Call it the ultimate life hack—getting rid of middlemen in everyday transactions. You text direct-to-source to order an Uber or reserve an Airbnb, for example, rather than call a dispatcher or a hotel reservation line.
It’s a new kind of economy—a so-called sharing economy or platform economy—that is by all accounts booming. The Brookings Institute estimates it will have grown from $14 billion in 2014 to a whopping $335 billion by 2025, suggesting that it’s replacing traditional forms of commerce, especially among tech-savvy and cash-strapped millennials.
Here’s the appeal of the sharing economy. By doing away with brokers and intermediaries, you do away with the fees they impose in traditional-economic exchanges. For example, rather than going through a bank to borrow money, you can go directly to Lending Club, which offers a lower interest rate on what you borrow. The lender wins, too; she enjoys a higher rate of return without having to shell out a dime in administrative fees.
Understand that Lending Club and similar companies like thredUP and Grubhub do not supply products in the traditional sense; they’re using technology to streamline the buyer-seller relationship and make it more lucrative on both ends.
Sharing economy fans believe this approach is the most efficient, effective use of time, money and resources around. It enables consumers to sock away money for future spending.
But the model has its critics, too. According to a U.S. National League of Cities survey, 33 percent of cities ranked their relationships with sharing companies as “very poor.” There’s little surprise why that would be: the difficulties of the sharing economy have received as much news coverage as its growth. Citing labor rights and public safety concerns, cities have faced down car companies such as Uber and Lyft with regulatory barriers.
Participants on both sides of the sharing economy can also get fed up. As Vanity Fair recently reported, a driver for the on-demand delivery service Postmates is suing the company for taking chunks of her earnings. Consumers have also related horror stories, such as the Uber customer who said she was charged more than $2,000 on her credit card, none of which she authorized.
So, buyer beware—and seller, too. The sharing economy may be new and exciting and full of potential solutions, but as with all innovations, expect some growing pains.