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.

 

References

1. Hawksworth, J. and Vaughan, R. The Sharing Economy—Sizing the Revenue Opportunity.

PricewaterhouseCoopers, 2014.

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. ly/2hwu1uf

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 ( [e-mail]) 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.

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