Emerging, Disruptive and Sharing Technologies: What Is The Sharing Economy and Where Is It Going? John Yates

Transcription

1 Emerging, Disruptive and Sharing Technologies: What Is The Sharing Economy and Where Is It Going? John Yates 1

2 What is the Sharing Economy? Pages Definition. The Sharing Economy (aka the Peer-to-Peer or On- Demand Economy or Collaborative Consumption) has exploded. Many Players. While you have probably heard of Uber, Lyft, and Airbnb, you may not have heard of WeWork (workspace sharing), Feastly (food sharing), PostMates (personal services) or Rubicon Global (waste collection). Definition. Peer-to-peer sharing of underutilized assets, usually through community-based online platforms. 2

3 The Sharing Economy Is Old Page 59 Not New. Despite the huge amount of press that the Sharing Economy has received lately, it is not an entirely new concept. For example: Event Parking. Paying for parking at a sporting event or concert by renting an unutilized parking space at a home or a business which is empty or closed during the event. Boarding Houses. Mentioned in films ranging from It s a Wonderful Life to Forest Gump, boarding houses are historical examples of the Sharing Economy unused rooms in a private home being used by travelers seeking temporary lodging. Carpooling. Workers reduce the cost of commuting by sharing fuel costs and cars. 3

4 The Sharing Economy Has Grown Pages 60 What Is New Is The Scope. A 2015 PricewaterhouseCoopers study estimated that the international Sharing Economy reached $15 billion in 2015 and is expected to reach $335 billion by

5 The Sharing Economy Has Grown Pages Enabling Factors. Three major forces came together at the right time to provide exponential growth to the Sharing Economy. Economics Technology Culture 5

6 Economics Changed the Sharing Economy Page 60 Economics. The Great Recession forced many to reconsider the necessity of possessions and consider alternative sources of income. Result. More individuals were forced to accept the idea of renting out a room in their home to a stranger or driving for a ride-sharing service in their spare time and also had to look to alternative means of obtaining goods and services due to rising costs of infrequently used goods. 6

7 Technology Changed the Sharing Economy Page 60 Technology. The growth of the Internet and widespread use of social media and mobile devices decreased transaction costs and increased transparency and accessibility. Lower Initial Expenses. Easy market entry due to lower startup expenses, low-cost advertising and app development. Trustworthy Transactions. Both parties can use social media and background check services to ensure the trustworthiness of the other party and rate and provide feedback on their experience. Payment Options. Low cost options for payment processing such as credit cards and mobile payments. 7

8 Culture Changed the Sharing Economy Pages Culture. Changes in our values have aligned with the strengths of the Sharing Economy. Use v. Ownership. Younger people often do not place value in the ownership of goods and instead value access to the functionality the goods provide. This is similar to the shift over the past decade away from directly installing software on computers to providing access to the software remotely via a software-as-a-service model. Green Perspective. People of all ages are more environmentally concerned. By using idle assets rather than buying new assets, we can reduce society s overall demand for resources. 8

9 Future of the Sharing Economy Pages Future Growth. The Sharing Economy has taken off in the past halfdecade, but it will only continue to grow. Analogous to Online Shopping. The online economy started out small and tentative just like the Sharing Economy. But then it grew. Parties learned to trust each other. Concerns about credit card theft were largely resolved. Novel legal issues were largely addressed jurisdiction and choice of law, risk of loss, distribution channel issues (think transactions between e-bay/seller/buyer). 9

10 Factors Fueling Future Growth Page 62 Societal Shifts. Projected demographic and economic shifts may increase the popularity of the Sharing Economy. Retirees. There will be a rapid growth in retirees seeking part-time income, a strong characteristic of the Sharing Economy. College Students. The growing cost of college education may force students and parents into the Sharing Economy to fund tuition via flexible jobs. 10

11 Business Benefits Page Benefits: As the Sharing Economy grows, more businesses will seek the benefits of operating in the Sharing Economy: Asset-Light: Sharing Economy companies do not have to own large fleets of cars, inventory of goods or build physical structures, which reduces fixed asset and maintenance costs. Lower Labor Costs: These companies typically maintain full-time staff but with fewer employees, leading to lower expenses on salaries, benefits and smaller office spaces 11

12 Case Study: Rubicon Global Page 63 Waste and Recycling Sharing: Rubicon Global connects small, independent waste and recycling haulers with consumers and businesses in an effort to deliver sustainable waste management services and cost reduction. Innovative Technology: Uses big data and a cloud-based software platform to enable efficiencies in waste and recycling pickups by allowing users to schedule pickups when needed and employing cameras and sensors to monitor dumpster levels Sharing Economy: Allowing customers to customize their pickups gives smaller, independent haulers greater access to customers and reduces the cost of pickups for customers by eliminating unnecessary pickups. 12

13 Case Study: Rubicon Global Page Disrupting an Outdated Industry: Waste industry is dominated by large companies and similar to the taxi industry, has seen very little technological innovation Rubicon s Growth: Rubicon has raised $30 million in funding in January 2015 and $50 million in September 2015 Valued at $500 million. Doubled in size every year for the past 3 years Largest third-party provider of waste and recycling in North America 13

14 Case Study: Rubicon Global Page 64 Beyond the Business Model: Many companies in the Sharing Economy focus on societal goals in addition to profits Sustainability: Rubicon s model reduces emissions and greenhouse gases due to fewer truck pickups, diverts waste streams from landfills and incinerators Goal to create zero waste for 100% of Rubicon s customers by 2022 Research and Development: Rubicon runs a R&D lab where the company tests new recycling technology to help make waste obsolete. 14

15 Ask for Forgiveness, Not Permission Page In Process Negotiation. Because of the high cost of initial investment, traditional entities try to address or change the regulatory landscape before entering into business. The low cost of initial investment has led Sharing Economy companies to start doing business without first resolving potential regulatory hurdles. They then negotiate with regulators while continuing to do business. 15

16 Support of In Process Negotiation Page Public and Political Support. This allows the Sharing Economy company to develop public acceptance and leverage for their negotiations. Leveraging Digital Information. Because Sharing Economy companies have access to their users digital information they are very effective at persuading their users to lobby elected officials. Example: August 2015, Uber to Boston customers encouraging them to voice opposition to a proposed bill that would impose regulations on Uber Consumer Support against Legislators: Sharing Economy companies champion themselves as consumers champions. Example: Uber gained support from consumers and privacy advocates in pushing back against legislation that requires disclosure of certain trip information. 16

17 Responding to Challenges Page 65 Two Types of Regulations. Challenges to Sharing Economy entities tend to fall into two broad categories. Economic Justifications Consumer Protection 17

18 Economic Justifications Page 65 Economic Justifications. Arguments center on value of limiting suppliers in an industry and typically come from incumbent or interested parties. Regulatory Capture. In some industries, this can be an example of the economic concept of Regulatory Capture, where the regulators are more interested in protecting those regulated than the public. 18

19 Consumer Protection Justifications Page 65 Consumer Protections. Whether these companies can provide the same level of safety since often not held to the same legal and regulatory standards that used to protect consumers. Sharing Economy entities respond in three ways: Does not apply Out-of-date or Anti-innovation Comply in spirit 19

20 Regulation Does Not Apply Page Does not apply. Arguing that the regulation does not apply to the Sharing Economy entity. Example: Uber claims that it is a matchmaking service between riders and drivers and not a provider of transportation services; therefore it is not subject to the laws applicable to taxi companies. Doesn t always work: Uber drivers in New York City are now subject to many taxi regulations, such as obtaining a TLC license, requiring a TLC license plate, being affiliated with a base and having enough insurance to merit a FH-1 (for hire) card. 20

21 Out-of-Date and Anti-Innovation Page Out-of-Date and Anti-Innovation. Arguing that the traditional concerns are no longer valid. Asymmetrical Information Problem. Many regulations were enacted to address the Asymmetrical Information Problem, whereby a consumer does not have access to information about the seller or product until it is too late. However, Sharing Economy companies argue that they have solved the Asymmetrical Information Problem through technology and that, as a result, regulations to address the Asymmetrical Information Problem should not apply to them. 21

22 Asymmetrical Information Example Page 66 Clean Taxis. You cannot tell if a taxi is clean until after you get in and, therefore, regulations require regular inspections to ensure that taxis are properly maintained. However, Uber claims that such regulations don t make sense when applied to Uber s business model because passengers can see how other passengers have rated specific drivers prior to getting in the car. Drivers who have vehicle cleanliness issues will receive poor ratings, passengers will not ride with them, and those drivers will be driven out by competition. 22

23 Comply with Regulation Page 66 Comply in Sprit. Complying with the spirit of the regulation but not admitting that it applies. For example, although it maintains that state and local regulations that require minimum amounts of insurance don t apply to the company, Uber maintains a national $1M hybrid insurance policy that covers drivers while a passenger is in the car. This vastly exceeds amounts required by most state and local regulations applicable to taxis. 23

24 Traditional Legal Challenges Pages Traditional Legal Issues. Other legal issues for Sharing Economy entities tend to be traditional in nature. Misrepresentation Neglect or Fraud Data Protection Contractor/Employee Classification 24

25 Misrepresentation Page 66 Misrepresentation. Sharing Economy entities have to actually do what they say they do. In December of 2014, San Francisco and Los Angeles sued Uber under consumer protection laws alleging that Uber misleads its riders on the rigors of its background checks and appropriate fees. In February 2016, Uber agreed to pay a $28.5 million to settle a different class-action suit over claims that its background checks were industry leading. The settlement also requires that the company reword the language around the fee that the company charges for each ride, from a safe ride fee to a booking fee. 25

26 Neglect and Fraud Page Neglect and Fraud. Similar to claims of misrepresentation, these companies may face claims of neglect and fraud for failing to appropriately screen their service providers. In October 2015, two women sued Uber accusing the company of neglect and fraud after Uber drivers in two separate incidents assaulted them. In December 2015, a woman sued Airbnb, alleging negligence and invasion of privacy after finding a hidden camera in the California home she rented through the service. 26

27 Data Protection Pages 67 Data Protection. While traditional company must worry about data protection and privacy even the smallest Sharing Economy companies need to take steps to address data protection and privacy. Most Sharing Economy companies use GPS technologies, automatic credit card payments and process a wealth of stored data How Sharing Economy companies manage access and control of data is essential to building customer trust. Example of Violation: the New York general manager at Uber used Uber travel data of another journalist without her permission. Further, the company used a God View tool to track customers locations at a launch party. 27

28 Contractor Classification Pages Contractor/Employee Classification. The inventory of Sharing Economy companies is generally provided by a vast number of individuals, whom the Sharing Economy companies claim are independent contractors. There are different rules for determining who is an employee or a contractor depending on the applications different federal laws, state laws, and regulations. Current class action lawsuit against Uber over whether Uber drivers are independent contractors or employees, which will affect payment of expenses, whether drivers may be fired at will, how many hours drivers work, entitlement to benefits, etc. 28

29 Other Legal Issues Page Miscellaneous Other Issues. Depending on the specific sector and business model, there are a myriad of other unresolved potential issues for Sharing Economy companies. Insurance and Liability. How will insurance be structured when other people are using the insured asset? Which party will be liable if a consumer is injured. Zoning Laws. Are current zoning rules governing short-term rentals applicable? Accessibility Issues and Anti-Discrimination. How do companies monitor accessibility and ensure anti-discrimination policies are followed? Trust and Safety Concerns. How to build customer trust when interacting with an unknown service provider? 29

30 Take Aways Pages 70 The Sharing Economy is not new, but rapid technological and societal developments have caused it to grow quickly and our traditional legal systems are struggling to keep up. Projected societal changes suggest that this will continue or accelerate. So far, the legal issues facing the Sharing Economy are being handled in both the business and political arenas. However, as the losers and winners emerge from those discussions, we can expect more specific regulations and guidance to emerge. Representatives of Sharing Economy entities need to worry about traditional problems as well as novel issues and should keep a close eye on the employee/contractor issue, as that could result in a major stumbling block for the Sharing Economy. 30