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The sharing economy is a massive transfer of wealth from rich investors to rich consumers

Alison Griswold
An Uber Eats courier makes a delivery.

The poster children of the sharing economy are growing up. Ride-hailing companies Uber and Lyft went public earlier this year, food delivery firm Postmates plans to file for an IPO in September, and Airbnb is targeting a 2020 debut. Once a niche corner of Silicon Valley, the sharing economy now features some of the buzziest names on Wall Street.

These companies’ business models, however, are far from mature. Halfway through the year, Lyft and Uber have already lost a combined $8 billion. Postmates has yet to achieve profitability and will unveil the details of its own cash-burning operations when it publishes its IPO documents. Airbnb said recently that it has a lot of cash, but that’s not necessarily the same thing as having a profitable, sustainable business.

These losses reflect the giant wealth transfer at the heart of the sharing economy. These companies have received generous funding from venture capitalists for years. They spend the money, among other things, on growth and expansion, often achieved through discounts that make their services more affordable to consumers. If you’ve ever thought your cheap Uber ride is too good to be true, it’s because it probably is.

Whose lifestyles are these venture capitalists subsidizing? Overwhelmingly, it’s wealthy, educated, urbanites, according to new research based on the 2017 Internet Use Survey, conducted by the US Census Bureau on behalf of the National Telecommunications and Information Administration (NTIA).

The NTIA’s Internet Use Survey included questions on the sharing economy for the first time in 2017. It defined this as peer-to-peer online activity, such as taking or providing a ride in Uber, booking or renting a home on Airbnb, or buying or selling goods on Etsy. The survey found that internet users in the highest family income bracket (more than $100,000 a year) were more than twice as likely to be sharing-economy consumers than those in each of the lowest two income brackets (less than $50,000 a year).

NTIA also found a stark difference between urban and non-urban consumers. Only 19% of internet users in non-metro areas engaged with sharing-economy services, either as a provider or a consumer, compared with 35% of residents in metro areas.

Education also plays a role. People with at least a college degree were more likely to request sharing-economy services than the average, and more than three times as likely as those with a high school diploma or less.

The NTIA data is consistent with what previous studies have shown: sharing-economy services in the US are used most by the wealthy and well-educated. A 2016 study by Pew Research Center found that US adults who earned at least $75,000 a year were twice as likely as lower-income Americans to book trips on ride-hail services like Uber or rent rooms on home-sharing sites like Airbnb. That same Pew study found lower-income Americans were also less likely to have heard of these services in the first place.

The sharing economy, in other words, isn’t so great at sharing the wealth. The immense amount of money that has poured into these companies has gone mostly to subsidizing the lifestyles of wealthier city dwellers.

This makes sense in that many sharing or “gig” companies work best in cities, where population density allows them to maximize the efficiency of their workers. People who live in the suburbs or rural areas are also more likely to rely on personal vehicles for things like transportation, takeout food, and grocery shopping, making on-demand companies that offer these services less appealing.

Uber said as much in its IPO filing. The company admitted that 24% of its of rides in 2018 came from just five metro areas: Los Angeles, New York City, and the San Francisco Bay Area in the US, and London and São Paulo outside of it. Uber also warned that it faced challenges in “penetrating lower-density suburban and rural areas, where our network is smaller and less liquid, the cost of personal vehicle ownership is lower, and personal vehicle ownership is more convenient.”

 

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