While the electrification of vehicles plays a central role in addressing the emissions issue, EVs alone cannot solve all the contemporary urban mobility issues on the table. It’s usually short-sighted to say more of just one thing can fix a complex issue. For example, we know that adding more traffic lanes does not fix congestion. We need multifaceted solutions, and rolling out shared mobility is a big piece in this puzzle.
But getting shared mobility services where it’s sorely needed—suburban and rural areas—is not all that simple. It takes an understanding of the nature of the sharing economy and what drives it to understand how it can be implemented to tackle these urban mobility issues and the externalities they bring.
Understanding the (not so) New Dawn of the Sharing Economy
The phenomenon of sharing is nothing new. In fact, sharing was a leading mode of usage in the agriculture era. But as cities grew with industrialization, residents became more anonymous and distanced. This brought two key factors that lead the way for the ownership phenomenon: trust declining and status expression.
It is only more recently with digital communication that gave birth to digitized community platforms such as social networks that society has entered a new era of connectivity. Smartphone technology enables ease of use and connectedness everywhere and at any time. Once enhanced with rating concepts, a mix of enablers have given rise to the sharing economy.
The switch from ownership to sharing we see today is propelled by four core drivers:
Millennials and younger generations have not gained many of their assets yet; they tend to prefer renting and do not mind the discomfort of not having assets readily available.
Middle-age population, when replacing owned assets, similarly do not mind renting rather than buying.
Technology and business model innovation enable continuous increased quality and availability of sharing, propelling better accessibility, higher usage and utilization, and decreased prices.
Consumers at large are realizing the environmental impact of their consuming choices.
The Evolving State of the Sharing Economy
In all of this, it is important to distinguish the difference between the sharing economy and shared (e.g. transportation) services. A sharing economy starts with consumer to consumer, or P2P sharing, and aims to offset the cost of the asset, rather than making a profit out of the asset investment. On the other hand, shared services are a business model which seeks to bring business innovation enabled by the usage-over-ownership trend and make profit.
Between the sharing economy and shared services lies the gig economy. The gig economy allows people to break away from 9-to-5 jobs and enables a more flexible, be-my-own-boss work structure. This new type of work is and continues to revolutionize the labor market, pulling people away from industries being automated, like manufacturing and agriculture, to service industries.
This type of work also enables a relatively easy labor market entry for young people entering the productive age or new residents to the city. Moreover, in marginalized or lower-income communities, it has the great potential of lifting people out of poverty—if the gig economy and shared services make their way to these suburban and rural areas.
Because it is a new and evolving model that fits neither into the employment nor the freelance boxes we know, we are still in the phase of finding the right level of regulation to effectively prevent labor exploitations and enable equality and equity. And, the context of the gig economy will only continue to evolve with automation. For example, fully automated vehicles, particularly robotaxis, will totally shake up the gig economy model in urban mobility.
Innovation is Attracted to High Demand Areas, Which Usually are Not Rural Areas in Case of Shared Mobility
The implication of diffusion of innovation theory is that in order for an innovation to succeed, it needs to start with markets with the largest potential and therefore higher probability of success.
The latest sharing economy concepts and models are fueled by digitalization and automation. This makes it easier to scale. Such efficiency and scale can also bring negative side effects, like increased unneeded consumption and environmental impacts.
As a company scales, it can enjoy a price decrease, which can be followed by a market increase, opening to new, more price-sensitive market segments, beyond just the domain of affluent customers.
It is the early innovators who pay for the scalability, which opens the door for the early majority of customers to engage in their service. And the early majority pay the initial price so it can be more affordable for customers later on. It boils down to how the “success” is defined and who “invests” into a chance to achieve it.
Most innovations succeed with the aid of venture capital. As venture capital’s primary goal is financial return on investment (ROI), they naturally seek to invest into innovations that can impact large enough markets at the fastest time possible.
With this reasoning, new innovators will first implement their shared service in a place where there is higher market volume and more potential to get traction—in urban centers rather than rural or suburban areas.
With a financial return on investment focus, rural area residents would in many ways be forced to play the late majority role and bear fruits of innovation at late stages.
Can Shared Services Ever Work in Suburban and Rural Settings?
Not every business model that works for an urban area will work for a suburban area. But, when there is room to grow, these inner city businesses naturally will tap into the long tail of outer city, suburban, or rural opportunities.
The current problem that prevents shared economy businesses from entering suburban areas is their financial ROI based targets and motivation. Compared to denser urban areas, there is naturally a narrower cost-benefit. Or maybe no economic viability at all. And therefore, business opportunities to operate in suburban and rural areas rarely win over other business opportunities.
Economic viability is about finding an answer to the question: “How can we bring innovation driven by financial ROI to a rural area where there is neither high demand yet, nor economic potential to deliver the expected financial ROI?”
The adoption of such innovation will happen and will be exponential although even with exponential thinking, it is hard to estimate how soon it would start bringing its fruits. To crack this question, we must find a way to leverage the business potential.
The Economic Magic Wand Needed to Get Shared Services in Rural Areas Sooner
More specifically, a leverage is needed to level the field of business potential. Rural areas, compared to urban environments, represent lower residential density which implies lower demand. They also imply longer travel distances.
All of that means higher per-unit cost and in order for the unit economy to work in such areas, the selling price of a product or service is then naturally higher. Higher prices result in less demand, in a market which already has limited volume potential.
That brings economic double trouble. This trouble applies to any shared transportation—whether it is mass transit or other new forms of shared transportation such as bikesharing, carsharing, taxi, or on-demand transport.
Just how can we increase volume in rural areas? Econ101 to the rescue; the law of supply and demand tells us that lowering the price increases demand. However, the same law also means the cheaper the price, the less motivation there is for sellers to supply to such markets. Keeping the supply motivated while demand at optimal volumes creates a gap which cannot be bridged without external intervention, i.e. financial subsidies.
Unfortunately, it is not as easy as just deploying subsidies to decrease the price, because price is not the only parameter upon which people make their decisions. Comfort is another one. Habits and barriers to change are another.
The problem to solve is how to motivate enough residents to switch to the shared services. If we learn how to do so effectively, then it will be just a matter of finding the right mix of such services for an optimal deployment of subsidized capital.
Motivating Beyond Subsidising
There’s more we can do, though. To stimulate supply and demand beyond subsidizing the price, we should turn our attention to negative externalities and accountability for their costs.
We know that it is not only manufacturers who create negative externalities in the form of carbon emissions. The transportation and services sector are a big producer of carbon emissions.
The European Emission Allowance System is extending its targets beyond the energy and manufacturing sectors to the tertiary sector, like aviation and maritime operations. There are other industries which will need to accept responsibility and penalties for their negative externalities and accept bearing such non-direct costs as part of their business model.
And because consumers make their own choices, maybe it is also them who should be accountable for the real cost of their consumption.
Because if I drive my combustion engine car to the city in the morning, it brings an unintentional string of negative side effects. I am producing emissions and noise and adding to the congestion that affects residents who live or work alongside the route I take.
My contribution to the congestion also affects mass transit riders who commute to the city at the same time. Such transit delays, in a domino effect, also affects transit commuters who now must wait longer for their bus.
Furthermore, parking my car blocks a piece of land for a whole day until I drive it back home. This space could have been used by cyclists or residents enjoying their coffee with a nice, non-obstructed river bank view.
If I drive my EV vehicle to the city, I may not produce emissions but I am still adding to congestion just the same and taking up urban space that could have better use.
If I use an EV carshare vehicle for my daily morning commute to the city, I decrease, but not eliminate, the urban space that the car uses while parked. However, I still contribute to congestion more than if I had used my bike or even shared electric moped.
Subsidies and Disincentivization Go Hand-in-Hand to Drive Adoption of Shared Services in the Suburbs
While any shared services are better than using a private car and should therefore be part of the mix of future sustainable transportation, some are better or more relevant than others, at different times or locations.
And who is to decide which form of transport is the right one to use at the time of need? Both the service provider and the consumer need to take responsibility.
Governments need to start looking into tools for quantifying the cost of negative externalities on the consumption side and including this cost into pricing models of service providers or consumers. And such cost quantification needs to look at the problem from multiple angles. Negative externalities are not only about emissions and climate change. Environmental impacts are also relevant in areas like resource scarcity and renewability or livability and quality of life—all of which are impacted by private car use.
Subsidizing shared services, ideally electrified ones to bring the greatest possible impact, can help their introduction to rural and suburban areas by offering users a lower price, but we also need a disincentivization framework like the European Emission Allowance System to address the string of negative externalities produced by private car use. Leveraging subsidies and such disincentives can then work in tandem to help shift commuters to more sustainable modes of transport that will make our cities and towns more liveable.
Juraj Atlas’ Bio
Juraj is on a mission to reduce the number of private cars in our cities. He started when he co-founded Liftago, the largest Czech ride-hailing company, only to learn that ride-hailing has added more cars in total to our streets. So he went on and founded Mileus, an intermodal solution that brings together the best of public transit and ride-hailing. This enables taxi & ride-hail operators to grow their business and gives commuters a comfortable and viable alternative to using their own car. When he’s not assessing urban mobility, one can find him enjoying bike rides in the bohemian countryside with his family and friends.
