The disruptive business lie of the sharing economy

(Thomas Schall, June 2016)

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NOTE: This essay is written in English!

Everything internet-related must be good. This is a nice and easy assumption, but unfortunately it is wrong. There is a lot of innovation and new services for the good of the people and our society, but there are parasites as well, trying to destroy achievements of our society. These refer to innovation and being disruptive businesses, but in reality they are trying to destroy some long existing business and rebuild it in the web, but worse.

Recently the two most prominent ones of these parasitic businesses are Uber and Airbnb, which have been massively hyped. These also raked in lots of venture capital which is no wonder: They promise to destroy a whole well-working business and replace it by their online-managed service. Only they just offer the online part and leave the service to private individuals. That means the risk also completely stays with the private individuals – the customers as well as the service providers.

These parasitic businesses follow one easy pattern, so everybody could create one:

  1. Identify a highly regulated generally available service with a sufficiently high volume, like taxi, hotel etc. It should be a profitable business before you start.
  2. Identify the assets you minimally need to provide this service: a car, a house or an apartment, free time.
  3. Identify a significantly big group of individuals who is in control of this minimal set of assets.
  4. Create a web service with the promise to connect those who can offer the service with those who need to purchase the service. Claim that it is cheaper for everybody than using the existing kind of service and assure the offerers that they will make good money.
  5. Start a high-pitch marketing campaign to promote this web service and, if possible, make it appear as an intelligent, modern life-style choice.
  6. Employ many lawyers to aggressively fight every individual, city, or country which wants to hinder your offerings or just speaks bad about it publicly.

The last points are extremely important, since they are absolutely necessary to cover the weak spot of such a parasitic business: They can mainly achieve being cheaper, and maybe being more flexible than existing businesses, by bypassing existing laws and regulations. They do so with the claim of “just connecting individuals with some mutual interests” and using the hype term of “sharing economy”, but in the end they are organizing a business that tries to avoid the regulations for this exact business. They enable individuals to provide taxi or hotel services without following the laws applying to these services. Not only is this deception, but it also strips the customer and the offerers of the security and safety that the regulation provides – the reason why this regulation was introduced in the first place.

However, obviously this safety and security does not matter, if you can save a little money. There are lots of people greedy enough willing to take the risk for their safety and their assets. And there are lots of people stingy enough to save a little to take the risk and go with an untrusted and potentially insecure service offer.

Thinking about what both of these sides get from the web service provider it is surprisingly little. The web service provider’s claim is to add more value than it actually does. However, it is mainly some automatic algorithm matching supply and demand, an algorithm which is inherently intransparent and nobody else has any insight into how it really works, and if it really provides optimal matches. They claim to assure quality with some customer assessment, but again nobody else gets to know how a rating is achieved, and to be honest, there is no real control that evaluations are not made up, manipulated or even bought.

These parasitic businesses covering as disruptive businesses and claiming to enable a sharing economy must be fought, because they offer savings and earnings by sacrificing previous achievements in consumer protection. That is their only way to make an argument and they are fighting hard to keep their cover. Anyway, their business model is easy to uncover: they offer the same service as an existing business by getting a private person to offer it and circumvent regulations for the existing business. This is their core model and its competitiveness breaks down once the regulation applies to their individual service providers. This would be just leveling the field for all active players, but knowing it could ruin them, the parasite web service providers fight this with all means, legally and maybe potentially illegally.

This business model is very different from other web services which created real innovations. Amazon, for example, created the most powerful delivery chain in the world and, by massively optimizing their IT infrastructure for this, they became one of the major cloud computing service providers. Unfortunately, there were existing businesses which could not compete with this innovation. Only they created a new service within the boundaries of the law and old ones could not compete on this field. They did not try big-scale to conquer an existing service by stripping consumer safety from it via promising profits for everyone while circumventing laws. The parasites are not like Facebook offering a new way of presenting oneself and communicating. Speaking of communications there were more real innovations, like Twitter, basically allowing to send SMS text messages to the whole world and subscribing to those senders one is interested in, or like Whatsapp reinventing SMS in a whole new way by taking concepts from email, newsgroups, twitter and combining these with a self-service management. All those are inherently new, they are not bypassing regulation and this way devouring existing services and businesses by lying about consumer safety and instead referring to some romantic notion of a sharing economy. Actually, it is ridiculous that a start-up created to be a multi-billion dollar business as fast as possible refers to such a grassroots concept. To be honest, it is worse, it is cynical. They have to be unmasked and fought by leveling the playing field. We better take a look at new service offers in the future, if they are actually parasitic like this.