BlaBlaCar that are underused in the economy.

BlaBlaCar is one of the
sharing economy digital platforms that connect drivers and passengers that
travel to the same destination. Sharing economy is the phenomenon that arose in
the 21st century. Sharing economy is portrayed as an activity with regard to
the consumption, trade, and exchange of goods and services using digital
platforms as the tool. (Hamari, 2015) BlaBlaCar is operating in the long
distance ride sharing sector of the sharing economy. As the service is mostly
used as an alternative way of travelling for city-to-city destinations, it
might become a potential threat to the companies in the passenger transportation
industry like regional trains and bus firms. BlaBlaCar reported that there are10
million rides every quarter, 3 billion kilometres covered, and the same
passenger volume 4 times more than in Eurostar – European railway service.
(Shah, 2016) Given the popularity of the service, the research question of this
essay is to what extent BlaBlaCar as a trustworthy carpooling service might
disrupt traditional road travel options like inter-city trains. Prior to conducting
the research, a save presumption would be that BlaBlaCar did not disrupt the industry
but has introduced a new business model that imposed competition to the
railroad companies and has become another option for passenger transportation.

The research method used
in this essay is a literature review. The scope of literature consists of
academic articles, reports about sharing economy and disruptive effects of
digital platforms. The essay will be accompanied with statistical reports with
regard to platforms’ growth rates, revenue streams, and number of users.

The essay consists of
three sections. In the first section the concepts of sharing economy and
disruptive innovation and the background of BlaBlaCar are introduced. The
second section discusses the disruptive element of BlaBlaCar and its contribution
to the sharing economy. The third section is the conclusions made based on
conducted research.

 

2. Theoretical Framework

         The goal of
the sharing economy is to make use of goods or services that are underused in
the economy. (Zervas, Proserpio, & Byers, 2017) This can be done in a
plethora of ways including: peer-to-peer lending, peer-to-peer banking, car
sharing etc. The sharing economy emerged as a result of both technological
innovations and social changes. From the social perspective, the changes in
attitudes towards consumption fuelled the demand for the sharing economy
platforms. (Hamari, 2015) In addition to which, because of the development of
Web 2.0 technology, the Internet gave users an opportunity to connect with each
other and provided a medium to share information. That is why Web 2.0 has
become a technological foundation for the rise of the sharing economy. (Belk,
2013) The growth of sharing economies platforms lies in the efficient use of
data. Due to data algorisms, the emergent companies like BlaBlaCar play the
role of facilitators by matching demand with supply through the creation of
digital marketplaces. (Marr, 2016) The difference between the traditional and
sharing economy is that sharing economy is a two-sided network with interaction
taking place on both sides facilitated with the help of a platform provider.
When the platform matches demand between the sides of the network, the value
grows. (Eisenmann, 2016) The sharing economy has lowered the significant
barrier of entry for new companies – the ownership of assets. (Choe, 2016) The
number of users has become an important asset for digital platforms and a way
to create value. This phenomenon called network effects lies at the core of a
platform’s strategy. (Marshall, 2016) Instead of expensive acquisitions as a
tool for expansion, the sharing economy companies expand through growing their
network and broadening customer reach. In the on-demand economy’s game, the
leader is not the company with the best service; the leader is the company with
the biggest client base. (Cowen & Tabarrok, 2015)

         In 2013, the
revenue brought to people by the sharing economy platforms was more than $3,5
billion and the growth of those platforms was more than 25%. For this reason,
it can be stated that at this growth rate the sharing economy becomes a
powerful economic force. (Geron, 2013) There were 44.8 million adult users of
sharing economy platforms in the United States in 2016 and the growth
projections are up to 86,5 million adult users in 2021. (Statista, 2017)

         To understand
to which extent a technology or a product is disruptive, it is important to
distinguish between disruptive and sustaining innovation. According to the
disruptive innovation model, disruption is the process in the modern world when
a smaller company with the help of innovation creates new markets and
challenges the established companies.  (Christensen, 2006) Disruptive innovations are typically originated in two
types of the markets – low-end markets or new markets – for the following
reasons. In the low-end markets, the customers served are the most demanding
customers, for this reason the disruptors’ goal at first is to provide the most
affordable product to satisfy the basic needs. In case of a new market,
disruptors create news markets that previously did not exist and turn
non-consumers into consumers. The consumers do not always quickly adopt
disruptive innovations. Nevertheless, once the consumers adopt the alternative, the prices
in the whole market segment tend to go down. In this way, the process of
disruption lowers the prices in the particular market. On the contrary, sustaining
innovation can be defined as improvement quality of the product or a service
that has already had weight in the market. Moreover, it is not accompanied by
creating new markets. (Christensen, 2015) Both disruptive and sustaining
innovation can be seen as threats to a traditional business model but it is
difficult to identify to what extent the innovation may affect the market.

         BlaBlaCar, founded
in 2006 by Frederic Mazzella and Nicolas Brusson, has transformed from a small
French start-up to a 1,4 billion-euro European tech company. (Chen, 2015)
BlaBlaCar has created a digital marketplace where, utilizing an algorithm, it
connects drivers who want to cover the journey costs and passengers that travel
to the same destination. The goal of the platform is to share the costs of a
ride but not to make profit. This approach enables BlaBlaCar to avoid the
regulation, tax, and insurance issues. (Leiber, 2015) Both drivers and
passengers choose with whom to ride based on reviews left on each other’s
profiles. The company has a commission business model, which is divided into
the transaction fees business model where it charges a 12% fee on every ride, and
cash-for-rides business model where it does not charge a commission. The
transaction fees business model is implemented in developed countries and
cash-for-rides business model – in developing countries. (European
Commission, 2015) BlaBlaCar platform is a good example of a network effect.
The matching between supply and demand, drivers and passengers, is more
efficient when a large number of people use the service. In 2017 BlaBlaCar has
35 million users with 4 million people using the service every month and is
currently present in 22 countries. (Rose & Wheeler, 2017)

         BlaBlaCar is
operating in the passenger transportation industry. The firm’s biggest direct
competitor was a similar platform Carpooling.com, however, in 2015 BlaBlaCar
acquired it. (Ahmed, 2015) The indirect competitors are rail and bus companies
in the passenger transportation industry. In Western Europe, this industry was
represented by mostly government owned railroad firms and privately owned the
bus companies. (Khare, 2017) However, it has recently faced some challenges
from supplier, government, and customer perspectives. Increasing costs of
energy and infrastructure, demographic trends, and the emergence of the
carsharing and ridesharing digital platforms can be seen as potential threats
to the industry. (Bongaerts, Kwiatkowski & König, 2017) In spite of the
challenges the rail passenger transport performance increased by 1,8% in 2015.
(Eurostat, 2016)

 

2.1 Discussion and Hypothesis

The rise of the digital
world has brought out not only more opportunities but also more challenges for
the emergent firms. One of them are the established business regulatory processes.
Companies like Uber and Airbnb have introduced new business models that have already
faced backlash from the tax authorities especially in the European market.  (Ahmed, 2015; Boffey, 2017)  However, as BlaBlaCar’s unique business model
is based on a different concept. The company’s customers’ primary goal is not making
money but sharing the costs of the ride. (Farajallah,
Hammond & PPnard, 2016)To prevent drivers from
using the app to make profit, the company limits the amount of money each
driver can charge per ride and the number of seats that can be used. As a
result, the drivers’ tax and insurance policies remain unchanged. For this
reason the company did not face any negative repercussions from the regulatory
authorities. (Leiber, 2015) 

BlaBlaCar has created a
community of drivers and passengers. There are three major motives for people
for participating in the sharing economy community: economic, ecological, and
social. (Hawlitschek,
Teubner & Gimpel, 2016) Firstly, the sharing
economy platforms facilitate interaction between producers and consumers,
drivers and passengers, and create better value to both of them by providing an
opportunity to utilise the underused assets in the economy – cars. (Yaraghi
& Ravi, 2017) BlaBlaCar promotes economic rationality and sees it as a
potential solution to the problem of excess emission. This is the way sharing
economy platforms make contribution to the ecological aspect. Average car
occupancy in the European region is 1.6 people per vehicle. (Banister, Watson & Wood, 1997) Within the BlaBlaCar community this index is higher –
2.8 people per vehicle.  (“Let’s
Tackle Air Pollution – BlaBlaCar”, 2018) As BlaBlaCar provides another way of traveling, it lessens
the need for car ownership and helps to optimize economically productive assets
– cars. Since filling in empty seats in the cars decreases the CO2 emissions,
BlaBlaCar contributes to the decrease of air pollution and offers an
eco-friendly travel option. (Möhlmann,
2015) Moreover, the company advocates for
overcoming trust barriers in digital spaces and strengthening social
connections. As said by the firm’s partner Peter Botteri, BlaBlaCar’s success is
based on fair economic incentive and trust. (Leiber, 2015)  The latter might become a subject of negative
feedback. Taking a seat in a stranger’s car entails some degree of risk. However,
BlaBlaCar offers several solutions to this problem: the 2-way review system
(where a driver rates a passenger and vice versa), a set-up profile with
photos, ratings, driving experience, verified phone number and email address of
all the users. Studies conducted by BlaBlaCar in collaboration with NUY Stern
have shown that the degree of trust between strangers with full information
about each other on their BlaBlaCar profiles is 88%  (close as to trust to a family member or a
friend – 92%). (Entering The Trust Age, 2016) Building a trusted online ecosystem
is one of the company’s core values.

BlaBlaCar’s innovative
business model has contributed to the sharing economy; however, it cannot be
argued as fully disruptive to traditional travel options for the following reasons.

According to the
disruptive innovation model introduced earlier, disruptive companies typically
originate either in new markets or in low-end markets. (Markides, 2006) BlaBlaCar has started off in neither of them. It has
originated in a well-established market of travel and passenger transportation.
BlaBlaCar targeted non-consumers. The company targeted not only people who were
looking for a cheaper and available way to get to their destination but also
the ones who were searching for ridesharing experience. That is why BlaBlaCar’s
approach can be qualified as a sustaining innovation. The company’s service is portrayed
as inferior to the traditional travel options of bus lines and trains. It BlaBlaCar
has created a service with a better value for specific types of consumers. BlaBlaCar’s
business model is a sustaining innovation in the industry that has imposed
competition for rail and bus travel options.

Within 2002 – 2012 the
coverage of rail infrastructure has increased by almost 50%, however, the
rail’s market share has increased by only 0,6%. According to Thomas Drexler,
director or rail and ground by Amadeus, in order to adapt to current market
conditions, the rail industry will have to redefine its focus from simple passenger
transportation from place A to place B. The new strategy has to be focused on
customer experience along the journey. For customer service to become the centre
of strategic actions, the industry needs data about the customers and their preferences.
This is a lesson to learn from data-driven sharing economy platforms like
BlaBlaCar. Nowadays customers value flexibility and availability that
BlaBlaCar’s platform can provide. Moreover, as BlaBlaCar does own not any of
the vehicles (unlike the railway) it is more difficult for the railway to be
more competitive on prices. That is why BlaBlaCar’s platform does not disrupt
the railway industry. The company imposes competition for it because BlaBlaCar
is becoming an alternative way of travelling between the cities. (Leach, 2015)

In spite of being the
world’s leader for long distance ridesharing, the firm has recently faced some
challenges that led to the creation of the new strategy for the future. In 2015
BlaBlaCar expanded into developing countries. The company experienced significant
growth in Brazil, Eastern Europe, and Russia. (Dillet, 2017) In Russia, the
company attracted 250 000 new users in first three month of operations. (Scott,
2014) As a result, Russia became BlaBlaCar’s number one market.  Despite its success in other countries, the
growth of the Western European markets has slowed down. (Dillet, 2017) The CEO
Nicolas Brusson stated that it took the company 10 years in France to build
what it did in Russia in 2 years and a half. BlaBlaCar is moving away from
geographical expansion. It maintains its presence in Western Europe but redefines
its focus on the developing markets and sees itself diversifying its product
and expanding beyond the industry. (Schrieberg, 2017)
            The hypothesis in this essay
is that BlaBlaCar did not disrupt the industry but has introduced a new
business model that imposed competition to the railroad companies and has
become another option for passenger transportation. The research conducted supported the proposed hypothesis.   

As sharing economy is a
relatively new phenomenon there are questions to be answered. There is a lack
of research concerning affect of carsharing and ridesharing on the amount of
C02 emissions into the atmosphere. The proposal for future research would be
further investigation of the environmental impact of ridesharing platforms like
BlaBlaCar.

However, the research in
this essay has some limitations. As the main research method is literature
review, the main limitations are that all the presumptions are drawn from
existing research and rely onto already published literature. There was no
specific empirical research conducted. Moreover, there is lack of information
about sharing economy platforms because this field is relatively new and a lot
of information is private and remains undisclosed.

 

3. Conclusion

Sharing economy is a
recent phenomenon and it is portrayed as an activity with regard to consumption
of goods and services on a peer-to-peer basis. Digital platforms stand at the
core of the sharing economy because they are mediums that facilitate the
exchange of goods and services between people. (Hamari, 2015) BlaBlaCar is a
long distance ridesharing platform. The company contributes to the economic,
social, and ecological aspects of sharing economy. It creates value by establishing
a community of drivers and passengers who travel to the same destination. However,
BlaBlaCar might be seen as a potential threat to the traditional travel options
in a passenger transportation industry because of its successful business model
that focuses on trust and fair economic incentive. (Leiber, 2015) The goal of
this essay is to investigate to what extent the ridesharing platforms like
BlaBlaCar disrupt traditional travel options like inter-city trains.

According to the research
conducted in the essay, it can be stated that BlaBlaCar contributed to the
sharing economy, however, it did not disrupt the industry. The company
originated in a well-established market where it provided another option for
passenger transportation and, therefore, imposed competition for the railroad
companies. For this reason, the railroad firms faced a need to redefine their
strategy by focusing more on customer experience.

The projections for
BlaBlaCar’s future is maintaining a steady position in Western European
markets, further development into the developing countries, improvement of the
ridesharing experience, and diversification into other industries like, for
instance, car leasing.