As obvious as it appears now, the sharing economy didn’t meet with instant acceptance. The rise of Airbnb is instructive. When founders Brian Chesky, Joe Gebbia and Nathan Blecharczyk approached investors in 2008, Chesky said they were told the market for shareable real estate was too small. To help pay for the venture initially, they raised money by selling collectible cereal.

Later that year, the partners were accepted at funding program Y Combinator (as were similarly strapped Reddit founders Alexis Ohanian and Steve Huffman). By 2009, Airbnb landed its first funding from Sequoia Capital and Greylock Partners and it took off quickly.

“Over the past 15 years, nearly $26 billion has flooded the sharing market.” — Jeremiah Owyang, Crowd Companies

Today, Airbnb is ranked behind only Uber among travel startups and (despite not yet being either public or profitable) is valued at $25.5 billion. According to Mia de Villa of, Airbnb, which is now in 34,000 cities and 190 countries, recently hit a total of 50 million guests since it was founded in 2008 — 30 million in 2015 alone.

Of course, not every startup has hit the stratosphere; most sharing sites are far more modest in size. What is common to many is a willingness and ability to re-think direction. DogVacay, a site for dog walking and sitting services, shifted gears early on. “We quickly course-corrected into a national experience, and expanded to Canada just a few months after launch,” said spokeswoman Katie Woods. In three years of operations, the service has booked millions of overnights, and approved 20,000 sitters in more than 3,000 cities. The company has raised $47 million from investors such as Benchmark and Foundation — although it is not without competition: Rover has raised more than $50 million.

For TaskRabbit, too, the path was rocky at first.  Founded in 2008, the odd-job service went through a series of layoffs in 2013. As with some other services, TaskRabbit had trouble getting beyond an initial coterie of enthusiastic early adopters. “The realigned focus means getting leaner in some areas, and expanding in others,” said founder Leah Busque (who thought up the company after running out of dog food, and wondering if the shopping could be outsourced). By the summer of 2015, a repurposed TaskRabbit had raised a total of $38 million and now operates in 19 metropolitan areas in the U.S. and England.

As all these examples make clear, the sharing economy has attracted a great deal of capital. Jeremiah Owyang, founder of Crowd Companies, has calculated that, over the past 15 years, nearly $26 billion has flooded the sharing market. The average total funding per startup has been $94.8 million. Ignore the mammoth outliers, Uber and Airbnb, and total investment still tops $21 billion, with average total funding of $59.7 million per startup. That far exceeds the amount of investment in the social media boom at a similar stage in its development, said Owyang.

What’s more, Owyang’s research shows that more than 80% of this funding has come in the past two years, which suggests that it’s still relatively early in the typical five-year funding cycle.

Mia de Villa of Collaborative Consumption believes that a growing share of future investment will move to potentially fertile new areas of the sharing economy. “What’s happening is the ideas are moving beyond the early adopters and they are starting to extend into other segments,” she noted. Predicting that funding will slow down in segments that have absorbed most of the investment over the past five years (such as space sharing, transportation and financial platforms), de Villa believes investment will “accelerate in emerging areas, including food, logistics and services.”

Suna Said, founder and CEO at Nima Capital LLC, a venture fund that focuses on the sharing economy, also sees healthcare as a promising sector for peer-to-peer business growth, and possibly the environment, if future policies establish a price for carbon.

The sharing economy relies on a monopolistic business model. While the sectors they serve grow increasingly varied, the business models of peer-to-peer companies remain generally quite similar. A company’s technology platform is the key: By enabling individual providers to do business directly with customers (rent them a room, sell them used furniture or charge them for a car ride, for example), the platform allows the company to avoid altogether (or at least drastically reduce) some of the biggest expense items in many traditional companies: inventory, fixed assets and labor costs. (Uber doesn’t own a fleet of cars or hire drivers while Airbnb doesn’t own hotels or employ hospitality staff.) The company’s revenue comes from the fee it charges people to use its platform (which usually includes such risk-reducing benefits as insurance, background checks and online reviews).

Fees are generally kept low or competitive to encourage rapid uptake among providers and consumers, and the user experience is almost always better than those of their traditional competitors, thus enabling companies to scale up quickly. That’s critical in the sharing economy, because the more people who use a peer-to-peer service, the more valuable the service becomes, attracting still more users. It’s a quintessential example of the network effect, often illustrated by the growth of the telephone (the more people used telephones, the more valuable the network that connected them became). Today, much Internet business relies on the network effect for its success — everything from Internet search engines to social media.

The network effect also tends to lead to monopolies, as the companies that are first out of the gate often attract so many users and become so valuable that competitors are hard pressed to attract customers to their own fledgling networks. Once a network has reached critical mass, it becomes extremely difficult for anyone else to capture much market share, notwithstanding government intervention. Airbnb and Craigslist are good examples.

Peer-to-peer companies also tend to capture providers by virtue of their online review systems. The more positive reviews a homeowner has earned on Airbnb, for example, the less likely they are to move over to another home-rental service where they will have to start all over earning consumers’ trust.

As Indy Johar, social venture specialist and founder of Project00, noted at the 2015 OuiShare Fest (a three-day industry event in Paris), sharing economy companies generally owe their success to “their intrinsic monopolistic nature and ability to ‘lock-in’ users.” In fact, Johar believes that some sharing companies owe their stratospheric valuations to investors’ expectations that they are or will become monopolies.

Today, much Internet business relies on the network effect for its success — everything from Internet search engines to social media.

Said in particular notes that her firm “specializes in first-mover, winner-take-all, monopolistic-type companies, anywhere in the world.” There are markets, she adds, where “there can be a second or third, but generally once there’s a groundswell of support from people, there tends to not be that much room for competition.”

In some industries, established players are turning to regulation in their fight against peer-to-peer companies. “Sharing enterprises, such as Uber and Airbnb, are entering markets for taxis and hotels in which current participants stand to lose business, and they are not happy about it,” said Gerald Faulhaber, professor emeritus of business economics and public policy at Wharton. According to Faulhaber, “If Uber is to be successful, it must learn to play in the real world of politics, regulation and lobbying, not just the e-world of Silicon Valley. It has to counter these lobbying efforts with well-organized efforts of its own. “

Uber seems to have learned this lesson quickly. The company has hired David Plouffe, Obama’s presidential campaign manager (and also a new member of Rubicon Global’s board of advisors), as its new chief adviser. The company replied to a recent New York Times op-ed by running a large masthead ad on both the Times’ homepage and on Both ads linked to an online petition in favor of Uber, which addressed regulation issues.

Ironically, it’s the cabdrivers who now seem somewhat flummoxed. At a recent meeting of the New York Taxi Workers Alliance in Long Island City, members called for a takeover of city hall and a shutdown of traffic at airports and major intersections, akin to a similar action in Paris. “If we do not stop Uber, Uber is going to terrorize us forever,” Seydou Bah, a 31-year-old aspiring cabbie from Mali, told The New Yorker. Another driver at the meeting urged more coordinated action, exhorting his peers to join together to hire lawyers and lobbyists. “This is a billion-dollar business,” said Sergio Cabrera. “We can’t keep running it the way we did back in the day, when we used to buy used police cars and paint them yellow.”

Among the most prominent debates now raging is whether the sharing economy is creating vast numbers of flexible jobs … or abusing workers who earn little, receive no benefits and go unprotected by labor law.

Airbnb, too, is facing stiff resistance from hotel owners and others. According to The Washington Post, “fights have continued in cities across the country, as community groups, lawmakers and hospitality interests seek to prevent property owners from using the service to set up what are functionally hotels without the regulation.” (Airbnb has disarmed one grievance by agreeing to collect and pay certain hotel taxes on a city-by-city basis.)

Much remains to be resolved. Among the most prominent debates now raging is whether the sharing economy is creating vast numbers of flexible jobs that help the economy or abusing workers who earn little, receive no benefits and go unprotected by labor law. Both the National League of Cities, which created a task force, and the Federal Trade Commission, which held a public workshop, are wading into these murky regulatory waters in an effort to help urban regulators come to terms with the new economy.

The genie is not going back in the bottle. Despite all the resistance, virtually no one thinks the sharing economy is going anywhere but up. Gilles Duranton, a Wharton real-estate professor, said it is probably too late to stop the sharing economy with regulation. “Banning Uber or Airbnb after people have actually experienced them and decided they liked them a lot, will make many consumers unhappy. The elected officials that block these services will pay a heavy price.” While many will lament the changes wrought by the new economy, “there are only very few cases of successful bans on real progress,” he said. “The Tokugawa shoguns in Japan managed that but from what I’ve read this is a rare example.”

Robin Chase, the co-founder of Zipcar, observed, “of course there are lots of roadblocks. But the economic upside of getting more value out of excess capacity (including labor that works on their own time in very flexible ways) is so compelling, I don’t see any way to stop this. Rather, we should see to protect the public good, which includes safety, upholding workplace rules that matter, and making sure that social safety nets apply to all, regardless of whether they work full-time for one employer or not.”

Oscar Salazar, the founding chief technology officer at Uber, now chief technologist at carpooling startup Ride and an executive advisor to Rubicon Global, admits that “there are some areas of the economy we can’t actually optimize with sharing. It won’t work without high frequency and excess capacity, so it won’t permeate the whole culture.”

Ethan Mollick, a management professor at Wharton, told Knowledge at Wharton that what’s ahead is a period of compromise and bargaining between government and sharing services. The meteoric rise of these companies, he said, has forced the political sector to examine which regulations “really matter,” and to live with a new market reality.