Few would deny that 2014 was the year of the sharing economy — both globally and in China.
From Uber’s $40 billion valuation to the buzz around domestic services like Yidao Yongche and Didi Zhuanche; from Airbnb being named Inc. Magazine’s Company of the Year to Tujia being selected for the Red Herring magazine’s annual “TOP100”; from daily necessities to pets and baby products, various industries have embraced the sharing economy. More and more entrepreneurs and startups are leveraging the sharing economy mindset to reshape the world and influence many facets of people’s lives.
Even globally renowned economist Jeremy Rifkin explores groundbreaking new concepts such as radical productivity, collaborative commons, prosumers, and biosphere lifestyles in his latest book, “The Zero Marginal Cost Society.” He details the transformation of the production and lifestyle patterns of millions of people. He analyzes that in the digital economy, social capital is as important as financial capital, access trumps ownership, sustainability replaces consumerism, cooperation outweighs competition, and “exchange value” gives way to “shared value.”
It is foreseeable that the sharing economy will continue to thrive in China in 2015. In this year, the author believes the following two major trends will profoundly shape the future direction of the sharing economy in China.
Demand-driven growth, with user habits gradually taking root
The emergence of the sharing economy corresponds to inevitable gaps in market demand.
From the founders’ perspectives, Uber’s founder spotted a huge gap in transportation services, while Airbnb’s founder saw an opportunity to utilize idle resources to provide accommodations and generate income when hotel capacity couldn’t meet market needs. In China, Luo Jun, the founder of Tujia, has consistently emphasized that China has a vast number of vacant homes. Activating these idle properties can not only ease pressure on the real estate market but also supply a large number of accommodation options for the tourism market, meeting the diverse lodging demands arising from the upgrading of domestic travel consumption.
New York University Professor Arun Sundararajan states that data shows the average American car owner uses their vehicle for only one to two hours and fifteen minutes per day, leaving the rest of the time parked. “The sharing economy allows us to use our assets more efficiently. The traditional consumption model dictates that if you need a car, you buy one, and if you need a home, you rent or buy one. Now, users don’t necessarily have to purchase an item to use it — this can promote more equal quality of life.”
Similarly, Jeremy Rifkin interprets Tujia in his latest book “The Zero Marginal Cost Society”: “Over the past few years, home-sharing has grown rapidly in China. Tujia, an Internet startup founded two years ago, provides information on 80,000 short-term rental apartments and homes (currently over 130,000 listings are online). Internet companies like Tujia can surpass global hotel chains because they connect thousands of apartment dwellers and property owners with millions of potential guests at near-zero marginal cost. In turn, those offering rooms can rent them out at prices far below those of traditional hotels because the fixed costs of these units have already been recovered. With high daily management and operational expenses, chain hotels simply cannot compete with low-cost short-term rentals that have near-zero marginal costs.”
Luo Jun, founder of Tujia, said in a media interview that the biggest challenge for the sharing economy is cultivating user habits. Although market demand is driving the sharing economy, if users don’t form consumption habits or develop trust and affinity for sharing economy service brands within the startup cycle, it’s difficult for the sharing economy to become widespread. To address this, Tujia has maintained a focus on mid- to high-end and high-quality services since its inception, using word-of-mouth and a “snowball” operational strategy to nurture user habits. So far, the results are clear — Tujia has become China’s largest platform for vacation rentals.
Regulation and growing standardization
According to media reports, starting in December 2014, more than ten cities including Beijing and Shanghai successively declared private car-hailing services illegal and summoned related operators to strengthen law enforcement and supervision.
Private car-hailing services offer door-to-door, per-trip, and mileage-based pricing — essentially providing services similar to taxis. But according to taxi management regulations in many cities, apart from licensed taxis, no other individuals or organizations are allowed to provide taxi-like services.
For car owners and drivers eager to share their idle personal resources via the Internet, this news was a major blow. The essence of sharing is reallocating unused time and resources through certain channels to optimize resource distribution. In terms of transportation, if someone drives themselves, the car remains idle after reaching the destination. In contrast, taxis and private cars are dispatched via apps, picking you up when you need to go somewhere and others when you don’t, saving labor and reducing the total number of vehicles on the road.
More importantly, this is a win-win model: passengers enjoy better service than regular taxis, drivers earn extra income through ride-hailing app subsidies, idle vehicles are put to use, and the app companies expand their market share.
It’s easy to see that with user-friendly apps, the sharing economy is more appealing than ever. This peer-to-peer business model is flourishing across sectors, disrupting not just taxis and rentals but also other service-oriented jobs. It’s understandable that in tough economic times, people are urgently seeking new ways to save money, making the sharing economy a global trend.
But even so, this emerging model still faces unavoidable hurdles. The foremost is regulation. Undoubtedly, services like Didi Zhuanche and Yihao Zhuanche conflict with existing rules to some extent. Although most of their vehicles come from leasing fleets, some are privately owned and operated via app platforms — which does not comply with relevant laws.
Therefore, platform operators are actively negotiating and communicating with government departments to deepen regulatory cooperation. Beyond car rentals, Tujia’s approach in the vacation rental sector is particularly commendable — in addition to collaborating closely with public security and fire departments, Tujia has entered strategic partnerships with nearly 100 government bodies to support local tourism industry upgrades.
In 2015, further regulation of the sharing economy by government authorities, especially updates to relevant laws and regulations, will test how well the government balances market demand with standardized operations. This will be a key trend to watch for the sharing economy in China.