Trusting the Sharing Economy

On-demand services that comprise the sharing economy are superior to their real world counterparts because of the dual feedback system. Trust identity based on dual feedback loops loops could create the civilised commercial ecosystem that has always been the ultimate objective of putting in place a regulatory framework.

This article was first published in The Mint. You can read the original at this link.

The crackdown by the Karnataka government on taxi aggregators Ola and Uber has caused considerable consternation in print and social media. However, this type of government action is nothing new for the sharing economy. Almost from the moment on-demand services began operations, governments around the world have literally fallen over themselves to regulate them—egged on, for the most part, by lobbies comprising the same mainstream industries that these start-ups were working to disrupt. These “threatened" industries argued that while they are obliged to comply with industry regulations, these new disruptive industries were providing the same service without complying with regulatory requirements.

As a heavy user of most of these services, it has been my experience that on-demand businesses are almost always superior to their old world counterparts. Their app-focused model makes them convenient and transparent. Features such as built-in geo-tracking allow you to easily locate where your package currently is or when your cab is going to arrive. Their advanced payment processes are so much better than their traditional counterparts that the first time you use an on-demand ride services it seems almost magical, particularly when compared with traditional taxis that only accept cash and rarely have change. But there is one innovation that really sets these businesses apart and that is the dual feedback loop, which, to my mind, lies at the very heart of their lean service delivery model.

Feedback, in itself, is not a new innovation. However, the manner in which it is being applied by on-demand businesses could, at scale, completely transform the way service businesses are run. Most on-demand services require both the provider and the recipient of services to rate their experience, often as a pre-condition to avail of further services. This seemingly routine action doesn’t seem hugely significant at first but as more and more ratings begin to accumulate, feedback on how you performed crystallizes into a trust identity that eventually becomes an accurate representation of actual performance.

Sharing economy companies use this trust identity in various ways, shunting drivers with low scores to the bottom of the queue or sending them off to pick up passengers located far away— while higher rated drivers get plum downtown assignments. On the other side of the equation, renters who have higher scores and positive feedback are more likely to be offered an apartment on AirBnB than those with poor ratings. Any negative comments about how you used the apartment will likely ensure that you will never be allowed to rent an apartment on the service again. This dual feedback model offers a real and tangible incentive for both parties to “behave" and users quickly realize that failing to do so could result in them being locked out of the upper tier of benefits.

In my experience, most Uber drivers are more polite and friendly than their traditional counterparts, their cars cleaner and better stocked with amenities. The AirBnB rooms I have stayed in are generally larger and located more conveniently than their hotel counterparts. Sharing economy businesses have achieved these high service levels without an army of validation agents to verify service providers or a team of enforcers working to ensure compliance with conditions of service. They achieved this by implementing a transparent, user-driven performance validation system that has resulted in a self-regulating ecosystem where compliance is rewarded, not enforced.

Isn’t this the ultimate objective of any regulation—to create a civilised commercial ecosystem within which both the provider and the receiver of services can operate? Conventional wisdom has so far dictated that the way to do this is to have a regulator legislate on what should or should not be done. It took a bunch of disruptive businesses that were collectively unafraid to push the boundaries of the law, to show us an alternative is possible. And after an inevitable period of temporary uncertainty, I predict that we, as a society, will embrace the effectiveness of this new trust ecosystem.

Right now, however, this model is still a work in progress. Each company has built its own algorithm relying solely on the inputs from its own users to determine someone’s trust identity. While that works at scale, it ignores the obvious benefit of pooling trust feedback across platforms. Chances are that a bad renter (who trashed the apartment he stayed in) is more than likely to mess up a car he rides in. Sharing economy companies will eventually learn to benefit from this kind of cross-platform trust identity. And as our trust identity begins to accurately determine our eligibility to avail of services, it will enhance the general accountability of each and every member of society.

And then, I imagine, regulations as we currently know it, will be a thing of the past.