According to Investopedia, a sharing economy is an economic model in which individuals are able to borrow or rent assets owned by other people.
Today the sharing economy is growing rapidly – the size of it is predicted to double in the next 12 months. Nearly a quarter of the American, British and Canadian population is involved in some form of economic sharing, whether it is renting a spare bedroom on Airbnb, borrowing a neighbor’s bike through Liquid or giving away unwanted clothing on PoshMark.
Sharing allows to save both money and time, but what oils the wheels of this fast-growing economy is trust. Trust enables us to rent a room in a house from someone we have never met before and it is trust that gives us the courage to take a ride from a stranger. Yet it is also one of the main concerns of using sharing economy services. If the future is a peer-to-peer marketplace then it will require this emerging economy to have high standards, provide credibility and strong values. Therefore, we can now observe how the companies in the sharing economy begin to understand the importance of trust and, as a result, introduce policies that add more transparency and reduce the fear of dealing with strangers.
This post will discuss the importance of digital trust in the sharing economy and argue that such market has a future only if businesses can establish trustworthy relationships between suppliers and consumers of services.
The dawn of the trust in strangers
With the rise of the digital world, relationships that have solely trust in their cores are being between people on the opposite sides of the monitors. It might be surprising to you (or it might be not) but recent studies support the fact that trustworthy relationships are more likely to be established between complete strangers rather than between colleagues or friends (have a look at this publication for some examples: http://economia.icaew.com/en/opinion/december-2016/why-people-trust-sharing-economy-strangers-more-than-their-colleagues).
It seems nowadays that we tend to trust digital systems more than people around us. According to Arun Sundarajan’s survey (2016), about 88% of 18,289 participants would trust an unknown member with a full digital profile more than their neighbor, while only 58% of the total number have the same feeling towards their colleagues.
One of the reasons why we trust strangers so much can be explained by the way they present themselves online on, say, the BlaBlaCar’s platform. The customers that took part in the previous survey provided a lot of personal information, including telephone numbers and emails, as well as short bios. In addition, their profiles were also linked to their social media such as LinkedIn and Facebook.
Another way of creating the trust between customers and the providers of the services is the brand name of the platform. The more famous and respectful the brand is, the more customers are likely to believe the people who provide the services through this platform. An example of how such trustworthy relationships might be built can be Airbnb’s insurance cover, which automatically kicks in with every transaction and makes users feel more secure and comfortable when renting their flats with a lot of personal belongings.
The increase in the popularity of the sharing economy platforms has also brought a huge impact on strengthening the trust from the customers. If the brand is well known and provides its service in many countries around the world, it makes people feel much more comfortable and secure when using it. Thus, it creates the “network effect” which is crucial for the firm as many advantages can be taken from it.
Why asymmetric information is a bad guy
So far it seems like it is perfectly fine to communicate with strangers and do shopping online without worrying much about the process. Truly both customers and providers of services are in the same pair of shoes! But do we actually know as much as the person sitting opposite the monitor on the other side?
I doubt this is always the case.
Unfortunately, our world is not perfect and it is only natural that some people know more about some things than others. And the existence of information asymmetry is an obstacle on the way of building strong relationships online. This is because when there is asymmetric information in the market it means that two parties do not have the same share of the information. And it is impossible to avoid it due to an online setting where asymmetric information is present in two different parts of online transactions, namely the identity of online parties and the product quality.
Asymmetry associated with online identities can be separated into three parts. First, online transactions put buyers at a greater risk of opportunistic seller conduct than do storefronts (Pavlou & Gefen 2004), because it is extremely easy for the sellers online to remain unidentified or change their identities as many times as they wish (Ba 2001). This immediately brings us to the second part: anonymity. Anonymity ruins the idea behind trust (Friedman et al. 2000) as sellers are more likely to cheat if their identity cannot be fully assessed during the transaction. Thirdly, many people can share the same online identity; and particularly it is an issue in an auction marketplace where identities are easily obtained at low cost.
Asymmetric information with regard to product quality occurs because online consumers have no opportunity to see and touch the products before the actual purchase, and thus have to rely solely on the producers’ good character. There is no way to predict whether the rating of the product quality done by the producer represents the actual quality accurately or not, and therefore buyers are vulnerable to misrepresentation (Gefen et al. 2008). Furthermore, the payment for the goods usually happens before buyers receive them, and so, in addition to misrepresentation, they become exposed to the “risk of prior performance” (Jøsang et al. 2007).
All of the above indicates that the knowledge gap can seriously damage the relationships between sellers and buyers.
Is trust in Social Media connected to the trust in Sharing Economy?
Now I want to further develop the argument of the importance of the social media in creating trust in sharing economy. As was mentioned before, many firms that operate in the sharing economy market are using social media in order to increase trust in the services they provide. Therefore, trust in the sharing economy is directly influenced by the strength of the trust in social media.
Social media has become extremely popular in the last decade. There are now even a core “top 5” social networks that don’t have big changes in the quantity of profiles from year-to-year, which shows us that social networks are well-established in the modern world. To understand how huge these “top5” networks are at the moment, I will provide you with the number of users each of them has (which were taken from: http://www.smartinsights.com/social-media-marketing/social-media-strategy/new-global-social-media-research/). Not surprisingly, the leader is Facebook with 1,871 billion users. That is around 25% of the world population! The next are WhatsApp with 1 billion users, QQ with 877 million users, WeChat with 846 million users and Qzone with 632 million users. Thus, it is obvious that social networking is now a well-developed and popular industry.
But is trust between the users of social networks strong enough to motivate them to co-operate and share goods between each other?
I have done some research to find evidence that supports the statement that people have high trust in social media:
- According to the study of Turcotte that was completed with several hundred Louisiana State college students, “news shared by a friend on Facebook is perceived as more trustworthy than stories received directly from the media outlet”.
Surprising, isn’t it?
- According to the study of the researchers from Eastern Mediterranean University (EMU), the power of the institution’s social media was correlated to the “identification with the university community and the university brand which in turn are related to trust and loyalty”. (https://www.timeshighereducation.com/news/strong-facebook-presence-boosts-trust-and-loyalty-universities) The article emphasizes the importance of the presence of universities in the social media as this can gain a higher level of students’ loyalty.
- As the Social Recommendation Index indicates: “Facebook and Pinterest remain the most trusted social networks for product recommendations and shopping”. With the 94% of the participants of the survey being female, “70 percent of respondents say they trust product reviews from people with whom they connect on Facebook and Instagram” and more than a half “use social networks to learn about new products”.
Nowadays people often use social media while they are performing routine tasks and during leisure time, and so they are more likely to follow the link that brings them to the new online shop if they come across it on the news feed or a friend’s page (even if it’s just out of interest!).
But what is actually happening to the trend
However, there is a decreasing trend in the trust of customers to the social media and brands operating using them. Firms operating in the sharing economy markets might be threatened by such changes cause, as we mentioned before, the use of the social media is one of the key methods to boost the customers’ trust for them.
According to the research conducted by Censuswide for the Chartered Institute of Marketing, the consumer trust in brands or brand information posted on social media channels has decreased over 2 years from 2014 to 2016. This is illustrated in the table below:
|Channel||% of people who had little/no
trust in 2014
|% of people who have little/no
trust in 2016
Thus, sharing economy companies need to take into consideration such trends and, maybe, try to find some other innovative ways that can help them be seen as ‘trustworthy firms’ among customers.
Reputation is the key to success
“For a long time, trust was provided through the community. In the last 100 years, it turned to branding. And now, we’re coming full circle with the digitized community.” said Professor Arun Sundararajan from the Stern School of Business, New York University.
A great amount of trust in different services provided in the sharing economy, such as hospitality, ride-sharing, and retail services, depends on the reputation feedback mechanisms. Therefore, reputation is the key part of the establishing trust in the sharing economy. It is quite clear that the only reason why we enter a commercial or even a personal relationship with the person we do not know at all is that we can trust this person’s reputational score.
The examples of the mechanisms mentioned above include peer reviews and identity confirmation. These are usually present as they are extremely important for the safety of the customers as their life might be under threat, if the service provider has any aggressive intentions toward the customer. For example, for the customers using Uber or any other ride-sharing platform, the history of the driver and his mental health is crucial and so must be provided at the initial stages of the recruitment process.
Airbnb designer Andrey Fradkin explained how important reputational mechanisms are for the driving of the sharing economy. He used Craigslist as an alternative unsuccessful example as it also provided hospitality arrangement service, just like Airbnb. According to him, “People could list something, but Craigslist did not keep track of transactions or have a review system,” that made people lack confidence in the service. Thus, Craigslist did not take the value of the building reputation into the account and its performance wasn’t as good as its most successful rival, Airbnb, which provided a detailed history of accommodation and was processing all financial transaction from the third party perspective. Airbnb’s review process also differs from the other in terms of making the reviews publically available only after both sides gave their opinion about each other’s performance and allocated the satisfaction marks. This stops people from being biased when giving their comments or evaluating based on how they were assessed by the opposite side.
Are there any risks, though?
It can happen that ratings might be fake or unfair. For instance, representatives of the rival firm might use the service and leave the negative comments on purpose. Or, on the other hand, it might be the vice-versa situation when the positive comments are left by some biased individuals who have private connections with employees or shareholders of the firm which provides the service.
In addition, sharing economy platforms are comprehensively dependent on their reputation and so new users might suffer from being disregarded. On the early stages new users are very vulnerable to any review from the opposite side and since there is always a bias in the relationships between people, any person might even be excluded from the service due to his/her bad ranking.
Finally, there might be a risk of a platform being a monopoly in a particular market and so using its power to demand more information than a consumer is comfortable with. For instance, Uber and Airbnb are two quite powerful leaders in their markets and might easily implement deeper data requirements from the customers without worrying much about losing a big share of the market (at the end of the day there are not many substitutes that consumers can switch to if a company is a monopoly!).
The important question that is worth your consideration is “will any of the above decrease your trust towards the firms in the sharing economy?”
But let us not stress about the answer for now.
I want to conclude by saying that sharing economy is a very quickly developing and innovative industry and, because of this, trust issues have become significantly more important for both firms providing services using the sharing economy concept and the users of such services. As the time goes by, many new conditions are being created in this market. Some of the old regulations might not be applicable anymore, as trust has now become the bridge that connects both sides.
From my personal opinion, trust in the sharing economy is already quite strong and a lot was done to make customers feel secure, especially by huge companies like Uber or Airbnb. While the sharing economy is experiencing rapid growth and is grappling with questions that arise from forming relationships built on trust, the full potential of the Internet of Things is still yet to be realized.
In the future, some further technological advances may be developed that will help solve many problems of trust. Nevertheless, further usage of sharing economy platforms is most likely to step-by-step increase the trust towards the services provided in it in general and this might lead to the progress in this industry.
It might not, but what I know for sure is that any relationship has a drop of trust in its core, even if this drop is too small to be noticed yet.
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- Chamorro-Premuzic, Tomas. “Reputation And The Rise Of The ‘Rating’ Society”. the Guardian. N.p., 2015. Web. 20 Mar. 2017.
- “The ‘Internet Of Trust’: How Iot Will Help Grow The Sharing Economy”. The Huffington Post. N.p., 2016. Web. 22 Mar. 2017.
- “Why People Trust Sharing Economy Strangers More Than Their Colleagues | ICAEW Economia”. Economia.icaew.com. N.p., 2016. Web. 28 Mar. 2017.
- Some Trust Issues In Social Networks And Sensor Networks. 1st ed. Dayton: Krishnaprasad Thirunarayan, Pramod Anantharam, Cory A. Henson, and Amit P. Sheth, 2017. Print.