What is a shared economy?
Quite simply, it refers to business models built on platforms offering peer-to-peer sharing of goods and services, models that tend to be populated by challenges. These being early days, and with all the focus on disruption, it’s easy to overlook the significance of these challenges.
Here are five significant ones affecting international sharing-economy companies as well as budding ones here in Malta:
1. Perfecting the business model
Given their newness, sharing-economy business models are constantly evolving, mostly in small ways, but sometimes in big ones. All start-ups face challenges. But those sprouting in a shared-economy simultaneously need to deal with new kinds of business risks and uncertainties in their tax, regulatory and legal requirements. Consequently, each change becomes that much more intense.
It is not unheard of for such a start up to offer services on a subscription basis, then switch to a per-booking commission system and eventually add a separate service fee. Each of these changes generates ripple effects across the company’s tax, regulatory and legal processes and structures.
Complicating regulatory matters further are questions from outside the traditional business box: Who is my customer, the buyer or the service provider? Who is my employee and who isn’t?
2. Continuously evolving to delight customers and providers
Sharing-economy companies must also continuously streamline processes and automate more and more of them, while integrating new capabilities. Because of technology’s never-ending waves of innovation, sharing-economy companies that fail to do so face disruption by even newer and more efficient kids on the block. For instance, as convenient as car- and home-sharing services may be, there is still the problem of access – getting the keys into customers’ hands. Networked electronic locks have now begun to pop up – they will likely be rapidly integrated into sharing-economy systems, and then their use will be automated to offer customers and providers a seamless, in-app experience.
No one pays taxes unless the government imposes them, right? Likewise, you can’t comply with regulations which do not exist
3. New risks and uncertainty
No one pays taxes unless the government imposes them, right? Likewise, you can’t comply with regulations which do not exist. This may sound ridiculous from a traditional business perspective, but from the perspective of the sharing economy, it is a point of urgency. Many, if not most, operate in a grey area and are constantly under threat of falling into a black abyss as a result.
A few jurisdictions have recently enacted laws and regulations applicable to sharing-economy transactions. Yet most have not. For sharing economy companies, this legal vacuum creates hard-to-assess potential risk and uncertainty.
Approaches to this challenge so far vary widely. Some pursue the most efficient operating model they can envision, making the conscious choice to worry about rules and regulations only after they are enacted, or when they are sued or their employees arrested. Others are collaborating with officials in jurisdictions where issues arise, either before or after legal action is taken.
4. Tension between rapid global growth and local diversity
Successful sharing-economy companies tend to expand internationally faster than many other companies. An important internationalisation challenge is the tension between a single global operating model and fine-tuning local models which take into account local rules, norms and more.
The global approach gives up potential local opportunity and efficiency in return for global operating efficiency. The complexity of country-by-country operating models is enormous. While the approach may be more tax efficient and less risky, it requires IT systems designed separately for each country — and this in addition to many other complexities.
5. Reflecting each change in IT systems
As business and operating models evolve, as risks are addressed and as governments around the world catch up with the sharing economy by enacting new tax, regulatory and legal codes, virtually every change must be reflected in IT systems and processes. The challenge is to have enough qualified professionals who understand not only the systems development software side but who also grasp the legal fundamentals well enough to properly reflect changes in the organisation’s systems.
Ron Attard is EY Malta managing partner.