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Challenge for the Sharing Economy: Become Better Middlemen

Raz Godelnik headshotWords by Raz Godelnik
Investment & Markets
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The discussion around the sharing economy seems to be narrowing these days, mainly to news related to a few large companies like Airbnb and Uber.

While it’s always interesting to read about the latest critique on Airbnb or on the Uberization of everything, today I want to look at a more general concept that is directly connected to the value created by the sharing economy – the middleman.

It is common to assume that the sharing economy creates value through peer-to-peer marketplaces that have no inefficient layers of middlemen. In a way, it is part of the premise of the sharing economy to create a profound social and economic shift. Rachel Botsman and Boo Rogers articulated it very clearly in their book “What's Mine Is Yours: The Rise of Collaborative Consumption.”

“In these highly successful 'marketplaces,' top-down mechanisms of 'command and control' have been removed, along with layers of permission, decision making and middlemen. In their place, peer-to-peer platforms enable decentralized, and transparent, communities to form and build 'trust between strangers,'” they wrote.

But, is this really the case today?

I got to think about it after reading Sophie-Charlotte Moatti’s piece “The Sharing Economy’s New Middlemen” in the Harvard Business Review. Moatti refers to a bunch of new companies like Breeze, YardClubPillow and ZenDrive, which mainly provide services to producers working in the sharing economy.

I don’t necessarily agree with Moatti that these new businesses are “entrepreneurial middlemen” – in my opinion, these startups are probably more of an add-on to the expanding ecosystem of the sharing economy than middlemen. However, it got me thinking what the development of these new businesses means for the sharing economy and the ways sharing creates value these days.

Sharing economy companies are indeed developers of peer-to-peer and business-to-peer marketplaces, “creating 'markets in sharing' by facilitating exchanges” and in some cases the use of underutilized resources. Still when you think, for example, about a company like Airbnb, what does "facilitating exchanges” actually mean?

I believe that for Airbnb, it meant at first a relatively ‘leaner’ role (not to say passive), focusing more on being an intermediary that supports the matching of hosts and guests and provides trust mechanisms required for the process, “essentially assuring that transactions are completed successfully.”

However, in time Airbnb’s role evolved into a more active one due to the complexity of the marketplace it created, which includes providing hosts with insurance, improving customer service, monitoring rentals and addressing users’ privacy needs.

This evolvement in its role as facilitator/intermediary/middleman isn’t unique to Airbnb and can be found in other sharing economy companies as well (Uber, Lyft, TaskRabbit, RelayRides and so on).

What we see is that the whole concept of removing the middleman in peer-to-peer markets doesn’t have merit. First, in some cases, like the one of Airbnb for example, the marketplace actually created an intermediary layer that wasn’t there before. After all, you used to receive a service directly from hotel – there was no middleman. Now, you receive a service from a host using the service of a middleman (aka Airbnb).

Second, sharing economy companies understood that to be truly successful they couldn’t leave all the work to the participants and hope that somehow the marketplace will function well and create mostly delightful experiences. This understanding got them to transform from a more passive back-office role into a more active one.

Sharing economy companies have learned that they need to perfect not just the user experience, but also their role as intermediaries. In the case of Airbnb it meant, for example, taking a greater part in monitoring suspicious transactions and removing providers and users that didn’t meet the standards from the platform, providing better customer service, ensuring some rights for the producers like minimum wage or benefits, and verifying information transferred by users via a third party.

Yet, apparently it’s not enough.

The rise of the startups described on the HBR blog article shows the complexity of the sharing economy and the challenges companies in this space face: They create value based on uniqueness, but they need more than that – for example, consistency to ensure repeatable delightful experiences on their platform.

It’s not easy when your value proposition is based on a network of tens or hundreds of thousands of service providers. “We used to live in a world where there are people … and where there are businesses. Now we live in a world where people can become businesses in 60 seconds. That’s a profound shift,” Airbnb co-founder and CEO Brian Chesky explains.

Chesky is right about the shift and that people can become service providers pretty quickly, but the real challenge is to make them good service providers. After all, not every person who has a spare room is a skillful entrepreneur. They need some assistance to become successful, and this is exactly where new startups like Pillow or Proprly get into the picture, providing hosts with services that help them create and capture value more effectively.

This is eventually good news for sharing economy companies, no matter if they also plan to offer these services or not, as these new startups could help them do a better job as value creators or, in other words, become better middlemen.

Image credit: Lynn Friedman, Flickr Creative Commons

Raz Godelnik is an Assistant Professor of Strategic Design and Management in the School of Design Strategies at Parsons The New School for Design. You can follow him on twitter @ecolibris

Raz Godelnik headshotRaz 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.

Read more stories by Raz Godelnik