the legitimacy of the sharing economy

The legitimacy of the

: characterising its business side

PhD candidate: João Miguel O. Cotrim

Supervisor: Prof. Francisco Nunes

Ph.D. in Management – specialization in Human Resources

and Organizational Behaviour

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Methodology

Study 1

Research question:

How really legitimate it is to refer to SE as a real new category?

Methodological Strategy:

(1) Literature Review on category emergence, non-emergence and

legitimation; (2) Collection of documental data (opinion-making articles, interviews to experts, testimonials from Directors of

companies labelled as “SE” ones and specific reports around SE).

Study 2

Research question:

What types of business models and its components are used by SE companies?

Methodological Strategy:

In-depth study of a number of cases that represent a good diversity of SE business models. Composed of two phases: (1) A general overview, based on information available in public sources that allow to

look at the diversity and similarities; (2) A much deeper analysis of a more limited

number of cases.

Figure 1 – Studies for the purposes of this research project

Methodology

Study 1

☞ Research Question: How really legitimate it is to refer to SE as a real new category?

☞ Methodological Strategy:

1) Literature Review on category emergence, non-emergence and

legitimation; 2) Collection of documental data (opinion-making articles, interviews to

experts, testimonials from Directors of companies labelled as “SE” ones and specific reports around SE).

Study 1

Discussion

How new market categories emerge and legitimacy is construed?

In recent years, scholars have addressed questions of how new market categories emerge (Kennedy, 2008; Khaire & Wadhwani, 2010; Navis & Glynn, 2010; Santos & Eisenhardt, 2009).

There may be certain cases where the establishment of new market categories may flop if they do not gain legitimacy (Navis & Glynn, 2010), cultural recognition (Wry et al., 2011) or understanding from consumers or investors they seek to influence (Dowd, 2003).

Study 1

Discussion

What is Legitimacy?

Suchman (1995, p. 574): it is originated from the perception that a venture is “desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and definitions”.

It is often achieved through isomorphism, in other words, conformity to institutionalized preferences (Deephouse, 1996), which means that entrepreneurial ventures must face established and sometimes necessary constraints (Rindova et al., 2009).

Study 1

Discussion

The appearance of new markets brings along new opportunity spaces for entrepreneurial ventures and, despite of their attraction, they also are filled with a heavy weight of uncertainty as technologies, products, or processes are “untested and incompletely understood” (Tushman & Anderson, cited in Navis and Glynn, 2010, p. 439), product definitions are unclear or unknown (Hargadon & Douglas, 2001), and the nascent market category is characteristically ambiguous or ill-structured (Santos & Eisenhardt, 2005).

Study 1

Discussion

This uncertainty becomes more condensed when the entrepreneurial firms entering in the new market space are also new. Meaning: new ventures are often incompletely formed, deficient in resources, and lacking clear or coherent identities, and consequently, the achievement of legitimacy can be a particularly critical challenge for new ventures operating in new market categories (Navis & Glynn, 2010).

Study 1

Discussion

How the legitimation of a new market category is construed? (Navis & Glynn, 2010)

1.Through credibility:

Results from the interaction of actors internal to the category, i.e., the strategic and symbolic actions of entrepreneurial organizations, and actors external to the category, i.e., the interested audiences who judge its feasibility, credibility and appropriateness;

2.Through sameness or close substitution:

When two or more products or services are perceived to be of the same type or close substitutes for each other in satisfying market demand; the organizations producing or supplying these related products or services are grouped together as members of the same market category;

3.Through distinctiveness:

Although all members share the collective identity of the category, not all members are equivalent in the category.

Study 1

Discussion

How the legitimation of a new market category is construed? (Aldrich & Fiol, 1994)

4.Through cognitive legitimation: The level of public knowledge about a new activity – the highest form of cognitive legitimation is achieved when a new product, process, or service is taken for granted. 5.Through socio-political legitimation:

The public acceptance of an industry, government subsidies to the industry, or the public prestige of its leaders.

Study 1

Discussion

Measuring the legitimacy of SE as a new market category

1.Determinant: sameness or close substitution

•Are there any two or more products or services being of the same type or close substitutes for each other within the supposed “SE category”? The answer to this is yes (thus, validating Navis & Glynn, 2010 foundation).

Schor’s (2014) research validates this answer:

There are a number of services that are perceived to be of the same type in satisfying market demand that may be grouped together as members of the same market category. Schor calls this as “four main types of SE activities”:

Figure 2 – Sharing Economy main categories of activities (Schor, 2014)

Recirculation of goods

• Proliferation of unwanted items. Example: eBay and Craigslist since 1995.

Increased utilization of durable assets

• Products or properties that are not used to capacity (e.g., spare rooms and lawn mowers). Examples: Zipcar, which places vehicles in convenient urban locations and offered hourly rentals; Relay Rides (car rental website), Uber (ride service); Boston’s Hubway or Chicago’s Divvy Bikes (bicycle sharing); Airbnb (lodging sector).

Exchange of services

• Exchange of services – Services are traded on the basis of time spent, according to the principle that every member’s time is valued equally. Example: Banco do Tempo.

Sharing of productive assets

• This category consists of efforts focused on sharing assets or space in order to enable production, rather than consumption. Examples: hackerspaces, which grew out of informal computer hacking sessions; makerspaces, which provide shared tools; and co-working spaces or communal offices. Example: LX Factory.

Study 1

Study 1

Discussion


2.Determinant: distinctiveness

•Are all members equivalent within the SE category? The answer to this is no (thus, validating Navis & Glynn, 2010 foundation).

Schor’s (2014) research validates this answer:

The author describes the distinctiveness of the members of the SE category according to (i) market orientation (for-profit vs. non-profit) and (ii) market structure (peer-to-peer vs. business-to-peer):

Type of Provider

Peer to Peer Business to Peer

Platform Orientation

Non-Profit Food Swaps

Time Banks Makerspaces

For-Profit

Relay Rides

Airbnb

Uber

Cabify

Zipcar

Figure 3 – Archetypes of sharing economy activities (Schor, 2014)

Study 1

Study 1

Discussion


3.Determinant: credibility

•How do people (target consumers) perceive the credibility and appropriateness of the entitled “SE products and services”? •Does their behaviour towards such products and services validates any legitimacy whatsoever to name SE as a true market category?

Study 1

Discussion


A. PwC (2015) report on assessing the SE in the United States of America (USA) market concludes that whether borrowing goods, renting homes, or serving up micro-skills in exchange for access or money, consumers are showing a robust appetite for the sharing-based economy, thus, inherently already giving

credibility towards it.

Study 1

Discussion


B. Kim et al.’s (2015) study indicates that people (consumers in the marketplace) are demonstrating an already well-articulated behaviour (in judging their adherence to products and services associated to what as been labelled as SE ones), which leads to conclude, from an “actor external to the category”

perspective, that there are consumers that are giving credibility to such

products and services.

Figure 4 – Theoretical model of why people give credibility and participate in the Sharing Economy (Kim et al., 2015)

Study 1

Study 1

Discussion


4.Determinant: cognitive legitimation

•What is the level of public knowledge about the entitled “SE companies”?

☞Both PwC’s (2015) report and Kim et al.’s (2015) study supports that the public in general is increasingly becoming familiarised with products and services associated to what as been labelled as SE ones.

So, yes, it may be deduced that there already is public knowledge about SE activities.

Study 1 Discussion


5.Determinant: socio-political legitimation

•What is the level of public acceptance of SE and its collective members?

☞This study cannot find a precise answer in validating the legitimacy of naming SE (and its collective members) as a new market category. Reasons:

Resistance from certain key stakeholders, the general public, governmental officials in fully accepting the legitimacy of some members (ventures) of this SE market category.

⇣Experts, Cannon and Summers (2014) for example, say that SE companies still need to overcome various obstacles in a heavily regulated market.

⇣Taxi drivers’ community vs. Uber (in Portugal, Brazil and France, for example), which on the other hand, delays governmental officials in making an official stand and provide clear legal basement (and legitimacy) to such activities. David Plouffe’s (Chief Adviser at Uber) words (CNBC, 2015) meet the idea that there still is a political legitimation struggle in growing the SE: “the challenge to Uber's growth is the need to convince governments to embrace the ride-hailing app”.

Research results From a theoretical perspective (taking into consideration the literature review): Considering Navis et al.’s (2012) foundation that if a core identity frame fails to emerge for

the category as a whole, even though there may be significant advances in other areas, a new market category may still fail to emerge, it cannot be concluded that the SE already is a consolidated new market category, because it still lacks in an identity frame: socio-political legitimation.

From an empirical perspective (analysis of other secondary data sources):

SE still isn’t a consolidated new market category. Even though PwC’s report suggests that actors (consumers) external to the SE category are giving credibility to SE products and services, which confers legitimation to the SE from that identity frame, testimonials from experts and Uber’s Chief Adviser confirms that there still are many challenges for SE companies to gain the identity frame of socio-political legitimation from certain key stakeholders, such as governmental officials and regulators.

Research results

Figure 5 – Theoretical proposal

model of the legitimacy of SE as

a new market category

the legitimacy of the sharing economy

Presentations & Public Speaking