attract renters. Uber must have drivers
roaming about in order to attract riders.
To list a room on Airbnb is free. When a
customer rents a room, that person
then pays the renter through Airbnb,
which takes 6% to 12% from the guest’s
fee plus 3% to 5% from the property
owner. 3 By contrast, to attract and keep
drivers, Uber pays an hourly wage in addition to a commission. 2 At the same
time, Uber keeps prices artificially low to
make the service cheaper than taxis or
competitors. Thus, in contrast to Airbnb (which charges its two market sides),
Uber subsidizes both of its market
sides—drivers and riders.
Uber is also investing millions of dollars in autonomous vehicle research in
the hope that, someday, it can eliminate
drivers. If and when Uber does go driverless, it will then have to own or rent a
fleet of cars—yet another enormous expense. The company may hope to drive
competitors out of business and then
raise prices, but Uber is likely to run out of
venture capital long before that happens.
Most other sharing economy ventures are very small in comparison to
Uber, but many seem to suffer from the
same problem—they must spend more
than their revenues on subsidies and
marketing to get users and providers.
We will know for sure how viable these
ventures are for the long run as more
time passes and when more of them
release detailed financial information
or simply run out of venture capital and
shut down. Meanwhile, the bigger Uber
gets, the more money it loses. Its business model does not bode well for the
future of the sharing economy.
1. Hawksworth, J. and Vaughan, R. The Sharing
Economy—Sizing the Revenue Opportunity.
2. Huet, E. Uber’s newest tactic: Pay drivers more than
they earn. Forbes.com (July 2, 2014).
3. Mitra, S. Here are the numbers behind Airbnb’s
staggering growth. Inc.com (Feb. 27, 2017); http://bit.
4. Quinones, A. and Augustine, A. Technology and trust:
How the sharing economy is changing consumer
behavior. U. S. Banking Watch (Nov. 19, 2015).
5. Romero, T. What you don’t know about Japan’s sharing
economy. Disrupting Japan Podcast (Aug. 22, 2017).
6. Russell, J. and Lunden, I. Uber plans to turn its app
into a content marketplace during rides. TechCrunch
(Mar. 3, 2017).
7. Steinmetz, K. See how big the gig economy really is.
Time (Jan. 6, 2016).
Michael A. Cusumano ( email@example.com) is a
professor at the MIT Sloan School of Management and
founding director of the Tokyo Entrepreneurship and
Innovation Center at Tokyo University of Science.
Copyright held by author.
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