You’ve heard of Airbnb. And maybe you’ve heard of the “Airbnb for dogs” (DogVacay), the “Airbnb for boats” (Boatbound or Sailo), or the “Airbnb for office space” (ShareDesk). But what about an Airbnb for lawnmowers, diamond necklaces or blenders?
The “sharing economy,” in which owners of certain goods let others use them for a fee, is expanding fast. Airbnb has doubled its listings in most recent years, while Uber expects its global bookings to more than double in 2016. Both sites have inspired a bevy of similar businesses.
With all this success, you might start to wonder: Will we soon be sharing our lunches and pajamas, too?
A newly published paper by John Horton of New York University (currently a visiting economist at Uber) and Richard Zeckhauser of Harvard University offers some answers on how far the sharing economy is likely to go. Their work explains why there has always been a rental market for tuxedos and vacation homes – and why someday soon people might be also be renting lawnmowers, jewelry and other goods, but not toothbrushes or back-up generators.
Until very recently, most of the goods that people rented – tuxedos, time shares, cars and VCRs -- were owned by a company with the explicit purpose of renting such things. Families and friends might share certain things among themselves, but they would rarely lend them to strangers. But in the last few years, that has changed dramatically. The rise of the sharing economy has helped solve an old problem: When you buy something expensive, like a boat or a vacation house, most of the time it just sits there unused.
There are a few reasons it took people so long to solve this problem, say Horton and Zeckhauser. It’s partly because new technology -- smartphones, high-resolution digital cameras, GPS maps, and effective websites -- have helped make the platforms possible. Another important ingredient is the development of algorithms for making recommendations and systems for managing online reputations, which help buyers and sellers put their worries to rest.
Given these new developments, the only major limitation left is what people want to rent. Based on surveys of consumers carried out through Amazon Mechanical Turk, Horton and Zeckhauser find that a product needs to be three things to spark a sharing economy:
-Relatively expensive, at least for how often it will be used. Products that everyone can afford, like toothbrushes and kitchen timers, aren’t likely to be rented.
-Used predictably. If an owner can’t predict when he or she is going to need a certain good – like an emergency backup generator – they’ll be unlikely to part with it. Goods that are have predictable uses, like vacation homes, tuxedos and rototillers, are among the most widely rented.
-Used in large chunks of time, with no use between – what the authors call “low granularity”. Vacation homes and carpet shampooers have low granularity, while your living room, hammers and eyeglasses do not.
In short, the best goods for sharing economies are expensive ones that are used infrequently and predictably.
The chart below shows how a variety of goods rank in terms of predictability and granularity, based on Horton and Zeckhauser’s surveys. Horton and Zeckhauser say that the goods shaded in green are those that are really good for rental – and many actually already have rental markets.
Then there are other goods slightly outside of the green box – bikes, lawnmowers and jewelry, for example – that the authors say don’t have much of an active rental market now, but could in the future.
Horton and Zeckhauser expect companies to design more products in the future with an eye to making them more easily shareable – for example, building cars and houses that you can lock and unlock remotely. They also say that more products could be linked to the internet of things to help platforms figure out when they aren’t being used and allow others access to them.
So what are likely to be the new shared products of the future? "Not to be glib, but that's probably best left to entrepreneurs - I remember the first time I heard about Airbnb and thought "that will never work," says Horton.
He also points out an example of an illustrative sharing economy that failed: Several startups have aimed and failed to become "the Airbnb of power tools" in the last few years. Horton says these businesses may have failed because the demand for these goods is too uncertain, and it's too big of a hassle to rent them out.
The authors say that we will just have to wait and see how these markets will change our economy – including whether the sharing economy will encourage or discourage ownership of certain goods, and how that demand will affect prices of goods in the future.
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