How the Sharing Economy Works

The Evolution of the Sharing Economy

The sharing economy didn't appear out of thin air. Its technological and sociological foundations have been laid over the past 25 years:

1989: Tim Berners-Lee invents the World Wide Web, creating the language and architecture for sharing information over the Internet [source: World Wide Web Foundation].

1995: eBay introduces a user-generated feedback system of buyer and seller ratings to deter fraud. Every positive rating earns a buyer or seller a colored star. Even though eBay users go by anonymous names like CarJunkie3895, they earn trust through their ratings.

1999:Napster popularizes peer-to-peer file-sharing, technology that lets you share personal assets (MP3 files of music, in this case) with a connected "community" of anonymous Web users.

2000: Zipcar becomes America's first car-sharing company [source: Eha]. The idea catches on with city-dwellers who don't want the hassle and expense of owning a car, but want a quick and easy way to rent one by the hour.

2004: Facebook builds on the successful model of MySpace, enabling users to create personal profiles, make "friends" with other users, post text, photos and videos, and comment on each other's posts. Mark Zuckerberg's brainchild dominates what's called the "social Web," online communities that mirror our real-world social interactions.

2007: Apple's iPhone represents a significant leap in smartphone technology, putting unprecedented power and connectivity in the palm of your hand.

2007: Netflix brings streaming video to the mainstream, popularizing the idea of "borrowing" vs. downloading digital entertainment. Younger Americans are less likely to buy movies or music [source: Imam]. With always-connected mobile devices, they can stream songs from Spotify or Pandora for free, or watch TV and movies online wherever, whenever.

The sharing economy represents one more step in this evolution of innovation. On sharing economy websites, trust is established using Facebook profiles and user-generated rating systems like the one popularized by eBay. That trust is reinforced by face-to-face meetings. Airbnb hosts, for example, are required to physically hand over their keys to renters. On the renter's side, you're more likely to return an apartment or car in good condition if you've looked the owner in the eye and shaken her hand [source: Tanz].

Of course, trust in your fellow man can only take you so far. These sharing companies add an extra layer of protection in these peer-to-peer exchanges by collecting and paying out the money for the service and providing a formal system for complaints.

To get a better idea of the scope of the sharing economy, let's look at some of the major players in this emerging online marketplace.