What You Need To Know about the Sharing Economy

Information technology, a.k.a. the Internet, has been the platform for disruptive business models in recent times. Take Facebook for example; numerous companies base a major proportion of their marketing campaigns on Facebook, so much so that there are companies, such as Ampush, which solely exist to help firms launch Facebook marketing campaigns. Lately, a similar IT-enabled disruptive wave is encompassing the marketplace, commonly known as the "sharing economy".

People are using the Internet to rent things from cars to rooms to lawnmowers. What's different is the party providing the good; rather than established rental agencies, individuals ranging from college students to retired professionals, who are looking to gain more value from their underused assets, make the market. Airbnb, a firm based in San Francisco, is one such website that has fueled this trend. Since its launch in 2008, more than 4 million people have used it - 2.5 million in 2012 alone. It is the most prominent example of a huge new sharing economy, in which people rent a range of assets - cars, rooms, apartments, boats, and even tree houses and private islands - directly from one another, coordinated through the internet.

High-level of growth and development in the field of information technology has enabled the advent of the sharing economy. By reducing transaction costs and making sharing assets easier and safer, websites such as Airbnb, RelayRides and SnapGoods have created this market. It is estimated that the consumer peer-to-peer rental market is already worth $26 billion.

People are increasingly viewing these websites as a substitute to expensive rental agencies primarily because technology today provides much more visibility, creating trust among users. Renters can perform background checks before entering into a transaction; most websites have a system where past renters leave reviews and ratings of their experiences. Additionally, those who lease their assets can find ratings and reviews of renters who have existing accounts or look them up through social media to find mutual friends.

Incumbent rental agencies have very much recognized the threat of these peer-to-peer rental websites and are taking precautionary steps to avoid being left behind. For example, GM Ventures, the investment arm of the biggest carmaker, put $13 million into RelayRides in 2011. Avis and Daimler haven't been behind in their own investments in sharing rivals. This emerging model is now big and disruptive enough for incumbents to have woken up to it. That is a sign of its immense potential. I'm curious to see what lies ahead in this dynamic industry.

-Sparsh Dhurka