THE IMPACT OF DIGITAL PLATFORM ON THE SHARING ECONOMY

1. THE IMPACT OF DIGITAL PLATFORM ON THE SHARING ECONOMY
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2. 2
Introduction
The sharing economy encompasses the socioeconomic ecosystem, which allows
individuals to share their physical and human resources with strangers. This process is often
enhanced by the digital platform of a third party. Moreover, the emergence of sharing economy
has propelled the collaborative use of under-utilized inventory through a mechanism such as fee-
based sharing.1
Currently, two of the largest organizations in the sharing economy include Uber
and Airbnb. With Airbnb, the company offers consumers with a community marketplace where
they can list, discover, and book unique accommodations. The company operates in more than
34,000 cities and 190 countries. In the case of Uber, the ridesharing app enables riders to connect
to private cars and taxis from their phones. Technological innovations have arguably enabled the
rapid growth of sharing economy.2
The paper will explain the impact of a digital platform on the
sharing economy precisely the Airbnb.
The Impact of Digital Platform on the Sharing Economy
Different theoretical fields have provided diverse meaning to the concept of platforms 3
.
Various authors indicate that the word platform entails a common design pattern that allows a set
of stable components to support the ability of the system to adapt. Platforms describe the
production of software, distribution and the changing paradigms of the industry that utilizes the
1
Frenken, Koen, and Juliet Schor. "Putting the sharing economy into perspective."
Environmental Innovation and Societal Transitions (2017).
http://dx.doi.org/10.1016/j.eist.2017.01.003
2
Kostakis, Vasilis, and Michel Bauwens. Network society and future scenarios for a
collaborative economy. Springer, 2014.
3
Reuver, Mark, Sørensen, Carsten, and Basole, Rahul. Mobile platforms and ecosystems.
Journal of Information Technology 30, n. 3 (2015): 195-197.

3. 3
platform.4
In technology, the concept of modularity is perceived as a technique that involves
describing and innovating complex systems that include product design. Moreover, the term
modularity encompasses a description of how a business must structure its boundaries. The
boundaries include measurability, specifiability, and predictability. Modularity tries to give
insights into the services that the company wants to make available to the consumers.5
Airbnb is
one of the leaders in modularity. Modules use platforms and markets to operate. The three
concepts of modularity include the following.
First, a technical system has a modular structure that depends on the choices made by the
system architects. The decision on the modular structure is constrained by the limits of the
knowledge and skills of the architects and the physics law.6
Moreover, the architects can decide
to design systems that are more or less modular by considering the location of boundaries
between modules. Second, the modularization technique entails splitting design decisions into
distinct subsets and developing standards that would define the working together of the resultant
modules. In the situation when the designer separates the modules properly, the decision on one
module would have an adverse effect on the other ones. Therefore, the architects can decide to
locate design tasks to different firms.
The third concept states that knowledge about modules can be separated. The only
requirement for designers is to have access to the design rules. When designing modules, the
designer of module A do not need to possess the specific skills and knowledge about the internal
4
Oskam, Jeroen, and Albert Boswijk. "Airbnb: the future of networked hospitality
businesses." Journal of Tourism Futures 2, no. 1 (2016): 22-42.
5
Sultan, Nabil Ahmed. "Reaching for the “cloud”: How SMEs can manage."
International journal of information management 31, no. 3 (2011): 272-278.
6
Baldwin, Carliss Y., and Joachim Henkel. "The impact of modularity on intellectual
property and value appropriation." Harvard Business School. 2012.

4. 4
structure of module B. However, designers need to share knowledge of a module, or they might
risk the success of their activities.
The two theoretical perspectives that differ about digital platforms include the following.
First, with economics, platforms are considered as double-sided markets.7
Besides, economic
perspectives provide us with information and understanding of the competitive nature of
platforms. According to economists, platforms are markets that serve as conduits in the exchange
of products and services among consumers. Two-sided markets encompass two groups that
interact through platforms where benefits that a group obtains depends on the magnitude of the
corresponding groups. In the economic model, competition in platforms is propelled when
multiple consumers adopt platforms due to the network effects.
Conversely, regarding the engineering design theoretical perspective, platforms are
perceived as technological architectures. Engineering design offers us with knowledge on
platform innovation. The technological designs of Airbnb help the company to produce modular
product innovation.8
As modular systems, platforms are good at facilitating innovations. Firms
such as Airbnb benefits from the design and adoption of the platform by achieving economies of
scale with regards to the production and innovation.
Modularity has enabled firms such as Airbnb to profit from innovation and Internet
Protocol (IP). A Firm uses knowledge to gain profits and competitive advantage.9
However,
firms should only use knowledge so long as rivals cannot imitate or substitute. In a situation
7
Reuver, Mark, Sørensen, Carsten, and Basole, Rahul. Mobile platforms and ecosystems. Journal
of Information Technology 30, n. 3 (2015): 196.
8
Oskam, Jeroen, and Albert Boswijk. "Airbnb: the future of networked hospitality businesses."
Journal of Tourism Futures 2, no. 1 (2016): 25.
9
Baldwin Y. Carliss and Kim Calark. “Managing in the age of modularity.” Harvard
Business Review. 1997. Accessed March 15, 2017. https://hbr.org/1997/09/managing-in-
an-age-of-modularity

5. 5
when a company like Airbnb manages its knowledge resources properly, it will generate profits
that will enhance its growth. Moreover, the impact of modularity is more than accelerating
change or heightening competition in the industry. Module designers in the hospitality industry
have moved in and embraced technology alliances and employee agreement as they compete to
innovate. Firms such as Airbnb generate a lot of revenue and profits in such market.
Additionally, the emergence of digital technologies has boosted sharing by lowering costs
involved in various transactions. Currently, with the existence of the sharing economy,
communities can share their resources by making a decision rather than out of necessity.10
Airbnb uses information technology that is available through a web-based platform to facilitate
peer to peer transaction. Moreover, Airbnb controls the quality of services it offers to the
customers by depending on the user-based rating system. Similarly, the system builds trust
between the service provider and customers who are new in the market.
Another impact of modularity is that it seeds the cloud. When making software decisions,
designers often tend to consider options such as a virtual server, public cloud, physical servers or
private could that will offer the best platform for an upgraded application. Therefore, modularity
is significant since it plays a role in the allocation of specific functions away from the facility.
Currently, Airbnb is exploring cloud approaches as they try to determine platform options that
will help the company to reduce costs and increase agility.
How Platform Owners Execute Control over the Platform
Many individuals keep on contemplating about the ownership and control of the
convenient apps and websites that allow us to rent apartments. The slogans of the marketers in
10
Liang, Lena Jingen, HS Chris Choi, and Marion Joppe. "Understanding repurchase
intention of Airbnb consumers: perceived authenticity, electronic word-of-mouth, and
price sensitivity." Journal of Travel & Tourism Marketing (2017): 1-17.

6. 6
the sharing economy are that the sharing will get rid of the need for owning.11
It is possible for
people to share cars, labor, and houses by trusting the platforms such as Airbnb and Uber to
provide. The perception that ownership matters is a focus in the cooperative model.12
With
cooperatives, the platforms are owned and controlled by the people. Members of the cooperative
benefit from the profits or returns. In the case of Airbnb, the company does not have co-
ownership that will make choices for the business. Members of the Airbnb have to answer to the
investor of the company.
Property owners benefit from Airbnb through the free listings. The Airbnb allows
travelers or any other individual to browse the listed space and choose the one that they think
would satisfy their needs. Regarding the Airbnb business model, consumers perform their
bookings and engage in the monetary transaction in the platform.13
The platform allows parties to
engage in a rental transaction without owning the place. The Airbnb Company earns its revenue
from the following sources. First, property owners are charged 10% commission on every
booking that is done on the Airbnb platform. Second, the company charges travelers
approximately 3% as transaction fee after their bookings have been confirmed.
Although hosts of Airbnb have much control over the experience of the brand, the
company manages its brand by vetting the hosts. Airbnb vets the hosts so that they can align with
the mission of the company and not just for the functional requirement. Also, the company
creates a strong incentive for its hosts. The company enables its hosts to provides customers with
greater experience by creating financial and social incentives.
11
McLean, Susan. “The rise of the sharing economy.” Computers & Law Magazine of SCL
26, no. 1 (2015): 1-3.
12
Goodburn, Mark A., and Steve Hill. "The cloud transforms business." Financial
Executive 26, no. 10 (2010): 34-40.
13
Stors, Natalie, and Andreas Kagermeier. "Motives for using Airbnb in metropolitan
tourism—why do people sleep in the bed of a stranger?" Regions Magazine 299, no. 1
(2015): 17-19.

7. 7
The Issue of Sharing on the Airbnb Platform
A successful platform such as the Airbnb ensures that they reduce the friction that may
increase the cost of the transaction or make it more cumbersome thus discouraging potential
customers.14
In the situation when customers have diverse preferences, the platform needs to
define its services. A narrow definition of the product means that the seller will exclude other
products or services that the buyer might consider important.15
In the case of Airbnb, the
company enables potential renters to search for many listing. Besides, the platform allows
customers to consider a broad array of features before contacting the host.
Sharing economy such as Airbnb ensures that the hosts offer consumers with products at
beneficial prices because they only use underutilized assets. For instance, renters can decide to
list their residence on Airbnb as short-term rentals if they would like to use them more fully.16
In
most cases, since hosts have their residence as key assets, they will require less capital to enter
the market thus this lowers the barrier to entry and other operational costs. Also, Airbnb gives
hosts the flexibility to choose when to offer their services.17
Owners can decide to rent their
residence on periods when the demand for rooms is high, or they have underutilized time.
14
Thakur, Sudheer. “Airbnb shows its hand. What next?” Hospitalitynet. September 24,
2015. Accessed March 15, 2017. http://www.hospitalitynet.org/news/4071878.html
15
Kerr, Dara. Airbnb starts collecting taxes in Paris its biggest market. C/net. August 25,
2015. Accessed March 15, 2017. https://www.cnet.com/news/airbnb-starts-collecting-
taxes-in-paris-its-biggest-market/
16
Ramaswamy, Venkat, and Francis J. Gouillart. The power of co-creation: Build it with
them to boost growth, productivity, and profits. Simon and Schuster, 2010.
17
Yaraghi, Niam, and Shamika Ravi. “The current and future state of the sharing
economy.” Brookings. December 29, 2016. Accessed March 15, 2017.
https://www.brookings.edu/research/the-current-and-future-state-of-the-sharing-
economy/

8. 8
Customers for Airbnb are those that add up to the revenue of the company. The customer
can be a host who would like to rent his/her residence and list it on the Airbnb platform.18
Similarly, the customer can be a traveler who wants to book a space via the platform. Airbnb
finds its customers through the social media platform, promotional offers, referrals and digital
marketing that include using internet adverts. In recent years, Airbnb has invested significantly
in developing a community and establishing partnerships with reputable institutions and
websites.19
The company facilitates its platform for knowledge sharing. The host groups are
integrated to embed hospitality standards and offer a platform to exchange information.
Airbnb Company is a purpose-driven brand. The company is not driven by the need to
sell products or delivering one specific experience but the company unites their hosts and
customers to ensure that they make travel personal.20
The company focuses on participating in
the sharing economy to help shape the experience of the city. When you can prosper at offering
services under your control, and ensure that the incentives you offer to your customers and brand
representatives conform to the standards of the company, then a small reduction in the popularity
of the brand will still allow you to achieve your goals.
One of the drivers of the sharing economy includes technological advancements. The
sharing of assets in the market is not new to the parties involved; however, a novel development
in the platform is the creation of two-sided market since it allows an individual to individual
18
Olma, Sebastian. Never mind the sharing economy: here is platform capitalism. Institute
of Network Culture. October 16, 2014. Accessed March 15, 2017.
http://networkcultures.org/mycreativity/2014/10/16/never-mind-the-sharing-economy-
heres-platform-capitalism/
19
Moazed, Alex. “Why companies like Uber, Airbnb, and Slack require unique branding.”
Inc.com. January 8, 2016. Accessed March 15, 2017. http://www.inc.com/alex-
moazed/why-companies-like-uber-airbnb-and-slack-require-unique-branding.html
20
Yannopoulou, Natalia, Mona Moufahim, and Xuemei Bian. "User-generated brands and
social media: Couchsurfing and Airbnb." Contemporary Management Research 9, no. 1
(2013): 85.

9. 9
communication. Technological advancement enables Airbnb to use big data analytic to
determine the supply and demand of rentals.21
The company uses advanced algorithms to set
prices of the products and services and predict their demand. Airbnb operates as an intermediary
between those who have the empty apartments and those who would like their services.22
The
company depends on the reviews by the previous customers about the rooms to act as a measure
of quality control. The reviews provided by verified clients enables Airbnb to overcome the
challenge of screening individuals thus avoiding the cost it would have incurred.
Conclusion
The emergence of networked hospitality businesses in recent years have been propelled
by economic benefits that firms may enjoy. Besides, the emergence of sharing economy has been
due to the need to meet the various needs of the consumers ranging from accommodation to
renting cars. Airbnb is one of the platforms that allow its users to share their underutilized goods
and engage in economic transactions. Airbnb offers stiff competition to local hotels regarding
prices for the services; however, the platform offers experiential value that most travelers find
interesting.23
Due to stiff competition offered by Airbnb to local hotels, the prices in the
21
Olma, Sebastian. Never mind the sharing economy: here is platform capitalism. Institute of
Network Culture. October 16, 2014. Accessed March 15, 2017.
http://networkcultures.org/mycreativity/2014/10/16/never-mind-the-sharing-economy-heres-
platform-capitalism/
22
Yaraghi, Niam, and Shamika Ravi. “The current and future state of the sharing
economy.” Brookings. December 29, 2016. Accessed March 15, 2017.
https://www.brookings.edu/research/the-current-and-future-state-of-the-sharing-
economy/
23
Vincent, James. “Airbnb start collecting tourism tax in Paris, its most popular
destination.” The Verge. August 26, 2015. Accessed March 15, 2017.
http://www.theverge.com/2015/8/26/9209603/airbnb-tourist-tax-paris

10. 10
hospitality industry has reduced, which is good news for travelers. Also, consumers earn
additional income by offering goods and services through the sharing economy platform.
The request Airbnb Company has for travelers induces innovation in the hospitality
industry. Some of the experiential elements of the platform that have been adopted in the
hospitality sector include the following. The first element entails integration into local
economies. The digital platform allows people to connect with neighborhood businesses.
Moreover, it enhances employment and training. Second, digital platform promotes Airbnb
market through community building between renters and owners. Guests and locals engage in
social innovations. Regarding the engineering design theoretical perspective, platforms are
perceived as technological architectures. The technological designs of Airbnb help the company
to produce modular product innovation. As modular systems, platforms are good at facilitating
innovations. For instance, Airbnb benefits from the design and adoption of platforms by
achieving economies of scale with regards to the production and innovation.

11. 11
Bibliography
Baldwin Y. Carliss and Kim Calark. “Managing in the age of modularity.” Harvard Business
Review. 1997. Accessed March 15, 2017. https://hbr.org/1997/09/managing-in-an-age-of-
modularity
Baldwin, Carliss Y., and Joachim Henkel. "The impact of modularity on intellectual property and
value appropriation." Harvard Business School. 2012.
Frenken, Koen, and Juliet Schor. "Putting the sharing economy into perspective." Environmental
Innovation and Societal Transitions (2017). http://dx.doi.org/10.1016/j.eist.2017.01.003
Goodburn, Mark A., and Steve Hill. "The cloud transforms business." Financial Executive 26,
no. 10 (2010): 34-40.
Kerr, Dara. Airbnb starts collecting taxes in Paris its biggest market. C/net. August 25, 2015.
Accessed March 15, 2017. https://www.cnet.com/news/airbnb-starts-collecting-taxes-in-
paris-its-biggest-market/
Kostakis, Vasilis, and Michel Bauwens. Network society and future scenarios for a collaborative
economy. Springer, 2014.
Liang, Lena Jingen, HS Chris Choi, and Marion Joppe. "Understanding repurchase intention of
Airbnb consumers: perceived authenticity, electronic word-of-mouth, and price
sensitivity." Journal of Travel & Tourism Marketing (2017): 1-17.
Moazed, Alex. “Why companies like Uber, Airbnb, and Slack require unique branding.”
Inc.com. January 8, 2016. Accessed March 15, 2017. http://www.inc.com/alex-
moazed/why-companies-like-uber-airbnb-and-slack-require-unique-branding.html
McLean, Susan. “The rise of the sharing economy.” Computers & Law Magazine of SCL 26, no.
1 (2015): 1-3.

12. 12
Olma, Sebastian. Never mind the sharing economy: here is platform capitalism. Institute of
Network Culture. October 16, 2014. Accessed March 15, 2017.
http://networkcultures.org/mycreativity/2014/10/16/never-mind-the-sharing-economy-
heres-platform-capitalism/
Oskam, Jeroen, and Albert Boswijk. "Airbnb: the future of networked hospitality businesses."
Journal of Tourism Futures 2, no. 1 (2016): 22-42.
Ramaswamy, Venkat, and Francis J. Gouillart. The power of co-creation: Build it with them to
boost growth, productivity, and profits. Simon and Schuster, 2010.
Reuver, Mark, Sørensen, Carsten, and Basole, Rahul. Mobile platforms and ecosystems. Journal
of Information Technology 30, n. 3 (2015): 195-197.
Stors, Natalie, and Andreas Kagermeier. "Motives for using Airbnb in metropolitan tourism—
why do people sleep in the bed of a stranger?" Regions Magazine 299, no. 1 (2015): 17-
19.
Sultan, Nabil Ahmed. "Reaching for the “cloud”: How SMEs can manage." International
journal of information management 31, no. 3 (2011): 272-278.
Thakur, Sudheer. “Airbnb shows its hand. What next?” Hospitalitynet. September 24, 2015.
Accessed March 15, 2017. http://www.hospitalitynet.org/news/4071878.html
Vincent, James. “Airbnb start collecting tourism tax in Paris, its most popular destination.” The
Verge. August 26, 2015. Accessed March 15, 2017.
http://www.theverge.com/2015/8/26/9209603/airbnb-tourist-tax-paris
Yannopoulou, Natalia, Mona Moufahim, and Xuemei Bian. "User-generated brands and social
media: Couchsurfing and Airbnb." Contemporary Management Research 9, no. 1 (2013):
85.

13. 13
Yaraghi, Niam, and Shamika Ravi. “The current and future state of the sharing economy.”
Brookings. December 29, 2016. Accessed March 15, 2017.
https://www.brookings.edu/research/the-current-and-future-state-of-the-sharing-
economy/
Zervas, Georgios, Davide Proserpio, and John W. Byers. "The rise of the sharing economy:
Estimating the impact of Airbnb on the hotel industry." Journal of Marketing Research
(2014).