Effects of Stifling the Share
Economy Like the Downfall of the Music Industry?
Let’s talk the music industry…
In the 1990s Shawn Fanning and
Sean Parker were credited with “breaking the recording industry.” In retrospect many people, including myself,
believe that the industry was broken long before Napster introduced file
sharing to the masses. The music
industry was fully dependent on record sales for their income at the time. Without
diversity within their revenue model, they became angry, confused and sought
retribution when they were forced to leave their comfort zone. In the aftermath of Napster the record labels
did what they considered to be “fighting back.”
Instead of restructuring their business model to find new revenue they
focused their energy on legal battles with Napster, other file sharing
platforms and those who used the platforms to download music for free. These legal battles continue today, and while
the labels may be monetarily winning, they lost valuable time and energy that
should have been used on innovation within the industry as a whole.
The question that the recording
industry should have been asking themselves during this time, instead of
fighting the file sharing networks was: why do the customers prefer the digital
download to purchasing music? What does
this say about the user experience, and how can they restructure the industry
to follow these trends? Instead of doing
this, the industry has watched as their revenue dropped from $14.6 billion in
1999 to $6.3 billion in 2009.
All the while, digital
downloading has continued and those who have thought outside of the box have
thrived. Imagine what could have been if
the recording industry had embraced file sharing from the get go instead of
fighting to stop it. They could be years
of innovation ahead of where they are now.
The Share Economy: Who is
Screwing Themselves Now?
Just like Napster and other file
sharing platforms, the share-economy has come about because of a need and
preference by consumers. Mintel research
has found that websites like Airbnb offer travelers a more cost-effective way
to travel. Along that same line, Mintel’s
research notes that young people are less interested in traveling because of
high prices of accommodations, and alternatives to hotels that are more
personal and lower costs promote additional traveling.
But Airbnb is having many
setbacks comparable to those of the music industry. Airbnb has continually been fought against by
city laws—which are promoted by hotels that are not happy with the business
that they are losing to Airbnb. The main
fight against Airbnb is that they are not paying taxes to the city on their
stays. "Laws like San Francisco's hotel tax, adopted in 1961, "were
written long before the Internet or any of these activities were
conceived," said Kim Rubey, an Airbnb spokeswoman. “Innovative new models
that allow San Franciscans to generate additional income should be addressed by
innovative laws and policies—not stifled by 40-year-old regulations."” Like in the music industry, if the city
focused on working with Airbnb to create additional revenue for the city in a
more innovative way instead of waging war on the company, everyone would be
better off.
In addition to being price
sensitive, the user experience provided by Airbnb is different and often better
than that of regular hotels. As part of
the share economy, there is a two way street in terms of the buying and selling
of lodging. There is an initial issue of
trust when utilizing the peer to peer network.
How does someone locking in the stay know that the accommodation is up
to par, that the owner of the home is safe to send money to, and how will they
go about securing the stay. For those
renting out their homes, can they trust that the person staying at their home
is safe, will leave the accommodation in proper conditions, and will pay. A mutual review opportunity is the first part
of the answer to these issues. People
who use Airbnb rate those staying and the places they are staying to help
future utilizers decide if they are the proper people to do business with. In addition to this, utilizing social media
within Airbnb allows you to see if you have connections with the people they
are doing business with, and contributes to communication between them. Airbnb
also enables safe payment which is truly important in the share economy. These are all things that the consumers want,
and when legal issues come up, they are often fought against by these exact
consumers. Because of the popularity of
the home sharing process, Airbnb is not alone; HomeAway and VRBO are also
extremely popular, specifically with an older set of consumers.
Legal issues are not only running
rampant for Airbnb. Car sharing
companies are also getting beaten up by the law, yet are continuing on because
of their popularity and practicality of their products. In November of 2012, California Public
Utilities Commission fined Uber, Lyft and SideCar each with $20,000 fines,
claiming that they were operating without proper permits. Their violations included operating as
passenger carriers without evidence of public liability and property damage
insurance coverage and failing to enroll drivers in controlled substance and
alcohol testing programs. Uber offers
on-demand black car service, SideCar and Lyft are donation based ridesharing
programs with regular drivers. These
fines are from the law, but really come from the taxi drivers that these
programs are taking away their potential customers. The taxi companies, like the music industry
are fighting against innovation based on customer needs and preferences instead
of finding a way to work with them to create additional revenues for everyone
involved. Cease and desist letters have
been sent to all of these companies in many cities. Uber was shut down for a time in Washington
DC, NYC and more because of legal issues supported by the taxi companies. After these letters, the internet went wild—supporters
of Uber flooded the inboxes of the legal system as well as spreading their
support across social networks. With
this support it is obvious that there is a customer need that is not being
covered, and these ride sharing programs are necessary. Unlike those who held the music industry
back, people like NYC’s Mayor Bloomberg have fought for “taxi disruption.” He has approved a pilot project to test these
ride sharing programs for at least a year, and in turn Uber has re-entered
NYC.
What have we learned…
The fight that the music industry
enacted against innovation and their customer needs proved just what a poor
decision that fight is. Classic
industries like hotels and taxis need to consider and learn from the music
industry in order to keep themselves from cutting their own revenues. The legal issues facing the share economy are
similar to those that faced file-sharing.
My belief is that legal issues will continue to face the share economy,
and the share economy will continue to thrive because of their customer
insights. The industries fighting
against their disruption are the ones that need to learn from the past and
instead of fighting innovation, embrace it and learn how that they can innovate
themselves.
