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On Demand Businesses 101

Sharing Economy- Banking of Things

One of the most important economic invention has been banking because of the multiplier effect it has on the money supply of a country. Simply put, most of the money just sits in some vault most of the time rather than being used for a transaction. Now banks started lending most of the money sitting in vaults to people so they could do transactions and be a part of the economy. So at any given point the effective money supply is more than the actual money supply in the economy.

Now, sharing economy is doing the exact same thing for everything- houses, cars, cameras and almost every perceivable good or service. Lets take an example of an average car, it is generally driven less than 10 percent of total time of the day. So, in theory, the multiplier is 10, that is, 10 people can own the car completely while being able to use it as they would use their cars. In practice, goods are not as simple as money because many people might need the car at specific time and location. This means that the multiplier effect can be achieved only if specific people are matched whose needs are completely complimentary for the same resource.

This is exactly what all sharing economy marketplaces do- Airbnb, Lyft, Getaround to name a few. The higher the number of people in the marketplaces, the better the efficiency of matching and higher the multiplier. The theoretical multiplier for any commodity is the inverse of the utilization ratio of anything and can be as high as 20 in case of sparsely used but high value things. Imagine the positive impact it can have on the economy, environment by lowering the need of production of stuff without compromising the standards of living.

If you are thinking of how revolutionary your sharing economy idea can be, shoot me an email or comment below and I would love to help you do a multiplier analysis to estimate the potential market disruption and positive impact on economy and environment.

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6 Comments »

6 Responses to “Sharing Economy- Banking of Things“

  1. TJ says:

    Hey Samar, Interesting.

    I think the logic applies to many things.

    Not sure about cars, however. Their useful life is a function of miles driven. So if it were to be shared efficiently, as theorized, it would need to be replaced 10X faster, requiring the same10 cars to be purchased. I trust an economist will chime in with the appropriate terminology.

    I think Uber, Lyft, etc. are also different in that they require a driver and overhead costs not associated with ownership.

    Best,
    tj

    • Samar Singla Samar says:

      Tom, most material objects have a life time in terms of usage- cameras have shutter counts, electronics have some kind of lifetime also. There are two arguments in this case:
      1. Many cars are not already being utilized to their full potential. Not every car is a prospect for sharing economy benefits. That is the reason correct matching is very critical part of the marketplaces and wont be efficient enough to have a sweeping change for a few years.
      2. Sharing of cars is most powerful when people carpool and 4 people instead of one travel in a car like Carma is trying to do. Intercity traffic can be reduced a lot because of that and the multiplier is indeed more than 2 for people who go to work far away from their homes.

      Lastly, Lyft and UberX are not really car marketplaces strictly but realtime service marketplaces. The unused time is being sold off as a product there. Again, doesn’t make sense for people whose time opportunity cost is high.

      Thanks for asking this. I had to think hard before answering. I believe in this stuff and our company is completely focusing on this going forward, so please do critique hard, really appreciate it. 🙂

  2. Nishant Sinha says:

    You mention positive impact on the economy and the environment. The economy part is not necessarily true, right.

    It is probably open to debate and can very easily lead to more job destruction than creation. Less taxis, less hotels means lesser production leading to lesser jobs. GDP may go up but probably lead to higher concentration of wealth, especially to the platform provider.

    More efficient – yes, but unless jobs are getting created somewhere unseen, the first order effect might be not so good for the crowd.

    • Samar Singla Samar says:

      Thanks Nishant. Let me try to answer all the points you raised:

      Better for economy- increased efficiency is almost always better for every one, especially if the consumption is not getting affected by decreasing the number of goods to be manufactured. This part is almost trivial if the two issues you raised- unemployment and concentration of wealth are tackled. Let me try to address them separately.

      1. Unemployment: Sharing economy has a positive impact on both the number of jobs created and the quality of jobs created. Most of the cameras are built by robots and reduced manufacturing wont change the employment dynamics by lot actually. Sharing economy, on the other hand creates jobs at two levels- end point service and giving people a low risk shot at entrepreneurship. Let me explain with examples:
      Lyft, UberX, task rabbit, munchery, instacart are all examples of labor/service marketplaces. These give options of very flexible jobs to people of almost all skill sets- driving, cooking and even just doing odd jobs. Of course, not everyone wants to become a task rabbit, but they have an option that needs almost zero skill, is instant, is very flexible. This is especially powerful for people in developing economies like India, where unskilled people don’t have a lot of opportunity.
      Second, it democratizes entrepreneurship at two levels- first many of these marketplaces are very operational and local and are not monopolies like Uber. We are doing exactly that- giving people the technology to setup these marketplaces without developing the whole technology themselves. Second, many people become second level entrepreneurs by becoming the providers in the sharing economy ecosystem. eg there are people renting out 10 houses and managing them on airbnb, effectively creating small virtual hotels without any investment at all. When did we have that option in the world?

      2. Concentration of wealth: To understand how this is going to be affected, we need to understand who is being disrupted here. Google is helping us find most of the products and services to consume. Search engines are already a monopoly for most parts. These sharing economy marketplaces are disrupting the search engines by providing context aware, curated recommendations and also closing the complete loop in the consumption cycle. Since these companies are doing that in vertical fashion as opposed to everything in case of Google, it is actually reducing the concentration of wealth.
      But this is a little more complicated than that. Since Google owns the predominant computing platform and since they are buying SE companies left and right, they might still be able to own a huge part of it. But that is the nature of capitalism, SE is not doing anything to accelerate the concentration of wealth but the opposite.

      Thanks for raising these points, would love to hear your thoughts. 🙂

  3. Nishant Sinha says:

    Agree with most of it but below is my main concern regarding the economic impact of the concept of sharing economy.

    When we talk about sharing, we are talking about utilising stuff which is unused for a majority of time. Now mostly its people with high amount of capital who have this “extra stuff” lying around.
    A taxi drivers’ car does not run 10% of the time, it runs 80 – 90% of the time. Extra room is another privilege of the well off. A professional photographer uses his camera everyday.
    Its people with relatively higher amount of capital who buy stuff and can afford to let it lie around. Now we have a way to put that extra capital to work which is extremely brilliant for them and the users (as more supply comes in the market) but not that great for the person who is already trying to carve a living out of it because of the increased competition.
    You mention starting a business is easier which is true, but as mentioned if a poor woman had 10 rooms, she was already running a paying guest, printing pamphlets and trying to source customers. Now its easier for her to source customer but she has got competition from the rich military uncle who wont go to that much trouble but will happily post a few pictures on an internet portal.

    I sound like a left oriented closet communist, who is advocating an inefficient status quo market under the pretext of helping the poor. I do not want to do that. I believe making infrastructure/goods/services go longer would only make the world a better place but I would still want to wait and observe how it pans out in the labour market.

  4. Olalekan says:

    Dear Samar,
    Currently working on developing a sharing economy that will be Airbnb of event venues in Nigeria. Kindly help you do a multiplier analysis to estimate the potential market disruption and positive impact on economy and environment.

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