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Learning from Failures in the Sharing Economy The University of Manchester Research Learning from Failures in the Sharing Economy Document Version Accepted author manuscript Link to publication record in Manchester Research Explorer Citation for published version (APA): Taeuscher, K., & Kietzmann, J. (2017). Learning from Failures in the Sharing Economy. MIS Quarterly Executive, 16(4), 253–263. https://aisel.aisnet.org/misqe/vol16/iss4/2/ Published in: MIS Quarterly Executive Citing this paper Please note that where the full-text provided on Manchester Research Explorer is the Author Accepted Manuscript or Proof version this may differ from the final Published version. If citing, it is advised that you check and use the publisher's definitive version. General rights Copyright and moral rights for the publications made accessible in the Research Explorer are retained by the authors and/or other copyright owners and it is a condition of accessing publications that users recognise and abide by the legal requirements associated with these rights. Takedown policy If you believe that this document breaches copyright please refer to the University of Manchester’s Takedown Procedures [http://man.ac.uk/04Y6Bo] or contact [email protected] providing relevant details, so we can investigate your claim. Download date:01. Oct. 2021 Learning from Failures in the Sharing Economy Karl Täuscher Bayreuth University Prieserstraße 2, 95444 Bayreuth, Germany [email protected] Jan Kietzmann Simon Fraser University 500 Granville Street, Vancouver, BC V6C 1W6, Canada [email protected] Täuscher, K., & Kietzmann, J. 2017. Learning from Failures in the Sharing Economy. Management Information Systems Quarterly Executive, 16(4): 253–263. The publisher’s post-print is available at: http://misqe.org/ojs2/index.php/misqe/article/view/797 Acknowledgment: We thank the participants in the Special Issue’s paper development workshop at the HICCS 2017 for their insights and expertise that greatly assisted the research. We are very grateful to Mary Lacity for her comments on an earlier version of the manuscript. We also thank the Special Issue’s Guest Editors, Hope Koch, Iris Junglas, Arun Sundararajan, and Ping Wang for their helpful guidance and support. Abstract: Firms eager to succeed in the sharing economy are encouraged to imitate the strategies and business models of successful businesses like Airbnb and Uber. Yet they often ignore the lessons from sharing economy firms that failed with similar business models. Our analysis of several failed firms has identified common causes of failure, and the associated risks, when competing in the sharing economy. An illustrative case study shows that a hybrid business model can significantly reduce the inherent risks and can lead to sustainable growth in the sharing economy. Key words: Sharing economy, firm failure, business models, peer-to-peer marketplaces, scalability, network effects, hybrid business models THE RISE OF THE SHARING ECONOMY Fueled by the popularity of firms such as Airbnb and Uber, the ‘sharing economy’, otherwise referred as a collaborative economy or peer economy, has recently gained increasing attention among practitioners and academics. These terms refer to how new ventures develop and deploy digital platforms1 to enable peer-to-peer sharing of goods, services, and information. The underlying proposition of sharing economy firms is they can add value by allowing owners of resources to make their idle personal assets (e.g., rooms or homes) available to those who need them (e.g., travelers)2. As direct alternatives to established firms (e.g., hotels), the resource optimization offered by sharing economy firms has become possible through recent technological advances in search, rating and matching algorithms, the spread of mobile 1 A good definition of the sharing economy is provided by: Hamari, J., Sjöklint, M., and Ukkonen, A. 2016. “The sharing economy: Why people participate in collaborative consumption,” Journal of the Association for Information Science and Technology (67:9), pp. 2047–2059. 2 For a comprehensive primer on the promises of the sharing economy, see: Schor, J. 2014. “Debating the Sharing Economy,” Great Transition Initiative (ed.). consumer devices and the explosion of social media platforms3. Through the increased and improved data-flow opportunities, sharing economy firms have enabled innovative two-sided business models to transition from ownership-based to access-based consumption4, from individual to collaborative forms of consumption5 and from a corporation-centered economic model to a ‘crowd-based capitalism’6. The principles of the sharing economy have been exemplified by technology platforms such as the abovementioned Airbnb’s peer-to-peer marketplace for accommodation, Uber and Lyft’s peer-to-peer ridesharing or peer-to-peer skill-sharing platforms like Udemy. And their successes are indeed impressive: After only seven years of operations, Airbnb had already surpassed the world’s largest hotel chains in the number of beds and bookings. Uber has even become the most valuable private firm in the world, valued currently at 60 billion USD. Udemy has attracted a community of over 10 million users and received a combined $173 million USD from its investors7. These success stories are undeniably impressive. Given the rapid growth and high valuations of firms like Airbnb, Lyft, and Udemy, hundreds of technology ventures emerged in the last years to develop similar business models.8 However, only a fraction has reached a substantial network size or significant funding. On Crunchbase, the world’s leading database of private technology firms, around 900 firms founded in the last decade are categorized as sharing economy firms. By mid-2017, two of these firms (Airbnb and Lyft9) had received more funding than the remaining firms combined, which suggests that 3 A thorough review of different Social Media offerings is provided by Kietzmann, J. H., et al. (2011). "Social media? Get serious! Understanding the functional building blocks of social media." Business Horizons 54(3): 241- 251. 4 On a discussion of access-based consumption, for instance: Bardhi, F., and Eckhardt, G. M. 2012. “Access- based consumption: The case of car sharing,” Journal of Consumer Research (39:4), pp. 881–898. 5 The concept of collaborative consumption is introduced by: Botsman, R., and Rogers, R. 2011. What's mine is yours: How collaborative consumption is changing the way we live, London: Collins. 6 For a comprehensive review of the sharing economy’s impact on society, consumers, the economic growth, the future of work and necessary regulations, see: Sundararajan, A. 2016. The sharing economy: The end of employment and the rise of crowd-based capitalism. 7 Throughout the paper, venture capital-related data are based on Crunchbase.com, the largest global startup database. 8 Angel.co, a marketplace for startups and investors, currently lists 948 startups in the sharing economy space. For an updated list, see: https://angel.co/sharing-economy-4. 9 Uber, which has received the largest funding in the space, is not categorized as a sharing economy firm in the Crunchbase database. maybe these highly referenced firms do not actually represent the prototypical sharing economy firm. Granted, there is lots to learn from the accomplishments of firms like Airbnb, Lyft or Udemy. However, imitating their business models in a different market clearly does not guarantee a similar success story, or else there would exist many more firms like Airbnb. Indeed, there are many categorically different reasons why most of the sharing economy firms are less successful, or even going out of business. Managers aspiring to compete in the sharing economy, it seems, often suffer from Survivorship Bias. They only concentrate on the strategies and business models of firms that were very successful and disregard those that were not. Such a logical error, vividly described as the Fallacy of Silent Evidence by Nassim Taleb10, lulls decision makers into the dangerous belief that the sharing economy offers high returns for all new entrants. Worse yet, managers appear to search for instances that confirm their beliefs and desires, known as a Confirmation Bias, without looking for more critical, contradictory evidence that would teach them about the risks of operating in the sharing economy.11 Taken together, the phenomenon might be reminiscent of the dotcom boom of the 1990s. While the silent evidence of failures in the sharing economy rarely makes the popular press, it can offer important insights to managers. Accordingly, we ask: why did some sharing economy firms fail? Based on our findings, we propose that hybrid business models can help to mitigate the common sharing economy risks identified through these failure cases. The presented insights are derived from two complimentary research approaches. We started our research by conducting 21 interviews with managers and investors of sharing economy firms about their perceived success drivers in the sharing economy. Over the course of 2 years, we additionally visited sharing economy firms like Airbnb, Lyft, Getaround, Udemy, or 99Designs, examined various business models conceptually12 and developed case studies. 10 Taleb, N. N. 2010. The black swan: The impact of the highly improbable, New York: Random House Trade Paperbacks. 11 Taleb, N. N. 2010. The black swan: The impact of the highly improbable, New York: Random House Trade Paperbacks. 12 A typology of ride-sharing business models, for instance, is provided by Cohen, B. and J. Kietzmann (2014). "Ride on! Mobility business models for the sharing economy." Organization & Environment 27(3): 279-296. While the interviews and case studies help us identify what works, they did not provide much understanding about what doesn’t work. Towards gaining a more comprehensive understanding of failure in the sharing economy, we gathered a sample of all firms that fulfilled our definition of the sharing economy and had passed the initial startup phase. We analyzed the business models of each of these 73 firms and observed their performance in the subsequent quarters. As expected, some of these firms filed for bankruptcy during the observation period.
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