What is Collaborative Economy: Advantages & Disadvantages

Instead of owning something, the model of focusing on the possibility of using what is needed is known as Collaborative Economy.

For some years, the term “collaborative economy” has been used more and more frequently. But what exactly does it mean? Which companies apply this type of economy successfully and what advantages and disadvantages does it offer to its clients and companies?

What Is The Collaborative Economy?

The term refers to business, online and offline platforms and communities that allow users to share goods, services or information. Instead of owning something, this consumption model focuses on the possibility of using what is needed.

For example: in almost every house there is a drill, but it is usually used a few times a year. If it is made available to other people, it is possible to reduce the consumption of resources necessary for the manufacture of these tools. Of course, this principle can also be applied to cars, homes and even the media. Borrowing is the new way of consuming and the collaborative economy makes it very easy.

If in its beginnings it was celebrated as an alternative model to traditional forms of consumption, today it is received in some sectors as a threat to its existence. This is because the collaborative economy, in addition to radically changing the industry, is also influencing the way people interact with each other and with respect to goods and services.

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The P2P, B2C & B2B Models In The Collaborative Economy:

The role of companies in the delivery of services depends on their business model. Normally, companies offer the necessary technical infrastructure, such as an app or an online platform.

P2P: With peer-to-peer business models, companies provide the technical infrastructure they share or rent.

B2C: in the case of the business to consumer model, companies use the new technical possibilities so that customers can use their own products.

B2B: In the business to a business model, companies provide, for example, production machines or services to other companies. In this way, companies save expensive purchases of equipment or hiring experts.

B2C and B2B models have been around for a long time and thanks to technical innovations they work faster and more simplified. For its part, the P2P model is the most interesting to understand the new possibilities and dimensions of this shared economy model.

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Examples Of Companies Based On The Principle Of “Sharing Economy”

At present, there are innumerable companies that offer their users the exchange, rental or temporary use of goods, services and information. Although many occupy relatively small niches, there are also businesses based on the collaborative economy, which offers compete with the more traditional companies.

Accommodation: Airbnb

Founded in 2008, it is a company for renting private accommodation. While it is true that it has helped countless travelers to easily find a place to stay at a good price, their market breakthrough has not been controversial: especially in large cities with many visitors, many apartments are used only for rent Private to tourists. This causes the supply of permanent housing in the cities to be reduced and the demand to increase and, as a consequence, rents become more expensive.

Airbnb is a simple intermediary in this collaborative economy business model, that is, it is only responsible for registering the reservation and making the payment on its platform. In addition, the company does not guarantee the reliability of the owner or the condition of the apartment. However, it is possible to evaluate the tenants and the owners later.

Transportation: Uber

Uber is considered by many to be the prototype of the collaborative economy. The company serves as an intermediary for the rental of vehicles with drivers. Although similar to a taxi company, it is clearly distinguished by a fact: those who make trips using their own cars are particular. Interested passengers book a trip through their application and are shown the arrival time and vehicle details. Once the service is finished, transportation costs are automatically charged to the account. That is when the driver and the passenger have the opportunity to conduct an evaluation.

Goods: Wallapop

The Wallapop application for the sale of second-hand clothes and other objects appeared in Spain in 2014. It is characterized by showing users the products according to their geolocation. In addition, it allows interested parties to contact the seller through a chat.

Media: Netflix

In just 20 years, Netflix has gone from being a small video store company to one of the largest streaming providers in the world. Moreover, the market value of the American company exceeded even that of Disney for a short period of time. This platform presents an original offer: instead of selling or renting movies or series, it offers users unlimited viewing at the provider’s website at any time. In exchange, the payment of a monthly fee is required. For many customers, it is much cheaper than buying or renting DVDs or Blu-rays. In addition, the data of the films and series transmitted by streaming remain in the company, unlike what happens with the downloads.

Collaborative Economy: Advantages & Disadvantages

The companies that have successfully applied the collaborative economy model serve as an example to analyze the advantages of this alternative to the traditional business. However, there are also problems, both for users and companies.

Advantages Of The Collaborative Economy For Users

The growth of the collaborative economy in recent years is mainly due to the advantages that users find compared to the most common business models, such as online stores or service providers.

Accessibility: thanks to its high degree of usability, the platforms allow fast and efficient access to products. In particular, mobile availability through smartphone applications allows access to the sharing economy services from anywhere.

Price policy: the prices of the goods and services offered are often lower than those of competitors of classic consumer models. It is more affordable to pay for second-hand products, sub-rental apartments, and private transport services than to buy new products, book a hotel or take a taxi.

Environmental protection: environmental awareness is also rewarded. By sharing cars or reusing used goods, the production of factory goods is reduced. This saves resources and, consequently, contributes to the conservation of the environment. However, this advantage of the sharing economy has to be observed with caution: being goods and services that can be enjoyed more easily, there can be an increase in consumption or use.

Income opportunities: for vendors and service providers, platforms for collaborative consumption are considered a new source of income. This business model presents flexible opportunities to earn money, allowing many suppliers to live even fully from the benefits obtained with it.

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Advantages Of The Collaborative Economy For Companies

Companies can also benefit from many aspects of the collaborative economy. Of course, they have to adapt to the changes and be willing to invest capital and labor to expand or reorganize their business model.

New business models: as the examples of Airbnb, Uber and Netflix show, the shared economy offers the opportunity to combine established industries. If success is obtained, the possibility of obtaining benefits is enormous. Even when in some sectors the collaborative economy is treated as an intrusion into a market, it allows new niches to be opened and to reach customers who previously were not interested in the company’s offer.

Efficient technologies: the use of applications to manage this economy model allows reducing personnel or business premises costs. However, software development and maintenance is also an expense.

Access to user data: thanks to the online interaction of customers, companies can collect a lot of valuable data about the users of the platform. This information can be used to further adapt the offer to customer preferences and thus improve it, although it is also used to send personalized advertising.

Disadvantages Of The Sharing Economy For Users

Of course, the collaborative economy not only offers advantages, but it also shows certain disadvantages.

Privacy: Although data collection is useful and profitable for businesses, users should know that a lot of information about them is stored: from preferences for certain products to detailed movement profiles. In addition, some platforms require providers to make information about themselves or their environment available to the public. An offer for renting a private room, for example, requires that the photos of the apartment itself be uploaded to the platform for all to see.

They do not offer a guarantee : most of the sharing economy platforms only serve as intermediaries, without guaranteeing the quality of the goods or services offered. As a result, users must rely entirely on the ratings of other users. Nor do they guarantee the refund of the amount transferred if the product does not meet the expected.

Absence of legislation: the lack of regulation presents some disadvantages for business providers based on collaborative economics. For example, transport service drivers are not self-employed, but in most cases they are self-employed. In this sense, labor legislation does not offer protection in case of unfair dismissal or guarantees a minimum wage.

Marketing: Many collaborative economy platforms are accused of converting originally free services into a payment model. For example, a few years ago the Couchsurfing emerged, where visitors could spend the night free at another person’s house. This non-profit initiative lost many users with the emergence of platforms such as Airbnb and the like.

Disadvantages Of The Collaborative Economy For Companies

Small and medium-sized businesses in particular, but also large companies that refuse to adopt the collaborative economy in their business model or that lack the necessary capabilities or means to adapt to it, face certain disadvantages.

Displacement of established industries: Platforms with sharing economy models subtract clients from established industries by offering a cheaper offer. The taxi sector is threatened by Uber; the hotel industry, by Airbnb, and the big movie distributors see Netflix as a tough competitor.

Reduced sales: Already used products are re-sold, other items are shared: all this leads to the reduction of the consumption of new goods and therefore to a decrease in sales.

Changes in customer preferences: As the goods are used for longer and with more intensity, the conception of what is a good product also changes. Increasingly, customers want products that can be used for a long time and are easy to repair. Consequently, disposable products lose their appeal and industries have to adapt to new buyer preferences. However, these measures are beneficial for the environment.

Opportunities And Risks Of The Sharing Economy

Users get significant benefits from the sharing economy platforms, among other reasons because it facilitates access to a wider range of products, services, and information, which are usually offered at lower prices. In addition, it allows for the existence of a fairer and environmentally-friendly market economy and offers opportunities to private suppliers to increase their income. As an inconvenience, it should be noted that people who engage in this type of business are usually self-employed who assume a series of risks, for example, suffer from precarious work situations. Also, underline the threat it poses to the protection of privacy.

The companies that adapt to the business models of the sharing economy have the possibility of obtaining great benefits with comparatively low investment costs. Digitization allows you to collect a multitude of user data and information. On the contrary, companies that do not adapt to the new market conditions are at risk of disappearing, at least in some sectors. That is, many established business models may lose importance, sales may decrease markedly due to changes in customer needs and consumption may be reduced. Therefore, adapting to new models and contemplating the collaborative economy can be beneficial.

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