Trust, but verify: why it matters in the sharing economy

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Authors: Matthew Lieberman and Deepali Srivastava

Uber and Airbnb are two top-ranking Unicorns[1] (private companies valued at $1 billion or more) that have helped to create an entirely new marketplace from scratch within less than a decade.  In popular parlance that’s sharing economy, which is essentially any marketplace that allows individuals and groups to make money from underused physical assets by turning them into shared services.[2]  But could yesterday’s disruptors themselves get disrupted by regulation now? Their services, after all, are under close scrutiny in cities around the world over issues such as privacy, insurance, workplace protections, and taxation.[3]

It’s becoming clear that winning in the sharing economy now requires prioritising goals such as earning stakeholders’ trust, creating collaborative ecosystems, and engaging constructively with regulators. Shock-and-awe strategies still have their place in the burgeoning sharing economy, but sustained market leadership will require a quality not all disruptive companies possess. That’s resilience, an organization’s capacity to anticipate and react to change, not only to survive, but also to evolve.  As sharing economy quickly comes of age, increasing trust in the marketplace, one of the key traits of a resilient business, will be essential for the tech-savvy, highly-valued venture-capital-backed firms that gave birth to the sharing economy.

In a recent PwC survey on the sharing economy, 89% of consumer panelists agreed that the sharing-economy marketplace is based on trust between providers and users, and 69% said they would not trust a sharing-economy company unless recommended by someone they personally trust.[4]

The sharing economy will continue to grow, but it will be a smoother, faster ride for businesses that increase trust in technology-enabled peer-to-peer (P2P) transactions. Here’s how some companies are scripting the future of this exciting marketplace:

1. Resilient, trusted brands are embracing sharing as a positive disruption. 

That’s because they know that their credibility gives them an advantage in this still-unpredictable market. According to one ranking, BMW is the world’s most reputable company based on factors such as innovation, governance, and corporate social responsibility.[5] Undoubtedly, that reputation is a powerful asset as the company repositions itself in a market where new competitors are coming out of left field.  “We used to be the provider of premium cars, and now we’re the provider of premium mobility services, as well as premium cars,” says Richard Steinberg, CEO, DriveNow, a joint venture between BMW and car rental company Sixt.[6] Premium mobility means personal, convenient, and greener options for a generation that values transportation solutions rather than car ownership. Not surprisingly, DriveNow, introduced in 2011, already makes over half a million trips per month.[7] Its members can use real-time apps to pick up and drop off electric BMWs based on their needs in cities like London, Vienna, and Munich, giving less-trusted sharing-economy options a run for their money.

Some start-ups see a clear benefit in associating with established, trusted brands. It’s not hard to understand why. Almost half of the consumers in the PwC survey remain concerned about unreliable quality in new online marketplaces.[8] And so we’ve seen Yerdle, an online marketplace for used goods, adding established retailer Patagonia’s popular Worn Well used-clothes collection to its merchandise. And what does Patagonia, which famously urged American shoppers to buy less and conserve more,[9] get in return? Higher visibility in progressive-minded online communities frequented by Yerdle’s shoppers, who are likely to steer their followers toward brands they trust.[10]

2. Self-governance within the sharing economy is setting new standards even as regulation tries to catch up.  The explosive growth of sharing economy start-ups is raising questions about regulation, such as how to ensure a relatively level playing field between established and new businesses. And how to regulate new companies without stifling innovation that created those successful business models in the first place.[11]

While regulation is still evolving, in a maturing marketplace based on trust, self-governance could be the biggest differentiator going forward.

That’s why some sharing-economy companies are going to great lengths to demonstrate that their buyers, sellers and businesses partners have naturally rallied around a common purpose, which in turn encourages responsible behaviour. Airbnb, for example, is walking the fine line between sharing data with circumspect local governments and maintaining consumer privacy. Reaffirming its commitment to an open and transparent community, the company just shared anonymised data about its New York City hosts with the state government to show that most of them are average citizens earning extra incomes, rather than greedy landlords or fly-by-night hotel operators.[12]

This is a sensible approach. A new PwC study[13] on consumer attitudes toward brand leadership finds that consumers today gravitate toward qualities like trustworthiness, authenticity, and reliability – compared with 1999 when they associated leader brands with qualities like innovation. Over the past 15 years, “leader brands” have grown in value at nearly five times the rate of the average S&P 500 company, and that trend is likely to continue: two-thirds of US consumers say the importance of acting like a true leader brand is more important today than it was in the past and will matter even more 10 years from now. With growth expectations being set high for Uber, Airbnb and others, it’s essential that these companies live up to the expectations  required of brand leaders today.

Source: Bonfire of the Brands, PwC Consumer Intelligence series, November 2015.

The challenge before both companies and policymakers is that there is not much precedent for regulating activities like point-to-point transportation, short-term rentals, and on-demand services. Moreover, cities around the world have vastly different laws — many of which probably didn’t anticipate digital disruption. So sharing-economy companies have to micromanage their market-entry strategies, including engaging policymakers and consumer groups early on in the process.[14] For their part, regulators seem determined to catch up with this new economy. US Presidential hopeful Hillary Clinton, for example, has noted that using independent workers to fill temporary positions in the “gig economy” represents innovation but raises hard questions about workplace protections.[15] Companies that self-govern have a greater chance of staying one step ahead of both regulators and competitors.

3.  Companies that created entirely new rules of engagement are relying on good old fashioned practices as they scale up. Regulatory pressures, the need to put various stakeholders at ease – as well as the practical realities of competing in a growing marketplace -- are leading sharing-economy businesses to embrace traditional practices. Many companies are now offering insurance protections and verifying identities of buyers and sellers who use their online platforms. Consider how TaskRabbit, which connects workers with people who need services, guarantees a million dollars of coverage for tasks like folding laundry and buying groceries. 

These companies are incurring significant new operating costs because they know they must put in place a “trust infrastructure” that allows people to share, access, work, barter and trade freely. The so-called Peer-to-peer (P2P) transactions are now enabled by a host of intermediaries. They are occurring within large ecosystems made up of start-ups, established businesses, and various service providers. 

The building blocks of this new infrastructure are lesser known, and certainly the least glamorous, participants in the sharing economy. Take credentials management company Jumio, which verifies users’ government-issued photo IDs for Airbnb. Or insurance companies that are innovating furiously to solve this new riddle: How to provide insurance for an asset that’s used occasionally or an odd job that’s done “on demand”? Pennsylvania-based Erie Insurance Group, a traditional insurer, and Peers, a technology company, now offer insurance programs for consumers and service providers in the sharing economy.

Of course, the desire to engender trust is not the only factor at work here. The marketplace is not only booming, but also getting more complex by the day. Perhaps no industry illustrates this better than P2P lending. When consumer credit dried up in the aftermath of the financial crisis, P2P lending soared by connecting borrowers to lenders without the intermediation of banks. Today, the industry is also lending to small businesses, students and home buyers. P2P lending companies now prefer to call themselves “marketplace lenders,” getting funds from institutional investors, forging new partnerships with community banks, and on occasion, even with traditional big banks.[16] One technology start-up, Orchard Platform, is linking up various P2P lenders with institutional investors – to put in place the infrastructure for a secondary market for these loans.[17]

Inventing an app that works flawlessly on smartphones to connect buyers with sellers is easy. Maintaining leadership in a fast-changing, high-growth market where consumers and regulators have new expectations is much harder. Some companies are taking the lead in setting high standards for themselves and raising the bar for their competitors – while keeping their consumers, employees, and partners by their side.  These businesses are more likely to succeed, as the sharing economy enters its next phase. They understand that without trust — the currency of the sharing sharing economy[18] — collaborative markets will not function smoothly, let alone grow or thrive.

1 The Unicorn List 2016, Fortune and CB Insights and Katie Benner, “The Unicorn Club, now admitting new members”, The New York Times, August 23, 205

2 The Sharing Economy, PwC, April 2015

3 Barney Jopson and Tim Bradshaw, “Regulator probes pitfalls of sharing economy,” The Financial Times, May 10, 2015, Douglas MacMillan, “Sharing Economy Workers Need Safety Net’ U.S. Senator Says,” The Wall Street Journal, June 8, 2015, and Martin Sullivan, “Tax challenges for the Uber economy,” July 14, 2015, Forbes.

4 The Sharing Economy, PwC, April 2015

5 Reputation Institute's 2015 Global RepTrak 100 ranking

6 The Sharing Economy, PwC, April 2015

7 “DriveNow Car Sharing Service Introduces Fleet of BMW i3s,” Fleet News, May 19, 2015

8 The Sharing Economy, PwC ,April 2015

9 Claire Zillman (Patagonia executive): “We Want Customers to Buy Fewer Clothes,” Fortune, May 20, 2014

10 Nikki Gloudeman, “How Yerdle and Patagonia Are Boosting the Sharing Economy,”, April 15, 2015

11 Jack Karsten and Darrell M. West, Harmonizing regulations for sharing economy businesses, November 4, 2015, The Brookings Institution

12 Mike Isaac, “Airbnb Releases trove of New York City Home-Sharing Data”, December 1, 2015

13 Bonfire of the Brands, PwC Consumer Intelligence series, November 2015.

14 Five Steps to Success in the Sharing Economy, PwC, 2015

15 Kate Rogers, “In Economic Address, Hillary Clinton Calls out 'Gig' Economy,” July 13, 2015, 

16 “From the People, for the People,” The Economist, May 9, 2015.

17 Ianthe Jeane Dugan and  Telis Demos, “For Peer Lending, a Change in Financing,” The Wall Street Journal, October 21, 2014

18 Rachel Botsman, What’s Mine Is Yours

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