This document provides a literature review for Joseph Bitter's dissertation on factors determining success in the sharing economy. It discusses key concepts like collaborative consumption and the importance of trust and reviews in building user networks. The literature review covers works by Rachel Botsman, Sangeet Choudary, and others analyzing the sharing economy and factors like scalability, venture capital funding, flexibility, and the threat of substitutes. While much has been written on these topics, the document notes that frameworks for identifying competitive threats and indicators of success in the sharing economy have been limited.

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Degree: BSc Management
Cass Business School
Title: What factors determine the success of
market-leaders in the sharing economy?
Specifically with consideration to venture
capital funding and scalability, user network
and trust and the threat of substitutes and
flexibility.
Name: Joseph Bitter
Supervisor’sname: Prof Martin Rich
Submission date: 8th April 2016
"I certify that I have complied with the guidelines on plagiarism
outlined in the Course Handbook in the production of this dissertation
and that it is my own, unaided work".
Signature……………………………………………………………………………………….

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Index
Chapters:
1.0 Abstract.....................................................................................……….………..3
2.0 Introduction....................................................................................................4-6
3.0 Literature Review.........................................................................................7-12
4.0 Data & Methodology..................................................................................13-14
5.0 Analysis
5.1 Porter’s Five Forces………………………………………………………15
5.2 Porter’s Five Forces Adaptation…………………………………….16-18
5.3 Capital Investment and Barriers To Entry…………………………18-20
5.4 Uber Vs. Lyft…………………………………………………………….20-21
5.5 Venture Capital & Scalability…………………………………….…..21-25
5.6 The User Network & Trust……………………………………………26-28
5.7 The Threat of Substitutes and The Importance of Flexibility….29-34
6.0 Implications
6.1 Application of adapted Five Forces to JustPark…………………35-36
7.0 Conclusion…………………………………………………………………………..37
8.0 Bibliography…………………………………………………………………….38-41

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Abstract
If the 20th
Century can be considered the era of ‘conspicuous consumption’ defined by
an asset heavy-lifestyle, Botsman (2009) would argue that the 21st
Century has seen a
shift towards ‘collaborative consumption’ defined by a cultural shift from ‘me’ to ‘we’
(Botsman, 2009).But it was the post-financial crisis period in 2008 that galvanised
collaborative consumption with the increased need for disposable income.
The sharing economy refers to the peer-to-peer (P2P) networks that typically deliver
goods and services on web and mobile based platforms. The new companies providing
these networks have achieved success through several key factors which are
interlinked, including; venture capital and scalability, trust and user networks, and
flexibility and the threat of substitutes. The sharing economy is expected to be worth
$335bn by 2025.
Such is the growth of this economy and the platform model as a whole that online
publications in this field have risen dramatically since 2010. However, in that period, key
elements such as trust and user networks have been discussed by Rachel Botsman
(2010) and Sangeet Choudary (2013) but there have been few attempts to analyse the
competitive situation of the sharing economy through models and frameworks.
This paper will provide an adapted framework of Michael Porter’s Five Forces (1979) -
taking into account capital investment, an equitable balance between supply and
demand and the importance of trust and flexibility - including real-world examples such
as Uber, Airbnb, Lyft and JustPark. I will conclude that the adapted model of Porter’s
Five Forces is a useful model to understand the competitive environment of the sharing
economy and why certain market leaders have been successful.

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Introduction
The beginning of the 21st
century marked one of the most significant societal and
economic transformations with the expansion of the World Wide Web reducing global
barriers to communication and business expansion. Web 2.0 gave birth to an array of
new digital companies, online marketplaces, and platforms (app and web based).
Without the Internet none of this would have been possible. The transition to Web 2.0 is
defined by the shift from static to interactive websites, which granted us with the ability to
create online platforms on which peers can interact, share, lend, and borrow assets with
strong network effects. Botsman (2012) argues that the most important factor for
success in the sharing economy is trust, so much so that she labeled it ‘the currency of
the sharing economy’. Having said that, because the consumer had become
accustomed to using e-commerce and social media, the trust issues surrounding the
sharing of assets - for example, sharing your home through Airbnb - were significantly
reduced.
The sharing economy describes more than exchange of goods and services via peer-to-
peer (P2P) networks; it refers to a universal socio-economic system that maximises the
potential of our underused human and physical resources, from our skills to our assets
and things. The ‘Sharing Economy’ movement was initiated in the mid 2000s with many
companies keen to exploit a burgeoning market with opportunities to leverage a network
of peers willing to pay for under-utilized assets. But it was the post-Great Recession
period that has stimulated this development with the increased need for disposable
income.
Twenty years ago, one might have called an airline to buy a ticket, hailed a cab to get
there and stayed in a hotel room also booked over the phone. Today, the sharing
economy allows us to seamlessly book a flight through price comparison websites, book
an Uber on your smartphone and stay in an Airbnb upon arrival. All of this can be done
with the a few simple ‘screen taps’ as they are typically delivered on web-based and
mobile application platforms. Indeed, the sharing economy has grown much faster and
further than initially believed possible. For example, peers can share homes, cars, food,
tools, clothing, parking spaces, meals and even pets.

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Set against the landscape of the 2008 financial crisis, Collaborative consumption re-
emerged in full force, servicing younger consumers who held traditional brands in
distrust and who were interested in P2P consumption (Botsman, 2011). Given that
disposable income in the United States of America (USA) and the European Union (EU),
post 2008 dramatically reduced, the natural and growing shift in the consumption
patterns of individuals in the western world became centered increasingly around
sharing. No longer was the focus on hyper consumption but rather on the post-crisis
antidote to materialism and overconsumption, which is the benefit of sharing assets.
Although, the financial crisis likely had an influence on the rise of collaborative
consumption, the Internet was the most important factor on the growth of this sector
(Cova & Pace, 2006).
Companies such as Airbnb and Uber have set the tone in this new economy, quickly
growing from small startups into global brands. Their success can largely be attributed to
the introduction of their platforms at a time when the online trust barrier had been broken
down. This played a large role in developing steady supply and demand of peers, and
revenue streams accordingly. The ascent of these new businesses has had a profound
effect on the traditional players in the commerce, publishing, music and video, finance,
and even more significantly the travel and hospitality industries. Such disruption, as is
the case with Uber in London and Airbnb in New York, has caused deep-rooted market
leaders to lobby for stricter government regulations against sharing economy
companies.
Interestingly, there have been multiple high-profile incidents that have occurred through
the Airbnb and Uber platforms. In 2011, an Airbnb host returned to her home after a
short-term rental to find it had been ransacked and vandalized (Arrington, 2011). Despite
this, user growth has not slowed as a result of a lack of trust but rather regulatory
pressures have seen the sharing economy take a step back. For example, in November
2015 the city of Frankfurt issued a ban on unlicensed taxi drivers; forcing Uber out of this
market.
The purpose behind this dissertation is to analyse the sharing economy in the context of
its barriers to entry to understand why certain companies are able to achieve and
maintain significant market share. The new companies operating in this economy have

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achieved success through several key factors which are interlinked and as such can be
classified into three groups, including: venture capital and scalability, trust and user
networks, and flexibility and the threat of substitutes. These will be analysed in detail
later on using real-world examples.
Although there has been a dramatic increase in the number of publications and online
sources of late (circa 2010) on the sharing economy, the literature available regarding
key success factors was limited. And, in order to identify the key success factors of a
given industry, an analysis of the competitive situation must be undertaken. Michael
Porter’s Five Forces framework developed in 1979 is a useful strategic tool for analysing
competitive environments, however, as Sangeet Choudary mentions in his essay on the
Future of Competitive Strategy, we have “seen a significant shift in how we think about
competitive strategy” (2016). As such, an adaptation of Porter’s Five Forces has been
created to analyse sharing economy competitivity.
This dissertation will also cover the various barriers to entry from foreign market entry
(globalisation), barriers faced by consumers and peers for involvement and the barriers
that exist for new businesses to enter a certain sectors and industries. Whilst building
trust and obtaining venture capital are key drivers for companies in this nascent
economy, stricter political regulations may limit the potential for growth into markets as
seen in New York and Frankfurt.

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Literature Review
The sharing economy encompasses many different definitions including the asset
economy, the access economy and the collaborative economy (Eckhart & Bardhi, 2012).
However the prevalent idea is that this socio-economic system, which allows peers to
access, collaborate and share across a wide variety of online platforms, is called the
sharing economy. It’s important to begin by looking at its origins and development;
although the term was first defined by Marcus Felson & Joe Spaeth in 1978 (Stokes et.,
al, 2014) as “Collaborative Consumption” our understanding of this field has been further
shaped by technological advances and innovation.
The growth of technology-based P2P marketplaces - used by millions of individuals to
exchange - has corresponded to an increase in literature where experts and thought
leaders have covered the ongoing political regulations, sustainability and growth and the
intersection between collaborative consumption and capitalism. Furthermore, this topic
was covered in detail by Rachel Botsman in her book “What’s Mine Is Yours” which
explores the origins of “Collaborative Consumption” which she defines as “systems that
reinvent traditional market behaviors — renting, lending, swapping, sharing, bartering,
gifting — in ways and on a scale not possible before the internet and to get the same
satisfaction as ownership but with lower environmental impact and cost” (Botsman,
2011).
The books published in this sector by Botsman, along with Sangeet Choudary’s Platform
Scale (2015) and Chris Anderson’s Long Tail (2006) provide the key conceptual
frameworks for understanding the sharing economy. However, research in this field is
limited when discussing frameworks for identifying key threats and indicators for
success. Therefore, online articles provided much of the secondary data included in this
dissertation; there is considerable access to credible literature in the form of corporate
reports - PWC and Ernst & Young; articles from experts - Choudary, Botsman and
Bardhi; and sharing economy business owners - Alex Stephany and Brian Chesky.
Additionally, websites such as Forbes, the Financial Times and the Economist have
helped to reveal the latest occurrences and trends in this new economy specifically with

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regards to regulatory changes, valuations and growth figures as well as the community’s
perception.
It is necessary to widen the literature to include writers who have covered associated or
complementary topics such as Rousseau (2007) who examined the role of trust in
transactions and exchange and Giudici and Paleari (2000), who analysed the Optimal
Staging of Venture Capital Financing.
Much of the literature that exists is written by those operating within the market as CEO’s
or Founder’s of tech startups. This has both its advantages and disadvantages as it
provides an inside view and an expert knowledge of the industry and by sharing their
expertise they raise the profile of themselves and the businesses they represent.
However there is the problem of self-promotion.
Although attempts have been made to apply frameworks to the sharing economy, with
one study in particular examining the mobility of business models through agency
theory; examining the best solutions towards organising relationships in which one party
determines the work and the other does the work; there are no models, to my knowledge
specifically developed to identify the key success factors.
As such, the decision to draw in Porter’s Five Forces was made due to the strategic
element involved in identifying key drivers of success. This is a well-known framework
that is used to analyse the competitive situations of industry sectors. And as Choudary
(2016) highlights over the last fifteen years, there has been a shift in how we think about
competitive strategy. Its application to the sharing economy does not consider new
factors such as the need to obtain VC funding for scale, develop both supply and
demand markets through trust and provide both financial and workplace flexibility.
Scalability is usually defined as the activity leading to improved quality or environmental
and social benefits to more people over a wider geographic area more quickly, more
equitably, or over a longer time frame (Taylor, 2000). It has been a recurring theme for
success of online platforms. Sangeet Choudary, critically analyses factors for achieving
network effects, building strong supply and demand as well as maintaining a strong
user-base. On the other hand, CEO of JustPark Alex Stephany highlights the importance

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of VC and scale in order to create stronger network effects. Such is the desire for VC
firms to invest in scalable business models that London-based VC firm Piton Capital only
invests in companies with network effect capabilities.
The institutional history of VC stretches back to 1946 with the formation of the American
Research and Development Corporation (ARD). Today there are over 2000 VC firms in
the USA alone (Hisrich & Peters, 2002; cited in Ambrose, 2012) and they account for
one in every five public U.S. companies. The role of VC has a more profound effect due
to their ability to deliver mentorship, strategic guidance, network access, and other
support (Strebulaev & Gornall, 2015). 37% of sharing economy companies are VC
funded.
Recently, however, the ascent of equity crowdfunding platforms like Crowdcube, Seedrs,
etc. has led some analysts to believe that it could disrupt traditional VC firms. In fact,
80% of sharing economy startups believe that crowdfunding is the best way to raise
capital. (Matofska, 2015) Having said that, crowdfunding campaigns require a lot of time
and are not always successful. What we are seeing now is collaboration between VC
firms and equity crowdfunding platforms, as they complement each other.
Scaling through the traditional business model often results in high capital costs, risk and
uncertainty as well as overcoming barriers to entry. This is without consideration to the
platform model. However, the literature that pertains to the abilities presented by the
platform are covered in little detail. Barriers to globalisation have been significantly
reduced due to the platform, and that is why certain market leaders have achieved such
high valuations and growth. The network effect potential is garnered through consumer
confidence and trust.
Ermisch et al (2007) argued that trust is a fundamental lubricant for social and economic
transactions; and the sharing economy intensifies the need for trust through its inherent
model, which is dependent on many individual players. Indeed trust is defined as a
“psychological state comprising the intention to accept vulnerability based upon positive
expectations of the intentions or behaviour of another.’ (Rousseau, 2007). The value of
the user network, network effects and its ability to create both supply and demand is
dependent on trust. As Rinne et al (2013) state, “Trust is the social glue that enables

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collaborative consumption marketplaces and the sharing economy to function without
friction.”
Building trust is central to marketplaces, which carry risk. Uber and Airbnb were able to
create successful and engaging peer-based review systems, which have helped to
develop this trust. Botsman (2012) asserts that reputation will soon become the most
valuable asset, claiming “In the 21st century, new trust networks, and the reputation
capital they generate, will reinvent the way we think about wealth, markets, power and
personal identity in ways we can’t yet even imagine.”
The information symmetry created by the profile, review and rating systems has helped
companies such as Airbnb overcome one of the biggest barriers to adoption: a lack of
consumer trust. The relationship between online reviews and online purchases has been
well documented. If a host has a good reputation on Airbnb, their property has a much
higher chance of being booked. Senecal and Nantel (2004) found that individuals who
used the reviews as a basis for purchase were twice as likely to buy that product or
service than those who don’t.
The ability of online marketplaces to provide flexibility to peers in multiple ways at
competitive prices may concern traditional brick and mortar businesses. In Choudary’s
Platform Scale (2015), he argues that, “The future of job creation isn't just about
matching supply to demand but about providing the entire infrastructure that enables
producers to reliably find a better substitute than traditional job alternatives. Freelance
work now comprises almost 18 percent of all jobs in the US. (Chase, 2015)
It is evident that Web 2.0 transformed the business world with online marketplaces.
However, (Chui, 2010) argues that the most significant change took place within the
organisation. He refers to networked organisations; companies that deploy talent flexibly
and connect individuals to complete tasks. Uber, Lyft and Airbnb’s platform have
enabled talent to maximise their returns on under-utilized assets, in a flexible manner.
On the flip side, Botsman highlights the importance of flexibility for the demand-side
peers, arguing “access is preferable to individual ownership.” There is limited literature,
however, on the subject of flexibility and its direct impact on the sharing economy but

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online articles have provided accounts of flexibility being a big factor in peer provider
adoption specifically with consideration to Uber and Lyft drivers.
At the same time, traditional companies are a threat to substitute online marketplaces.
Regulatory pressures have increasingly threatened the continued operation of online
marketplaces in certain regions. For example, Airbnb faces strong headwinds from well-
funded coalitions of landlords and hotel-industry insiders specifically targeting their NYC
operation. (Kaplan, 2016)
Barriers to market entry can be considered as the costs or obstacles that prevent new
businesses from entering or competing in a certain market. The barrier to entry concept
was first defined within Porter’s Five Forces analysis framework and aptly applies to
traditional brick and mortar business. However, (Van Zuylen-Wood, 2015) argues that
technology and the platform model are eliminating the old barriers to entry citing that no
licenses were needed for Uber and Airbnb to begin operating whereas taxi medallions in
NYC can sell for over $1million.
Regulatory changes and local barriers to market entry, as seen for Uber in India or
Airbnb in New York, are frequently listed as the number one business challenge. In
using a framework like Porter’s Five Forces, we can acknowledge that the same
regulatory issues apply to all companies with a similar business model, as seen with
Uber and Lyft. However, when we compare sharing economy companies with the
traditional models it is clear that there are significant differences in regulatory barriers.
To begin, traditional models usually have a clear route to market through well-developed
channels or even government support. So in this sense, regulatory changes are
considered in the ‘threat to substitute’ section - where our case studies are analysed
alongside more traditional models.
The background literature in the field is extensive in quantity but limited in quality. There
are certain elements that have been touched upon as key drivers in achieving success in
online marketplaces, however a framework for analysis of competition in the sharing
economy is lacking. With an adaptation of Porter’s Five Forces, I hope to provide a
useful tool to assess competition in this economy. To substantiate its validity, I will apply

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the adapted model to the innovative but small JustPark platform. Therefore, proving that
the success drivers can be identified with market leaders and small companies.

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Data & Methodology
In order to clarify the research question and methodology, I will define how we measure
success; identify who the market leaders are, what makes them market leaders and
what are the parameters of the sharing economy. We first must digest that currently
there are 7,500 platforms globally and that, on average they receive $28 million in
funding per day.
Given the nature of the sharing economy, the predominant focus of research has been
qualitative. Qualitative research methods are useful in understanding and analysing
relationships as well as understanding human behavior. It became clear early in the
process that qualitative information would be the most suitable for this dissertation
considering that success in the sharing economy is heavily reliant on the decisions made
by consumers and peers.
Success in many ways is difficult to define and given the many benefits of the sharing
economy, definitions of success in this context are held in wide variety. Market leaders
can be considered the companies within this sector with $1bn+ valuations e.g. Uber,
Airbnb and have a dominant market share within their respective industries.
To uncover the key drivers of success, several sources were considered. First, there are
extensive online articles from CEO’s and investors; individuals with vested interests.
Additionally, access to online articles provided the most up-to-date news, findings and
analyses of the sharing economy. The Economist, The Financial Times and The New
York Times have added significant literature to this field, which has helped, shaped the
ideas of the adapted Five Forces model.
In order to gain a better understanding of how a sharing economy company might
penetrate and succeed in this market, I have examined several different market leaders
from the hospitality and transportation industries including Airbnb, Uber and Lyft. I have
analysed the respective strategies of Airbnb, Uber and Lyft in the context of trust
networks, capital and user acquisition and overcoming regulations, to identify the key
themes and drivers. This does not mean that Uber and Airbnb’s models are necessarily
the industry standard or the ideal models for other platforms. Simply put, the use of
these companies provided the necessary background and empirical evidence from

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legitimate and extremely ‘successful’ companies in order to provide the basis for
recommended actions. Furthermore, examining companies from several different
industries allows for identification of the underlying success factors.
According to Porter, there are only these main barriers to entry including; economies of
scale, product differentiation, capital requirements, cost disadvantages independent of
size, access to distribution channels and government policy. So I felt it was necessary to
incorporate venture capital (VC), and other crucial barriers to entry -- including the
difficulty in achieving balance between supply and demand side markets, and potential
political regulations associated with disruption from online marketplaces -- in the
Adaptation of Porter’s Five Forces.
In order to test the validity of the Adapted Five Forces, it will be applied to a small -
comparatively with Uber and Airbnb - online marketplace; JustPark. They are a
business-to-peer (B2P) and P2P network connecting those in need of parking with those
who have it. Having conducted a phone interview with the PR & Marketing manager of
JustPark, I was able to attain crucial information regarding the links between the key
factors for success. For example, his description of user growth in the last 5 years
allowed me to identify the trend between growing user networks and capital investment.
Applying the updated framework to JustPark is a test to the model’s adaptability to
smaller companies. The implications are that this adapted model is a useful analytical
tool for sharing economy companies.

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Analysis
Porter’s Five Forces is a well-known framework used to analyse the intensity of
competition and the attractiveness of any given industry. Created by Michael Porter in
the late 1970s, the framework sought to provide an assessment of the competitive
environment of any industry through five different forces: the threat of new entrants and
substitutes, the bargaining power of buyers and suppliers and the rivalry amongst
existing firms.
The rise of the digital age has significantly changed the competitive environment and
that the current tools for analysis can no longer be fully applied to the companies in the
sharing economy. As such, we need to re-conceptualise an effective framework to an
adapted model for analysing factors that provide competitive advantage and create
barriers to market entry in the sharing economy.

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Adapted Porter’s Model
Within the world of tech startups operating in the sharing economy, three main factors
have repeatedly been identified for success:
1. The importance of capital investment for scalability and the role ‘angels’ or
‘crowds’ play in opening doors to market expansion, with the core of scalability
lying in repeatability and sustainability.
2. The importance of a strong user network, which drives both demand and supply
within the sharing economy.
3. The ability to disrupt traditional rivals, as well as innovate and use flexibility to
overcome regulatory barriers.
Choudary (2013) supports the notion that scalability, trust and the creation of a network
of users are all key success indicators for platform companies. The adapted model
takes into account these factors and enables us to compare both direct competitors and
substitute competitors side by side - noting what strategic tactics create the most
advantage.
Given the above considerations Porter’s Five Forces has been adapted in several key
ways:
 Threat of new entrants has been changed to financing structure, to reflect
the importance of capital investment - including VC funding and equity
crowdfunding - for online startups to create barriers to entry and preventing rivals
from entering the market. It is also important to note that access to funding is
essential for scalability - a feature that for companies with limited fixed assets
(like Airbnb or Uber) already lends itself to perfectly.
 Buyer and Supplier Bargaining Power have been updated to Buyer and
Supplier demand. Since, for instance Airbnb hosts can set their own price or
Uber drivers can choose to work during surge pricing hours to a certain degree
bargaining power has been put back in the hands of the supplier. Instead,
companies operating as platform must ensure that they can deliver supply on a
flexible basis to meet demand. The traction within the market and the number of
users are key to the success of the business.

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 Threat of substitutes remains an important consideration, however, this
model specifically examines ability to underprice traditional models (e.g. Hilton
vs. Airbnb), the ability to deliver a unique customer experience, and finally the
importance of rich data gathering in order to inform supply and demand.
Resulting in the proposed model below:
The first case study assesses the importance of VC investment, by comparing the
funding structures of Uber and Lyft; two very similar business models with dissimilar
levels of capital. Within this comparison, we will examine how barriers to entry through

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venture capital funding can manifest in two ways - hard barriers to entry and soft barriers
to entry.
The second case study turns our attention to the importance of trust and the creation of
a user network. From the age of social media, the sharing economy offers platforms the
ability to meet consumer needs more efficiently and effectively (Biswas, 2015). Airbnb is
a standout example of this, with remarkable expansion the platform now boasts over 155
million bookings in 191 countries. Piggybacking off Craigslist, Airbnb was able to deliver
on safety and quality. Not only has Airbnb managed to ward off similar platforms in the
sharing economy, it has also disrupted the traditional hotel model.
Finally, as in Porter’s Five Forces, the threat of substitutes remains an important
consideration within this model, however, it should be noted that the point of
consideration focus varies slightly - honing in on a company's ability to underprice,
deliver a unique customer experience and better meet demand when compared to more
traditional brick and mortar models. The threat of substitutes examines the role of
regulation, whilst sharing economy companies - like Uber and Lyft - will face the same
regulations, companies following a traditional model often have established routes to
market and even government support in some situations.
Primary data through a telephone interview with PR & Marketing Manager at JustPark
will provide information to assess the competitive situation using the adapted Porter’s
Five Force’s framework. As is the case with the market leaders, JustPark has cultivated
trust, capital and adoption of their platform.
Venture Capital Financing and Barriers to Entry
The importance of venture capital in the success of small startups cannot be
understated. Increasingly becoming a more popular route to market entry, venture
capital is seen as a way to grow operations as well as develop a customer base. Alex
Stephany, author of The Business of Sharing and CEO of JustPark states that: “venture
funding is crucial to the [start-up] process because a very large amount of capital is
normally required to become a dominant player.”

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In order to raise capital it is necessary to grow quickly but in order to do that it is
necessary to have capital (Jordan, 2014). Quite clearly there is a chicken-egg problem.
Indeed, small startups, especially fast growing and disruptive in nature, have found it
difficult to access funding via traditional routes (Gompers and Lerner, 1999; cited in
Giudici and Paleari, 2000). Equity markets and hedge funds do not consider small
startups for investment due to their significant business risk. (Giudici and Paleari, 2000,
p.154). As such VC saw great opportunities for high return investments and startups
could overcome barriers to entry to facilitate quicker growth. Often the role of VC
extends beyond financing but to ensure the success of these companies with regards to
recruitment, contacts etc.
Typically, companies go through multiple rounds of financing growing at each stage.
Targets for growth are set with each round of financing and if they are met, they will
likely see further investments.
Seed funding is the first stage of investment. This money is usually received from
personal funds, friends, family members or wealthy private investors, ‘angels’ and is
usually used to cover salaries, R&D, prototype and website development etc. This is
followed by Series A financing; the first institutional investment a startup usually receives
and is led by one or more investors. The VC’s will assess the progress made with the
seed capital and if satisfied will provide investment to begin developing management
team. Series B financing again hinges on the progress made with the previous
investment. Typically, much bigger investments occur with technology risk aside, the
focus is on developing clear revenue streams, achieving operational development and
scale and value creation before the Series C round. Considering Series B rounds are
quite sizeable, Series C financing usually occurs at a later date, closer to an IPO (Initial
Public Offering). It is expected at this stage that firms will have achieved operational
efficiency, turnover of profit and perhaps financed an acquisition.
Conversely, equity crowdfunding has given rise to many startups that otherwise would
not be able to obtain VC funding. What is often referred to as sustainable investing, the
platform approach is a gateway for millions of micro-investors and entrepreneurs to
share ideas and capital. The appeal of crowdfunding is due to the increase in social

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media platform which has the ability to generate considerable interest, to inform
investors at all points of entry and allow entrepreneurs to bypass the stages of funding.
Case Study 1: Uber vs. Lyft
One of Silicon Valley’s most intense competitive rivalries exists between two companies
located less than a mile from one another: Uber and Lyft. Both offer an on-demand
transport service aimed at disrupting the traditional taxi market. Available as application-
based platforms on the iOS and Android marketplaces (Uber on Windows), these
platforms gained instantaneous access to a large market of keen consumers.
Competition extends even further between the two, with Uber and Lyft reportedly
canceling as many as 13,000 rides on each other’s services. (Lawler, 2014).
The pricing models of the two companies which have become unique value propositions
run as algorithms ensuring demand for drivers and supply for travellers is balanced. Both
charge a standard rate during off-peak hours (Monday through Friday). However surge
pricing, otherwise known on Lyft as ‘Prime Time’ pricing usually occurs during periods of
high demand (events, concerts, Friday and Saturday nights) and with Lyft is capped at
200%, which is the equivalent of a 3x surge price on Uber. This unique pricing system,
to match high levels of demand with increased prices for suppliers, has come under
huge scrutiny. Uber has no cap in place on their surge pricing which often leaves the
customer overpaying and has led to scrutiny of the brand as opportunists. Dr. Dholakia
supports the argument that customers feel taken advantage of because the extremely
high-charges incurred during times in which they are more desperate for rides.
Interestingly, surge pricing is what has seen so many drivers join the ranks of Uber and
Lyft. The ability to yield a higher profit on the same journeys provided the incentive for
drivers to satisfy demand at its highest level. (Dholakia, 2015).
As Choudary purports, on-demand companies that are more commoditised must use
their data in innovative ways to match additional demand and provide extra incentives to
drivers. For example, in March 2015 following an Ariana Grande concert in New York,
data was collected to examine whether surge pricing had a pulling effect for drivers.
After the concert, demand for Uber’s had increased 4 fold and with a limited number of
available Uber’s, surge pricing kicked in at 1.8x the standard rate. (Hall, Kendrick &
Nosko, 2015).

21. 21
From an economic standpoint, the benefit of surge pricing was that consumers, who
placed optimum value on the available rides, received those rides. The second benefit of
the surge was that driver supply increased 2x during this period. The surge algorithm
successfully allocates a higher per-hour income to drivers in order to lure them towards
areas of high-demand.
Uber’s ability to match their demand with the data they collect enables them to deliver
more accurate and efficient experiences. The focus on the pricing strategy employed by
Uber serves to reinforce the hard approach they took in expansion. Given the many
similarities between these two companies, the analysis of their competitive situation will
identify factors which factors were so crucial in the race between these seemingly,
identical companies.
Venture Capital & Scalability
Venture capital in Silicon Valley has had a significant impact on the competitive situation
between Uber and Lyft. Together, they have combined to raise $11bn over the last 8
years, an astonishing amount considering that out of every 100 businesses venture
capitalists assess, they invest in only one or two (Rao, 2013).
In January 2016, Uber received a financing round from Chinese private equity firms for
$2bn at $48bn valuation. Seemingly, Uber are gathering investors from around the world
- Russian oligarch, Mikhail Fridman recently invested $200m - in order to expand into
new markets. The difference in the level of funding reflects in Uber’s significant

22. 22
competitive advantage; they offer 20 different types of car services to Lyft’s 3. With $9bn
in venture capital backing, Uber’s power and flexibility to scale their operation and
promote their service is unrivalled in the market and reinforces the barriers to market
entry and funding for other startups looking to compete. To the extent that these hard
barriers require significant capital investment in order to be overcome.
Furthermore, the fact that this $9bn is formed by a network of 53 different venture
capitalists, or angel investors as they are aptly titled helps to deliver intrinsic value to the
company in the form of advice, contacts, recruitment, new business development, and
marketing; even lowering barriers to entry by influencing policy. Uber’s list of high profile
investors includes; Bill Gurley from Benchmark Capital, Shawn Carolan, MD of Menlo
ventures, Jeff Bezos, CEO of Amazon and Shawn Fanning Former CEO of one of the
first P2P companies, Napster. Interestingly, Napster- a music sharing service- was shut
down by court orders in 2001 for violating copyright laws.
However, with only a limited number of high profile venture capitalists that each of these
two companies are vying for. Uber’s $7bn funding advantage has allowed them to gain
first-to market advantage over Lyft in major cities and has legitimised their brand and
enabled them to develop a loyal and returning customer base in these foreign markets.
In online marketplaces that connect peers, “typically, there are strong first-mover
advantages,” says Jeff Jordan, a partner at Andreessen Horowitz.
Lyft on the other hand, has focused the majority of their capital investment on doubling
down in the US markets, showing a preference to get it right in their home market and
not have to fight regulators on the global scene (Somerville, 2015). One could argue that
Lyft is ‘piggybacking’ on Uber who continue to fight regulators on the global scene. We
will explore the role of piggybacking further when examining Airbnb’s parasitic piggyback
off Craigslist’s servers.
Comparing Uber and Lyft’s financing structure is essential for understanding the barriers
to entry that can be created in the startup market, and how companies maintain their
competitive advantage. Arguably, one of the most notable differences between these
two companies is the sizeable gap between what they have been able to raise in VC
investment and how this reflects with their corporate goals.

23. 23
Uber, who we know have pursued hard strategies for growth, have been successful with
scale; however, in Lyft’s attempt to dominate the home market they have fostered a
company culture based on close relationships with both customers and drivers.
Ultimately, we must acknowledge the role of trust in the sharing economy and it is
discussed later in this section; however, the positive feedback loop created by Lyft
through this culture is likely to have strong network effects in the long term. On top of
this, Uber despite operating losses of $1.7bn on $1.2bn revenue from the first to the third
quarter of 2015, plan to use further venture capital to expand its services in China, India
and South-east Asia. (Bloomberg, 2016) This is because it is not uncommon for tech
companies that are in the red to go public (Kosoff, 2015).
The Silicon Valley Venture Capital culture is one that seeks ‘rapid growth’. When a
company passes the $1bn mark, they are labeled ‘unicorns’. Uber fits this description
and has benefitted greatly from it with a $50bn valuation; Uber tends to feature regularly
in the press and has created a public perception of a corporate giant. This perception
creates an image of consistency for the consumer who continue to see it as the most
popular and reliable on-demand taxi company. And with a network 1.5 million drivers
worldwide, they have established brand loyalty in many of the biggest cities including
London, New York and San Francisco.
The ‘old guard’ of Silicon Valley including Microsoft, Dell, HP etc. have somewhat loss
relevancy in the mass-adoption of the online platform. Companies such as Facebook,
Twitter, Snapchat and Instagram have taken only 10 years to reach equivalent
valuations and for sharing economy startups, growth has been even faster.
Indeed, scalability has been achieved in part due to huge capital investments however
this also has been achieved through the platform model. Typically, companies start off
small, acquire talent, assets, and customers and from that point, attempt to expand and
scale once they have sufficient capital to do so. However the new model for digital
companies shortens this process significantly through the platform. Increasingly, we are
seeing small startups gain traction and market value with as few as ten employees, and
occasionally with just a small number of coders.

24. 24
These backyard startups might give the impression of low barriers to entry, after all
designing your own platform or marketplace has never been easier. However, what
Airbnb and Uber show us is that access to substantial venture capital backing can create
essential barriers to entry, preventing clone companies from cropping up. Nonetheless,
the ability to set up operations at minimum cost simply through buying their domain in a
certain country has garnered a negative response from regulators who demand that tax
and employment codes be followed (Isaac & Singer, 2015).
Whilst the importance of the platform has been highlighted, the rise of smartphone
usage has given way to the app-based platform. One of the biggest benefits of the
application for Uber is the ability to track your driver providing a more customer-oriented
experience. Similarly, London-based delivery startup, Deliveroo, has recently launched
an app with GPS-tracking of the delivery drivers. The service is only available through
the application and is likely to have been the result of Series D funding of $100m in
November 2015.
A case can be made that Airbnb was able to scale even more efficiently than Uber. Uber
scaled through the pursuit of aggressive expansion whereas Airbnb focused their efforts
on delivering a more personalised experience. Building a strong community of users and
an expectation of trust through the profile systems has created barriers to entry for
potential platform competition. Author of Platform Power (2013), Sanjeet Choudary
reinforces this idea in an interview with Brook Manville:
“We’ve seen that different platforms have different degrees of dependence on
community. When market exchange is more commoditized—like Uber or Lyft providing
taxis to customers—strategy calls for managing economic incentives. But when a
business is more individualized and varied, say apartments in Airbnb or craft sales in
Etsy, strategy demands more attention to culture across the markets and ecosystem.”
Having raised ‘only’ $2.39bn, Airbnb now operates in 34,000 cities in over 191 countries,
Airbnb’s venture capital base is smaller but its effects have had a transformative power
for the platform. Whilst it should be acknowledged that significant capital has gone
towards fighting local market regulations, Airbnb’s focus on soft strategies like
community creation, marketing etc. has reinforced its perceived safety and trust. The

25. 25
below graphs highlight the clear link between venture capital and the increase of listings
on Airbnb’s site.
Whilst this reaffirms the importance of funding in the overall growth of the business, it
also reveals one of Airbnb’s key supply-side strategies: growing the user network to
ensure future scalability and their transition from a couchsurfing website to global
lifestyle brand of collaborative content makers. In the next case study, we will further
examine the supply-side strategies that Airbnb deliver to maintain a strong user base.

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The User Network and Trust
In this section we will explore how the creation of trust is essential element for building
the user network and the positive feedback loop, as well as determining supply and
demand.
If the 20th
Century can be considered the era of ‘conspicuous consumption’ defined by
an asset heavy-lifestyle, Botsman (2009) would argue that the 21st
Century has seen a
shift towards ‘collaborative consumption’ defined by a cultural shift from ‘me’ to ‘we’
(Botsman, 2009). She also points to the role of “network technologies in enabling the
sharing and exchange of assets […] in ways and on a scale never possible before.”
(2013).
Powered by the digital revolution and the ability to connect the wants and needs of
consumers around the world, the sharing economy has repurposed one of the oldest
human behaviours (Rinne et al. 2013: 3). However, the notion of staying at a stranger’s
house, or taking a ride in a stranger’s car inherently depends on a strong level of trust
and Botsman asserts in a 2012 Ted Talk that “the currency of the new economy is trust.”
Choudary (2013:76) also argues “marketplaces are built on trust and thrive on trust.
Transactions require participants to trust each other.” And finally, Gansky (2010) refers
to “the triple bottom line” and the ability to draw on compelling factors including eco-
friendly commerce, greater profits, and richer social experiences.

27. 27
The adapted Porter’s framework emphasises buyer and supplier demand. In order for
the marketplace to experience continued growth, more hosts need to list and more
travelers need to book.
Using our adapted framework, a supply analysis for Aibnb reflects the following considerations:
Existing network and
number of potential hosts
 Existing network within Craigslist
 Rapid expansion of host listings in a short period of
time also shows demand for this service (see Paris
growth maps)
 Soft techniques such as marketing and social media
help reinforce brand loyalty
 Free to become a host
Ability to deliver flexibility  Ease of platform use, bookings can be made at the
last minute
 Hosts can set their own prices and availability to
meet their schedule
Reputation and
trustworthiness
 Safety and quality checks put into place through a
ratings system, conflict resolution across 370
countries
 Investment in photography to give users better
chance of booking their space and travellers a better
sense of what they are booking
 Ability to rate and review in a simple system
 Linking community to gain trust – you can see if
friends have stayed before or if you have a mutual
connection (e.g. alma mater)
As previously discussed, the notion of staying in a stranger’s apartment seemed too
foreign and unsafe, and many markets purported that this trend simply wouldn’t pick up.
What’s more, where would Airbnb find its network of hosts to list on the site and how
would it attract the hosts to list on its site? Francois Briod, CEO and co-founder of
TawiPay - an online comparison website for international money transfers, states that:

28. 28
“in the early days, Airbnb was facing a problem of critical mass on the supply and
demand sides; a typical problem for multi-sided platforms.”
By piggybacking off another site, as Airbnb did with P2P website Craigslist, they can
scrape a network of users who are already interested in what Airbnb has to offer.
Originally provided by P2P website, Craigslist’s offered users the ability to rent out their
space. However, the site was known for spamming and scamming, meaning trust and
reputation were low. Airbnb’s proposition recognised this and built in checks and balance
into their service to deliver a safer and more reliable service, and now it has one of the
highest review rates among marketplaces.
Choudary (2015) highlights that although “Airbnb is an example of a player in a high-risk
category” it succeeded based on its “ability to curate its participants.” It also takes
additional measures to build trust, including having professional photographers certify a
host’s listing. Founders Brian Chesky, Joe Gebbia and Nathan Blecharczyk realised
early on that professional photos accurately representing the accommodation, would
prove vital in getting consumers to book.
As such in an interview with LinkedIn CEO Reid Hoffman in 2015, Chesky describes
how they went to many of their NYC listings and took photos of properties (McCann,
2015). Today they employ photographers in 383 cities and essentially run a photography
program within the Airbnb business. They claim that listings with professional
photographs were booked twice as frequently than those that hadn’t been photographed
professionally. Clearly, professional photography was an element of building trust with
the community for Airbnb – allowing the traveller to have a clearer sense of what they
are renting.

29. 29
Threat of Substitutes and the Importance of Flexibility
Clearly, the online marketplace has been successful in disrupting traditional
industries. Airbnb’s ability to eat into the hotel profits, reportedly negatively affecting the
hotel market in Texas by 8-10% (NASDAQ 2015), clearly highlights its potential to be
disruptive but also that consumer preferences have changed. As discussed in the
importance of the user network, trust has played an important role in creating more
transactions within the sharing economy. Nonetheless, Airbnb’s popularity signals its
shift from a lodging website to a global lifestyle brand. As Gansky (2010) states “it’s cool
to rent” and Airbnb’s selection of over 500 castles and 200 tree houses only add the to
desirability of being part of the community.
Airbnb’s performance already reflects significant disruption in the traditional hospitality
industry. To understand just how disruptive they have been, Airbnb average 425,000
guests per night, which equates to 155 million bookings per year. Meanwhile century old
Hilton with more than 540 properties in 78 countries has an annual occupancy rate of
127 million customers per year. In eight years, Airbnb have topped Hilton’s sales by 22%
with their ability to produce a network of properties (PWC, 2015). Not only does this
mass adoption tell us that the Airbnb model has the necessary ability to scale but also
that consumer preferences are tipping in their favour.

30. 30
Flexibility in regards to Airbnb extends far beyond the capacity to choose when to rent
out your accommodation. Regularly, Airbnb hosts will also use the platform when they
travel, creating a powerful positive feedback loop. It can be argued that consumer
preferences have led to a predilection for apartments over hotel rooms. The added
advantage is more choice. Travellers have the option to stay in a wide variety of
apartments, in a range of different locations. This added flexibility contributes to the
Airbnb lifestyle where providing the consumer with choice is a key-value adding factor.
Airbnb’s local and ‘hip’ image only serve to reinforce Hilton’s corporate image of
inflexibility. With a model that requires a large amount of fixed assets, Hilton must build
more hotels or increase prices of their rooms to add generate more revenue. Whereas
the cost of sign up to Airbnb is free and the loss of a host from the site reflects no real
financial loss.
P2P providers tend favour more flexible transactions benefitting from financial gains from
under-utilised assets and the potential to be your own boss. However the rise of the
‘micro-entrepreneur’ since the financial crisis has regulators questioning whether the
labour of the sharing economy falls under the classic definition of an ‘employee’.
Innovation in workforce flexibility similarly followed economic recession in the 1930’s.
After the onset of the great depression, W.K. Kellogg recognised the need to cease our
collective hyper-consumption habits and as such made alterations to the traditional 8-
hour shift/40 hours a week. Instead he proposed that shifts be broken up into five six-
hour shifts. The loss in ten hours a week of work was felt by the families financially,
however, it opened the door for additional jobs as well as increased productivity.
Below we can see the average costs of hotel rooms and Airbnb rentals across the major
cities in Western Europe. In just 8 years, Airbnb has not only been able to reach all of
these major cities; they have been able significantly undercut the hotel prices. In
London, Paris, Berlin, Madrid and Vienna, Airbnb prices are almost 50% cheaper on
average.

31. 31

32. 32
The next graphic shows the mean cost of hotels and Airbnb rentals in the major US
cities. Again, in all but five cities (San Diego, San Francisco, Austin, New Orleans and
Nashville) Airbnb have price leadership.
The financial flexibility provided with the ability for hosts to set their own price means that
there is a fair balance between price and expectation and those prices remain
competitive. On average Airbnb is cheaper than a stay with a traditional chain hotel in 16
of the 22 cities as shown in the graphic below.

33. 33
For customers with price sensitivity, this would be seen as a huge advantage and
incentive to switch. Interestingly, urbanised cities with a high-population density offer the
biggest cost-savings. This could be attributed to the types of properties available in
different cities. For example, in New York, small apartments feature more heavily which
lend themselves to the Airbnb model.
Airbnb and other successful platforms, most notably Uber, can be considered strong
threats to the substitute of traditional brands. However, ongoing regulatory threats have
become a significant concern.

34. 34
With the London launch of Uber in June 2012 there has been significant backlash
against the on-demand taxi platform. Clear attempts have been initiated from the (LTDA)
Licensed Taxi Drivers Association to banish Uber from London, however consumer
preferences have shown a shift towards the cost-savings and numerous other benefits
Uber affords i.e. paperless transactions, GPS tracking and driver reviews.
In order to understand how Uber has transformed the competitive landscape, I
interviewed 30-year veteran black cab driver, Jim Bishop. Jim articulated the many ways
Uber has negatively impacted his career including fewer customers, financial loss and
an increase in hours worked to maintain a stable income.
In response to widespread Uber adoption, the LDTA launched rival app ‘Gett’ which
matches customers with black cabs. Moreover, in February 2016, one third of London
Black cabs (8,000) filled the streets of Whitehall, Westminster and the West End causing
traffic to come to a standstill. These actions are being pursued in hope of securing future
revenues and the integrity of a longstanding cultural icon.
As new and innovative marketplaces emerge, new laws and regulations will have to be
introduced. As a result, considerable uncertainty faces the likes of Uber and Airbnb, who
have seen such regulations slow down growth in foreign markets. These regulatory
pressures are likely to increase in time. Airbnb has already faced resistance in New
York, where laws state that an entire apartment can’t be rented out for less than 30
days. Unfortunately for Airbnb, New York is a huge market and this is exactly the sale
that Airbnb profits so much from.
Indeed there may be further political regulations for these online marketplaces. In which
case the threat of substitutes becomes the traditional models i.e. Hilton or London’s
Black Taxi. It is also likely that we will see innovation or new models from the traditional
players in the form of price competition and in the hospitality industry a rise in boutique
hotels; servicing fewer than 40 customers with an increased emphasis on personal
experience.
Airbnb and Uber should not discount spinoffs Oasis Collection and arguably for Uber;
Lyft.

35. 35
Implications: JustPark
Leveraging one’s assets has not only allowed peers worldwide to share their homes,
JustPark has been providing those in need of parking to book spaces – through their
platform or mobile application – from homeowners and parking garages, since 2006.
In a telephone interview I conducted with Sam Mellor, PR & Marketing Manager at
JustPark, he discussed their marketing strategy, which targets national media through
tech and business reports, PR releases and direct mail. However, critical to their ability
to reach a national audience was to secure capital investment. In February 2015 they
raised $5.71 million on CrowdCube. Additionally, they obtained seed funding of
$250,000 from BMW iVentures in 2011 and proceeded with a Series A round from Index
Ventures, Europe’s leading VC investment firm. The financing structure of JustPark
shows that VC and equity crowdfunding are not mutually exclusive, rather they have the
capacity to collaborate.
The capital investment in JustPark has allowed them to scale significantly since 2011.
Originally known as “Park at my house”, they are now Europe’s leading provider of
bookable parking spaces with over 180,000 parking spaces in the UK and parking
available in 50 countries. This is largely organic growth; however in 2015 it accounted for
£90,000 of business.
JustPark has seen a steady increase in line with the capital they have acquired. Mr.
Mellor explains, “In 2011, we had a steady user base in the 10’s of thousands and in
2014, when I joined, we had 500,000 users. However the majority of growth has taken
place in the last two years, with JustPark currently servicing over a million customers.”
Capital investment has played a substantial role in acquiring users. Moreover, it allowed
JustPark to recruit new talent and launch the Android version of their mobile application.
This was a tipping point for the company as it gave them access to a market place with
1.4 billion users.
Mr. Mellor additionally highlighted that building supply of parking spaces has been a
significant challenge. The market leaders in the sharing economy initially struggled to
build supply side networks, however the role of capital investment in the adapted
framework is fortified here. Airbnb, Uber and Lyft combined have raised over $14bn in

36. 36
VC and this played a principal role in developing a combined user base of over 3 million
peer providers.
Moreover, as discussed in the interview: profile, review and rating systems provide as
much information as can be gathered from a face-to-face interaction. As the adapted
Porter’s model theorises, building trust and providing social proof is a key driver of user
adoption for JustPark.
The threat of substitution to traditional players that many sharing economy companies
pose, alongside governmental pressures, has seen an ongoing battle between market
leaders and regulators. Mr. Mellor reports that because JustPark works in collaboration
with established car parking businesses they have seen few regulations by facilitating
transactions for traditional companies such as NCP, in this industry. Additionally, he
highlights the importance of financial flexibility as a driver for user adoption. Those
located within dense urban areas, stadiums or tourist attractions are leveraging their
valuable spaces for financial gain.
The link between the threat of substitutes and the ability to provide flexibility as proposed
in the updated model, is less clear. With the NCP partnership as well as spaces in 250
hotels and 20 schools, drivers can pre-book parking spaces from a range of different
providers. Their partnerships are proof that sharing economy companies can work
closely with the traditional players and that political regulations should be formed with
both in mind.

37. 37
Conclusion
This paper has set out to establish the key drivers for success in the fastest growing
economy in the world using an adapted model of Porter’s Five Forces framework.
Through the analysis of case studies it is clear that access to venture capital, a solid
user network, and the ability to neutralise the threat of substitutes is essential for
becoming a market leader. In adapting Porter’s Five Forces to consider these factors we
can better assess the success of sharing economy companies and the issues that they
might face. Case studies such as Uber and Lyft, Airbnb and Hilton not only allowed to
unpick success factors and apply these to the updated framework but also to form a
better understanding of how each consideration is interlinked. Applying this framework to
JustPark reveals interesting and perhaps unusual success factors – such as a mix of VC
and crowdfunding, as well as collaboration with traditional companies to overcome
regulation and create a mutually beneficial relationship.
The disruptive nature of companies within the sharing economy indicates an
unprecedented wave of disruption and an ability to leverage new technologies. Powerful
network effects achieved through the platform have re-defined the competitive
environment. Whereas capital investment might have been used to build out the logistics
of traditional firms, the platform model eliminates this need. The new focus is on
attracting users through social media marketing and maintaining the user base through
trust and providing a positive experience.
The model can now be applied to other SE companies to see what barriers they have to
overcome, what strengths they can draw upon and how funding will affect their ability to
scale. Implications of the adapted model will hopefully stimulate more research, and
further adaptations of the framework in this paper; to include the different sharing
economy business models.
With the expected growth of this industry set to reach new pinnacles for the capitalist
economy, market leaders and disruptors are likely to see an increase in user adoption.
However, the longevity and mutual-success between new and old companies hinges on
regulations promoting collaboration and ensuring a sustainable competitive environment.

38. 38
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