Is There A Breaking Point For The App-Based Sharing Economy?

Sharing apps have become a major phenomenon, with Uber leading the charge. Uber, whose “ride sharing” taxi-like app achieved several massive rounds of funding and now sits at a record $50 billion valuation, has established a number of trends in the tech world and influenced the emergence of a “sharing” economy that focuses on independent contractors and service “sharing” rather than direct provision. Countless startups have emerged to take advantage of this space, from close competitors like Lyft, to closely related services like home services of HouseCall ($9M in funding), to more obscure services like massages offered through Zeel. The trend has even spawned a buzzword phase: “it’s the Uber of X!”, X, of course, being whatever niche the app fits in.

The effects of the trend have been referred to as a “sharing economy,” “gig-based economy,” or even an “Uber economy,” and have been simultaneously cited as beneficial and harmful to a traditional working environment—beneficial because it gives more people more opportunities, and harmful because those opportunities are stripping workers of benefits and long-term job stability. But putting aside personal political viewpoints, is there a potential breaking point for the sharing economy? Will “Uber of X” apps keep on growing to infinity, or is there a hard stop in the near future?

The Adoption Problem

Dozens of sharing apps, including SnapGoods, struggled to attract an initial customer base—sometimes to the point of failure. The disconnect lies in the fundamental problem with the sharing of goods and services. Rachel Botsman’s TED talk back in 2010 was an early highlighter of the potential of a sharing economy—in it, she used a now-commonly-cited example of a power drill to illustrate its power. Most people own a power drill, but most owned power drills only get used for about 12 to 15 minutes in a lifetime. This is objectively wasteful, and most would agree that renting a drill would be less expensive for the renter and borderline profitable for the lender.

The problem is the ownership of the “drill.” Upper-class earners are likely to be uninterested in sharing apps, being able to afford their own devices and services and being unwilling to engage in the type of low-pay service that these apps demand from participants. Lower-class earners are likely to be unfamiliar or uncomfortable with the technology necessary to use the app, and lack the capital necessary to invest in becoming a service offerer. This leaves only the middle class to lead early adoption, and while most of them think positively of sharing models, few are willing to adopt the new platforms. This leads to an overall apathy problem that stifles the adoption of sharing platforms for all but the rarest brilliant ideas.

The Regulation Problem

Now that more apps are starting to emerge and older apps are starting to become cultural touchstones, lawmakers are starting to take action against them. Politicians like Sen. Mark Warner (D-VA) have acknowledged the increasing influence of such apps on the economy, and are encouraging new regulations to guide their development. While regulation itself may not pose an inherent threat to ongoing development, if the basic structure of economic sharing (i.e., the reliance on a wide network of independent contractors) is compromised, it could radically transform how these companies operate—and may even do away with them entirely.

The central dilemma is whether or not these “sharers” or app participants should be treated as full-fledged employees, worthy of the same benefits and subject to the same laws as any full-time employee. Any attempt to wager whether such an institution is good or bad for the economy is based on conjecture, since we have little real data on how a sharing economy might work, so it’s hard to say whether regulation would nip a problem in the bud or ruin the potential of an otherwise promising new paradigm.

The Customer Experience Problem

Another major problem threatening the longevity of a “sharing” economy is the consistency of customer experience. A restaurant chain like McDonald’s can regulate everything, including ingredients, equipment, preparation processes, and workforce training, to ensure that every burger tastes exactly the same. But with apps relying on independent contractors to carry out the work in a sharing economy, there’s only so much control a brand can have over the consistency of its product or service. Reviews allow customers to check and regulate service providers, and routine corporate inspections can introduce some degree of regulatory control, but there’s a critical limit to how much consistency a brand can implement in this setting. This doesn’t rule out the possibility of an organic sharing environment taking shape, enabled by a brand, but most applications will find it difficult to scale without some guarantee of service quality.

The sharing economy is still growing, and new Uber-style apps seem to roll out daily. However, it’s unlikely that the sharing economy will evolve into something stable anytime soon. Adoption rates and service consistency are too unpredictable and dependent on apathetic users to reliable grow, even with “good” ideas backing them. And even if they do become breakout successes like Uber, the threat of new regulation is constantly adding pressure to the long-term profitability and operational feasibility of such apps. Personally, I think brands like Uber, Lyft, and Airbnb have come too far for their deaths to be right around the corner, but there’s a real possibility for a backlash against sharing apps to stifle their growth and prevent others from emerging to challenge them.