Platforms: Where the Sharing Economy and Entrepreneurship Ecosystems Meet

Platforms: Where the Sharing Economy and Entrepreneurship Ecosystems Meet

2016 | By Babson Executive Education

Estimated reading time: 3 minutes

Key Takeaways

 
  1. Common to many sectors of the “sharing economy” is the existence of a platform that serves as the organizing and logistical nexus of an ecosystem that allows buyers and sellers to “share” their under-utilized assets.
  2. Digital platforms offer advantages over physical infrastructure: They are less costly to scale; their nearly frictionless participation enhances network effects, and the ability to capture and analyze large volumes of data increases platform value.
  3. “Sharing” activity is currently a relatively small contributor to the economy but is growing at a rapid and accelerating pace, with “sharing” revenues projected to hit $335 billion by 2015. As the “sharing economy” continues to expand, platforms and the ecosystems they enable will become an increasingly important component of economic growth.

Recently there has been considerable focus on the concepts of the “sharing economy” and “entrepreneurship ecosystems” and interest in how and where these growing phenomena intersect. First, what do these terms mean? Definitions vary significantly and can dramatically influence measurement of their pervasiveness, impact and interrelationship. Some definitions of “sharing economy” emphasize the relationship of the actors (“peer-to-peer”); others the method of transaction (online marketplace); and still others the “under-utilized” nature of the assets being “shared.” Alternative names include “collaborative consumption,” peer economy” and “access economy,” the latter a term coined by HBS to highlight the fact that transactions mediated by a company (e.g. Airbnb) are not “peer sharing” at all.

Similarly, definitions of “entrepreneurship ecosystems” vary widely. In contrast to conventional conceptions of the term that focus on incubators, angel investor networks and other institutions designed to foster startups, the Babson Entrepreneurship Ecosystem Platform (BEEP) adopts a usage based on the original biology metaphor: holistic interaction of all elements required to sustain a system that promotes increasing numbers of companies growing at an increasingly faster pace.

According to several reports, including a Pew Research Center study,1 sharing activity is currently a relatively small contributor to the economy, and its penetration is often limited to specific sectors of the population. By some measures, however, it is growing at a rapid and accelerating pace, and consultancy McKinsey projects “sharing” revenues to hit $335 billion by 2015.2 Currently, the hype of “sharing” does appear to be outpacing financial returns. “The problem,” cautions Babson Executive Education Professor of Entrepreneurship Practice, Daniel Isenberg, “is that in many cases equity value has been vastly outstripping real business value to customers.” Recent studies of Uber’s valuation, for example, put it at one-half to one-third of what investors have paid, “precisely because the sharing platforms’ profits have paled in comparison to their promise.”3

Common to many sectors of the sharing economy is the existence of a “platform” that serves as the organizing and logistical nexus of an ecosystem that allows buyers and sellers to “share” their under-utilized assets. Platforms are primarily, but not exclusively, digital. In fact, while technology is often cited as a key enabling factor in creating sharing opportunities, sharing economy activities pre-date the digital era: lending libraries, Goodwill Industries, second-hand clothing shops and even church suppers can be viewed as the precursors of the “sharing economy,” all based on physical platforms.

Digital platforms, of course, offer some advantages over physical infrastructure. As noted in a recent Harvard Business Review article:4 digital platforms are simple and less costly to scale; their nearly frictionless participation enhances network effects, and the ability to capture and analyze large volumes of data increases platform value. The competitive advantages of business strategy based on platform models has been well-documented and is and credited with the extraordinary growth rates of the iPhone, Uber and Airbnb.

Platforms facilitate the interactions of multiple types of participants, enabling the development of the ecosystems central to many sharing economy businesses, and encouraging entrepreneurial activity. As an example: room sharing (E.g. Airbnb) not only brings together owners and consumers of under-utilized room capacity but also fosters an array of service feeder businesses, ranging from room cleaning to meal-delivery, which can easily participate in the ecosystem via the platform.

As the “sharing economy” continues to expand, platforms and the ecosystems they enable will become an increasingly important component of economic growth. BEEP focuses on the fundamentals; as Isenberg describes, “Whether digital or bricks and mortar, we have been developing a replicable, cost-effective methodology for ‘growing growth,’” which Isenberg will be teaching again at Babson November 7–9 at Driving Economic Growth Through Entrepreneurship Ecosystems.

References

  1. Pew Research Center, “Shared, Collaborative and On Demand: The New Digital Economy,” May 19, 2016
  2. McKinsey Quarterly, “How the sharing economy can make its case,” December 2015
  3. Aswath Damodaran, “The Ride Sharing Business,” August 17, 2016.
  4. Harvard Business Review, “Pipelines, Platforms, and the New Rules of Strategy,” April 2016