The sharing economy, Pyrrhic Victory?

For those keep writing about eulogy about sharing economy, perhaps time for a second thought. Uber, the Godfather of all sharing economies and a $69 billion valuation unicorn, is now facing one crisis after another, from the sex scandal, discrimination, lawsuit of technology theft, false advertising to all kinds of rude behaviors. So if business schools need a new case study for a company in a PR disaster, Uber sets a perfect an example as can be found, wrote by Business Insider. Though the current fixer is CEO Travis Kalanick steps down, some people consider it will not really work out. A very recent article from HBR boldly concluded that Uber’s problem is rooted in its business model of illegality (Uber and its drivers avoided commercial insurance, commercial registration, commercial plates, special driver’s licenses, background checks, rigorous commercial vehicle inspections, and countless other expenses. With these savings, Uber seized a huge cost advantage over taxis and traditional car services),  therefore changing the leadership will not fix it. 

Pando back in 2014 presciently wrote the root of Uber’s problem is its toxic corporate culture, or simply “the horrific trickle down of asshole culture”. But perhaps Uber’s ruffian style is what it takes to achieve its staggering success. Because “sharing economy” companies like Uber or Airbnb often need to push regulatory boundaries. In fact, they have to wrangle with regulators at a global level while challenging the protests from incumbent taxi and hotel industries. In addition, sharing startups have to deal with a range of emergent issues for users at massive scales, such as traffic accidents, crime, theft, vandalism, fraudulent etc, albeit unavoidable and not their own fault. This could mean their mentality and culture are drastically distinguished from other tech companies.

If we cast our eyes onto China, its the similar aggressive culture creates China’s own Uber and country’s biggest unicorn DiDi valued at $50 billion. The startup is literally the phoenix reborn from the hell fire of ferocious price war, a ruthless fight for market domination with its arch-rivals (including Uber), and elaborate schemes of merger and acquisition. Now the same bunch of VCs and internet giantsAlibaba and Tencent) powering Didi behind waste no time in nurturing the 2.0 version of sharing economy unicorns, which instead of allocating existing resources, own the product and operate as a rental business for users. Bike sharing has been spearheading current frenzy. Mobike and Ofo are the two wonder boys in this race and very likely go through same epic drama as DiDi until one beats the other or one weds the other. 

Chinese start-ups want to share umbrellas, concrete mixers, mobile phone power and even basketballs as New York Times pointed out China might be “oversharing”. Not surprisingly, any “sharing idea” in China is attracting humongous capitals as it is believed the easiest way to breed unicorns by just salivating at the best in class example of Uber or Didi. Why are VCs so rapt with seeking unicorns? One Techcrunch article explained well the dark truth of VC: 95% percent of VCs aren’t really making good money, and finding a golden unicorn ticket is the way to get enough return. So at the end of the day, only the top 5% VCs can hit the home run. But before the big bang moment, millions of money and resources have to be dedicated in order to drive out competitors, lobby regulators, or tackle various disastrous problems. It is also a monopoly game as one vertical sharing market only has one winner space, regardless sharing transportation, accommodation, finance(P2P lending). It is perhaps a pyrrhic victory which small players either as investor or startup, simply cannot afford.

Author: Cecilia Wu