotel Tonight. Lots of rooms go vacant, so this service collects information on hotels that have empty rooms and finds them last-minute guests. Needless to say, faced with the prospect of an empty room, the hotels are ready to offer a sharp discount. If you need a room for the night, the app shows you the best deals at nearby hotels. So how is it disruptive? The deals are so good, that many people are now in the habit of using the app rather than booking in advance.

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© 2014 by Jim Karpen, Ph.D.

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