What is the Value of the Sharing Economy? The Case of Lyft

A couple of weeks ago I gave a Masterclass on designing resilient organizations at the OuiShare Fest in Paris. After the class I sat down for lunch with two students attending the festival and told them about my interest in the sharing economy and the love/hate relationship I have with this trend. We were almost done with the lunch when one of them asked me:

So, really, what is the value of the sharing economy?

I gave her an answer, but the question kept bugging me, and I decided it deserves more contemplation as it is at the core of an ongoing debate on the future of the sharing economy and its impact on the economy and society. To answer it, I want first to focus on three questions:

  1. What value are we talking about?
  2. Value to whom?
  3. Where – are we taking into consideration any spatial boundaries?

To the first question I would answer that we need define value using a holistic perspective that is more systematic in nature and is aligned with the three dimensions of sustainability (economic, ecological and social). Therefore, we shouldn’t look just at the economic value that sharing economy platforms generate, but at multiple forms of value creation – economic, social and ecological.

The next consideration is, who is benefitting from value creation via sharing economy platforms? In this case, since we look at value creation through sustainability lens, we will also move beyond the shareholders and the customers to consider key stakeholders in sharing economy platforms, including society and the environment. This approach as Nancy Bocken et al. explain is more network-centric than firm-centric to value creation, as it considers “all actors involved in the design, production and distribution of a product or service.”

Finally, there’s the question of spatial boundaries. Here I’d like to suggest an urban context, looking at the value of sharing economy platforms in cities where they operate. I do so because sharing economy services are mainly offered “in and around urban population centers,” and due to the fact that “we are living in the century of cities.” As the Rockefeller Foundation’s 100 Resilient Cities’ points out in their report ‘Cities Taking Action’, “as important political centers, and magnets for both our world’s richest and our most in need, cities stand at the forefront of the challenges and opportunities of the 21st century.”

Thus, the question narrows: What economic, social and ecological value do sharing economy platforms create for their key stakeholders in the cities where these platforms operate?

The “sharing economy” is broad umbrella term referring to many services, but this framework can be used to answer the question for every sharing economy platform. Here’s an example from one of the main sharing economy categories – transportation.

To make this  user-friendly, I will present my proposition in two parts: Today, in the first part I’ll review a tool that will help us evaluate the multiple types of value created by a sharing economy platform to multiple stakeholders. In the second part I will look at the relationships between sharing economy platforms and the cities where they operate, and offer a way to assess the value created by sharing economy platforms in cities.

The tool I’d like to introduce today is the value mapping tool, which as Bocken, Rana and Short explain is “an approach for ideation and analysis for sustainable business model innovation involving mapping the value captured, missed and destroyed and new opportunities for a range of stakeholders.” Stakeholders also include society and the environment to ensure all the impacts of the business are taken into consideration.

We’re using this tool here as it provides a systemic approach to value creation and business modeling, not only taking the multi-stakeholder approach, but also exploring forms of value so we can see both the positive and negative value a business creates. As you can see in the figure below the tool includes the following forms of value:

Value captured: Positive benefits delivered to stakeholders (current value proposition)

Value destroyed: Negative outcomes of the current business model

Value missed: Value currently squandered, wasted or inadequately captured by current model

Value opportunity: New opportunities to resolve value missed and destroyed for stakeholders

Value mapping tool. Source: Bocken, N., Short, S., Rana, P., Evans, S., 2013. A value mapping tool for sustainable business modelling. Corp. Gov. 13 (5), 482–497.

The sharing economy platform we’ll be using as an example is Lyft, the ride-hailing company which operates in more than 350 cities in the U.S. Lyft is an interesting example as it “cultivated a good guy image” and has positioned itself as an ethical alternative to Uber, although technically their business model is not that different –they’re both app-based, on-demand for-profit ride services, matching supply and demand. This tension between Lyft’s for-profit structure and its aspiration to develop a human-centered culture and business generates complexity that can be useful for our investigation.

In this case we will look only at the value captured and destroyed by Lyft, as we are interested at this stage to provide a generate ideas on how Lyft can become more sustainable, but in a snapshot of the value Lyft currently creates (in the second part of this piece we will be adding the two other parts in the tool – missed value and value opportunities).

The value mapping process, as Bocken, Rana and Short propose, starts by clarifying the purpose of the business: Why is the business here in the first place?

Lyft makes the case on its blog that it “was founded on the belief that technology will enable us to dramatically reduce carbon emissions from the transportation system while improving quality of life and access to opportunity for all Americans.” In another blog post the company claims: “At Lyft, our mission is to improve people’s lives with the world’s best transportation. We see the future as one where car ownership is optional, cities are designed for people instead of cars, traffic disappears, and every seat in every car is filled.”

As I understand it Lyft’s purpose is to use technology to recreate a transportation system that works better for people and the environment (I’m cautious not to say anything about ‘making the world a better place’).

Now, let’s look at the value created by Lyft for multiple stakeholders:

1 http://www.wgrz.com/news/ridesharing-vs-taxi-cost-comparison/453134550
2  http://therideshareguy.com/rsg-2017-survey-results-driver-earnings-satisfaction-and-demographics/
9 http://www.bc.edu/content/dam/files/schools/cas_sites/sociology/pdf/SocCompass Sharing Economy v3.pdf
10 http://www.newyorker.com/culture/jia-tolentino/the-gig-economy-celebrates-working-yourself-to-death
11 https://www.citylab.com/transportation/2017/02/uber-lyft-transportation-network-companies-effect-on-transit-ridership-new-york-city/517932/
12 https://www.washingtonpost.com/news/wonk/wp/2016/01/14/what-silicon-valley-doesnt-understand-about-inequality/?utm_term=.b559b22a5394
13 https://blog.lyft.com/posts/2017/6/14/lyft-climate-impact-goals
14 http://fortune.com/2017/05/26/uber-lyft-people-ditching-cars/
15 https://www.theguardian.com/environment/2016/jan/21/uber-lyft-helping-hurting-environment-climate-change
16 http://time.com/4476614/self-driving-cars-environment/
* At the same time, about 75 percent of Lyft drivers are satisfied with their Lyft driving experience, according to The Rideshare Guy’s survey (compared to just 49.4 percent on Uber).

From the table above we can see a number of bright spots in terms of creating multiple types of value (economic value to customers and to some degree to drivers, promoting a progressive agenda and committing to climate change goals), but also numerous dark spots (employing drivers as independent contractors with few benefits, contributing to the unsustainable ‘gig economy’ culture). There are also some unknowns like Lyft’s impact on the environment and public transportation (as was seen last month in the debate over its latest service – Lyft Shuttle).

As Bocken, Rana and Short point out, the value mapping tool “is largely qualitative in nature and does not allow for detailed quantitative analysis.” While it allows us to evaluate Lyft’s range of impacts, it may be difficult to generate value judgment based only on this evaluation – is Lyft a force for good as the company claims to be or just another example of platform capitalism, exploiting labor to enrich venture capital?

This question is coming up time and again in different situations – a couple of weeks ago Lyft started testing a new service in two cities called Shuttle, providing customers with “ride for a low fixed fare along convenient routes, with no surprise stops.” The resemblance to a bus service created immediately debate on what the value of this service – is it a convenient bus service to the well-off that may lead to “a two-tiered transit system inherently hurts more vulnerable riders and leads to a cycle of disinvestment in mass transit solutions,” or a much-needed way to support public transit, with a service that is “designed to do things buses can’t do and reach people buses don’t reach, helping attract a broad spectrum of riders who haven’t used transit before” as Lyft’s Emily Castor explains.

To provide further clarity we need to add another framework that, in conjunction with the value mapping tool, better demonstrates the value of Lyft and can be applied to any sharing economy platform. We need a way to contextualize the impacts mapped by the tool. So what is it? To learn more about it you will need to wait (but not too long I promise) for part 2!

Image credit: IG: cb2017_

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Raz Godelnik

Raz Godelnik is an Assistant Professor and the Co-Director of the MS in Strategic Design & Management program at Parsons School of Design in New York. Currently, his research projects focus on the impact of the sharing economy on traditional business, the sharing economy and cities’ resilience, the future of design thinking, and the integration of sustainability into Millennials’ lifestyles. Raz is the co-founder of two green startups – Hemper Jeans and Eco-Libris and holds an MBA from Tel Aviv University.

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