P H O T O B Y C A R L C O U R T / G E T T Y I M A G E S

Demand is also there, especially in the U.S. A Time magazine poll published in January 2016 estimated that 42% of Americans had already used a sharing economy service, and that 22% had provided one. (By contrast, one observer in 2017 estimated that merely 1% of Japanese had used a sharing economy service. 5) Most common among U.S. users were ride sharing (22%, led by Uber, Lyft, and Sidecar), room sharing (19%, led by Airbnb, VRBO, and Homeaway), and personal services (17%, led by Handy.com, Care.com, and Taskrabbit). 7 Younger (ages 16–34) U.S residents were the most common users and providers, though all ages participated. 4

On the negative side, most sharing-economy ventures seem to be small, losing money, and surviving on venture capital. Airbnb is an exception. After raising $3.1 billion in venture capital and reaching a valuation of about $30 billion, it claimed to turn a profit in 2016. Uber is yet another story. After raising some $10 billion in venture capital and achieving a recent valuation of nearly $70 billion, it lost $2.8 billion in

2016 on revenues of $6.5 billion. Scan-
dals and management turmoil also led
to the replacement of Uber’s founder
Travis Kalanik as CEO. How can a plat-
form as popular as Uber be so valuable
and lose so much money? Here is where
the promise of the sharing economy
meets reality.

First, are weak network effects (see “The Evolution of Platform Thinking,” Communications, January 2010). These are positive feedback loops whereby each additional user or complementary product or service should provide an increasing benefit to other platform users, resulting in geometric or even exponential growth in value. In Uber’s case, the more drivers there are, the more convenient Uber becomes. The more riders Uber attracts, the more drivers are likely to want to work for Uber. More drivers make the service more convenient and should attract more users. Complementors are also moving in with third-party apps that integrate Uber with other Web sites and enhance the riding experience. 6

However, Uber’s apps ecosystem is
still nascent. And most of Uber’s net-
work effects are local, not regional or
global. Adding more drivers in San
Francisco adds some benefit to Uber
users, but only when they travel.
Second, are limited economies of
scale, apart from network effects. The
new ventures often have huge expenses
for sales and marketing, and R&D. Le-
gal challenges also add costs and de-
press operations. Uber recently lost its
license to operate in London, and it
barely functions in Japan, where driv-
ers must have taxi licenses. Airbnb has
had to negotiate with several cities to
pay hotel taxes and avoid being shut
down. Hotels are fighting back with
new services and pricing schemes.
Third, is “multi-homing.” Custom-
ers can use traditional services or com-
peting platforms (their “homes” for
the activities). There is not much to
stop an Uber user from also using Lyft,
Zipcar, Car2Go, or regular taxis.
Fourth, are subsidies. Platforms
bring together users with providers, but
one “side” of the market is usually more
important to attract the other side. The
platform company must identify and
subsidize that all-important side. Airb-
nb must have rooms to rent in order to
A cab driver mounted a sign over the cab light as part of a strike to protest against Uber in London in February 2016.