The State of the Sharing Economy in Europe

Just over a year ago, the European Commission (EC) published a communication offering preliminary guidance on how EU member states should regulate the sharing economy. The document’s introduction took great pains to underscore the future economic significance of “collaborative platforms” for Europe. (The Commission prefers ‘collaborative’ economy to ‘sharing’ or ‘gig’ economy. I use all three terms interchangeably.) In 2015, gross revenues from collaborative platforms stood at €28 billion. By 2025, this figure will swell to €570 billion.

These estimates consider the following five “key sectors” of the sharing economy:

  • Peer-to-peer accommodation

  • Peer-to-peer transportation

  • On-demand household services

  • On-demand professional services

  • Collaborative finance

Transport (1), accommodation (2), and household services (3) are the highest grossing sectors. They will remain the top 3 into 2025, although household services will overtake accommodation for second place.

Given this impressive growth rate, it’s reasonable to assume demand for collaborative platforms is robust. A 2014 PwC study shows, in the US, 44 percent of adults are familiar with the sharing economy, and 19 percent have participated in it. Europe does not lag far behind. A March 2016 Eurobarometer survey revealed 17 percent of EU adults had used a sharing economy platform.

Most sharing platforms function solely as intermediaries. Therefore, they require a steady stream of consumers and suppliers to stay in business. The supply side of the equation is so important that some new competitors are trying to muscle into the market, primarily by appealing to providers. Take the up-and-coming rideshare app Juno. (Recently acquired by competitor Gett.) Juno poached drivers from formidable market incumbent Uber by offering superior compensation and work conditions. This included a hefty signing bonus and stock in the company.

However, providers seem to abound, even without such generous incentives. Weak growth and high unemployment continue to affect many EU countries. In this context, occasional sharing economy ‘gigs’ provide a welcome additional income stream.

Despite favourable market conditions and the EU executive’s apparent endorsement, the sharing economy is not faring as well in Europe as it should be. Uber and Airbnb are two high-profile examples of this. Beset by lawsuits and numerous regulatory hurdles, both companies have scaled back their operations in several main European markets.

Uber has been hit especially hard. The \$70bn company is awaiting a decision by the European Court of Justice, which will determine whether it is a transport service or – as it argues – an information society service. Last month, the ECJ’s Advocate General opined the Uber platform, “whilst innovative, falls within the field of transport.” The Court usually follows the AG’s judgement. However, there have been notable exceptions, such as the 2015 Safe Harbour ruling.

Earlier this year, Uber withdrew from Denmark. It could not comply with new legislation requiring all taxis to be outfitted with fare meters, video surveillance, and seat sensors. It left behind 300,000 users and 2,000 drivers – impressive, considering Denmark’s population of only 5.6 million.

Even where Uber continues to operate, it is often hardly more competitive than traditional taxis. This is because its signature UberPOP service (which relies on drivers without professional licenses) has been banned as far and wide as Germany, France, Spain, and Belgium. These areas are now served only by UberBlack, which uses commercially licensed drivers and, therefore, cannot offer the same low rates.

Uber is also being assailed on the supply side. In the UK, Transport for London is considering awarding the company a five-year operating license. However, Uber drivers are petitioning authorities only to grant the license if Uber guarantees typical employee benefits, such as minimum wage, paid holidays, and sick leave. Last October, a UK employment tribunal ruled Uber drivers are not self-employed, as the company had always claimed. Uber has, so far, avoided changing its business model, because it has the right to appeal the decision in September.

Airbnb’s operations in Europe have also been curtailed due to new regulations. This has been most severe in Germany, where some major cities have imposed a blanket ban on unlicensed rentals as of May 1st, 2016. In Berlin, offenders risk a €100,000 fine if they offer their apartment as a vacation rental, without having obtained the necessary paperwork. Other cities have reacted by imposing an occupancy cap and limiting the number of days per year an apartment can be rented out.

The ‘sharing’ vs. the ‘collaborative’ economy

Sharing platforms have upended many markets they compete in. Their disruptiveness is plain to see, given the recent scramble by governments and courts to regulate them. Many sharing platforms were never intended to disrupt anything – or even to turn a profit. The term ‘sharing economy’ is, therefore, something of a misnomer. If a transaction is taking place and people are making money, then it’s not sharing in the classic sense. The Commission’s preferred term ‘collaborative’ seems far more appropriate in this case.

However, traditional sharing platforms still exist. Take Couchsurfing.com. It was founded in 2004 (four years before Airbnb), and it remains free to use – although a paid version is available. The company emphasises the social aspect of what it does. It’s not just about finding a cheap place to stay in a foreign city. It’s about meeting new people and experiencing your travels with them. When you browse the listings, you will notice the pictures are predominantly of the hosts, rather than their homes.

Another example is Blablacar, which allows drivers to offer rides to passengers in exchange for money. The amounts drivers charge is usually modest, often covering little more than the passengers’ share of the fuel price. The service is especially popular in countries like Germany, where train travel can be prohibitively expensive.

Even a seemingly innocuous platform, such as Blablacar, can be accused of unfair competition by market incumbents. The Spanish Confederation for Bus (Cofebus) Transport brought the case against the company, which entered the Spanish market in 2010. It has since become popular. Confebus claimed Blablacar was a transport company because it offers ride-sharing services. The court disagreed. It argued Blablacar is an information society service: a “social network that brings drivers and passengers together to share costs.

In contrast to Uber, Couchsurfing and Blablacar function as genuine intermediaries. They exist solely to facilitate private transactions between their users. In doing so, they may provide auxiliary services (e.g., payment facilitation, identity verification, insurance), which are legally acceptable and desirable from a consumer standpoint. Both ride sharing and couch surfing would exist, even without these platforms – albeit less organised and on a smaller scale. The absence of dependence ultimately distinguishes the ‘sharing’ from the ‘collaborative’ economy.

(Cover photo courtesy of George Alexander Ishida Newman. © 2016. Some rights reserved.)