Sharing Economy - Maybe you don't know.

Source of imagine.

The simple phrase of ‘sharing is caring’ has now reached a new height, even the economy now can be ‘shared’. The world’s economy used to be partly based on the principle of demands and supplies, the more a specific product is wanted, the higher its price, a pretty simple rule that created the modern market, along with other rules like, scarcity, cost and benefits, incentives (Willson, 2017). But everything changed ever since the ‘sharing-economy’ emerges. This paper will be analyzing this new phenomenon definition, a specific example and explains briefly of its advantage and disadvantages.

So, what is this ‘sharing-economy’? Going back in time to the year of 2013, ninety-percent of people do not know what exactly is this term and 5 percent had misconceptions about it (Rinne, 2017) now it is a popular trend and every entrepreneur is trying to hop on the band wagon. It is defined in Codagnone’s and Martens’s (2016) paper as consumers granting each other access to their own durable assets in exchanged for financial benefits, to put it in simpler terms, imagine a situation where you lost your phone and need to call someone, rather than going to a mobile store and get a new phone, you can borrow someone’s mobile phone when they are not using it to make your important call and then pay them a bit of cash. Another simple rule equals the others that has now joined in shaping the new economy.

Getting in to a closer example to clear things up, Grabtm is a sharing-economy based company that has recently made its way into the world’s market in 2012 (Grab’s website, n. d). It came into the market in the midst of Uber’s domination but still has its standing in some countries, it works pretty much the same as Uber, the customers press a button and then a driver arrives to pick them up to get them to their desired location or even book in advance for 7 days (Vicent, 2017). They offer a variety of cars and even motorbikes in some countries like Vietnam (Luan, 2014), the choices are freely made by customers. Then, are the cars and bikes assets of the Grab company? They are not, different to other taxi companies, they do not need to purchase vehicles to start their business, considering one car can cost eleven thousand dollars (Neeley, n. d), a lot of money can be saved for other developments. All of their vehicles are belonging to their drivers, they have their own cars and just need to fill in the paperwork to become a Grab’s driver, basically sharing their cars and ability to drive in order to make money. Not to mention, these drivers can also be the app’s service consumers, the line between employees and customers is very thin.

So, how is this sharing-economy based companies have advantages compared to others? As mentioned before, they can save tons of funds for infrastructure and equipment, focusing them on others tasks. First, money and resource to develop their app, don’t anyone just hate the feeling of being put on hold when trying to get a ride? Since its launch in 2012, in 2013 Grab receives a booking on an average of 8 seconds (Tung, 2015), and even receive more investment from foreign companies like Tiger Global, Qunar, Hillhouse Capital Management, GGV and Vertex Venture for an extra 90 million US dollars, continue on its development in 2015 there were 7 bookings every second, it is obviously a lot faster compare to manually arrange calls in a usual taxi operator.

Secondly, the funds can be used on its marketing strategy, the numbers do not lie when observing Grab’s spending on it. Only in Singapore in the year of 2015, in an attempt in trying to beat its direct opponent named Uber, their marketing expenses grows rapidly from 119 thousand US dollars to 1.2 million dollars in just one year. Nevertheless, even in the current year of 2018, everyone can still see Grab’s advertisement in action for promotion and discounts code every week (SGD tips, 2018). As the vehicle do not belong to the company, they do not have to worry about car related problem like maintenance, washing, …. (Bongat, 2016) the cost of each rides was already a lot cheaper than a normal metered taxi, combined this with promo codes, a customer can even get a free ride.

Thirdly, payment methods, there are 2 billion of unbanked citizens all around the world meaning they do not have a bank account or access to a financial institution via phone (Hodgson, 2017), it is important to make money transaction easier for everyone. Grab was reported to had pledged to spend about 800 million dollars as to buy out an Indonesia-based online payment startup named Kudo and other startups in order to win-out the market from the hands of Uber and other rivals, this enable for more customers to buy online and have access to Grab (Russel, 2017). Paying online make the difference when talking about Grab, since it has a point culminating system. Like Wong (2017) analyzed, for every dollar spent the customer will get 1 grab point (this rate changes depends on the location), the more points you’ll have, the more promotion you’ll get, different to Uber, it has a loyalty system when an individual get to a certain point level, he/she will become a silver, gold or even platinum member which can exchange rewards for less points, speaking in long term if the customer uses Grab on a daily he/she will have more benefits compared to using Uber on a daily.

As can be seen from Grab, the new sharing-economy is very beneficial for start-up companies with little fund, focusing mostly on customer’s satisfaction, managing and fighting over the existing market. But on the other hand, it can be not so great considering the drawbacks.Competitions are the roots of development, things used to be that simple, two companies go against each other and grow in the process, but it is a different case for the sharing-economy when some things that are left behind and can no longer compete. Return to the first example of the mobile phone, when that individual borrows the mobile phone can also means he/she will keep doing it, as a result have no intention of buying a new phone at all. Take that example into the major perspective, when things can be acquired via this method it will eventually hurt the sales of company’s productions and since every business needs a profit, they will be selling a less variety of products along with lack of funding for further development, maybe one day even shutdown for they have no needs in the new economy.

It left more people unemployed, take the ‘Xe om’ in Vietnam situation, when Grab Bike became a thing, no one uses the traditional ones anymore, Grab is obviously more trustworthy, cheaper and safer, the saying of ‘adapt and evolve’ in some cases could not be applied, since most ‘xe om’ drivers are from an older age of technology, using a smartphone is something complicated to them. Worst, some ‘xe om’ drivers even physically attack Grab and even Uber drivers for ‘stealing their jobs’, there have been over 100 reported assaults towards them since 2014 and 50 cases were in 2017 (Trang, n. d), things are heating up very quickly.

Being an ‘employee’ in this sharing-economy can also be a pain, unlike most jobs, its your own assets you are using, therefor taking care of it is your jobs, no paid sick or vacation days, and most dangerous of all, they are not yet regulated, countries with their courts are trying to find a way of leveling up the playing field making things go out of speculation and risky to partake (Sherman, 2014).

In conclusion, this type of economy is a great way for start-ups to join the market and have a chance of winning over it, but it is not yet perfected, conflicts are happening, people are losing jobs, more and more regulations are being developed, maybe this is the beginning of the new future or this is just not the time for it to take it shape.

By: @nguyentrung