Last week when I called for an Uber, a gentleman in his swanky new BMW arrived at my doorstep. Now it is not uncommon to get a ride in an expensive new car when you call for an Uber. But what struck me the most was the demeanor of the driver. He was a polished guy in his mid 40s, wearing designer clothes and watches and do not seem to have any particular reason to drive a car on a weekend for extra money.

Eventually curiosity got the better of me and I had to ask him whether driving Uber is his main job. As I expected, he turned out to be a senior manager with a very large tech company. However, he explained that as he is going through a costly divorce, this is his way of getting back to decent financial health at the quickest possible way. .

However, this is not an isolated case. Over the last 12 months that I have used Uber, I have been driven by among others, a financial analyst from the Wall St., a ground engineer from United Airlines and a practicing lawyer from a reputed law firm. And it goes to show beyond doubt that in a “Sharing Economy” or a marketplace economy, whichever way you want to call this system, the general expectation of the product and service may not hold good. The question is, whether a sharing economy can provide a consistent value to its participants that will eventually make it win over the traditional products and services and make them completely redundant.

We all know that Uber is not an isolated business case that are all witnessing here. Airbnb, Etsy are growing at pretty rapid pace too and I am sure more soon will follow. Question is, can we put together a set of general principal that could indicate the chances of success of these new services?

Based on my observation, I have boiled down the chance of success on five key parameters. And I will take the example of Uber and few others to illustrate these parameters.

First parameter for success is the Supply and Demand Equilibrium. If the supply side is limited, the system may not work efficiently, as suppliers will hoard to get a better price. If buy side is limited, then the supplier will undercut each other and it will take the market down. This is not to say there should be equal number of sellers as there are buyers. It’s more about the number of either side which can promote a true marketplace behavior. If demand and supply is in equilibrium, market will operate at optimum inventory, the cost of sales will be largely distributed and overall dollar for dollar a buyer will get a better product/service.

The Second most important parameter of success is Transparency. Given, the product/service will be a marketplace product/service and for that matter branding may play a diminished role, it is important for buyers and sellers know exactly what they are buying and who they are buying/selling to. Take the case of Uber. Isn’t it a great comfort for everyone just knowing in advance the make/model of the car? Similarly for Airbnb, the quality of video and picture makes huge difference in the buying process. However, it is not only the transparency about the product. Transparency about buyer/seller detail, transparency about payment processing, transparency about grievance redressal, all pay critical role in the success of this economy. One crucial outcome of transparency is consistency. Transparency always weeds out the non-performers thus enhancing the consistency of the services.

The Third most important parameter is Convenience. A marketplace may provide a better value for the buck, but it is not always guaranteed that it is more convenient. However, if the convenience factor could be added to the product/service, it could enhance its value significantly. This is off course is the trump card for Uber. The ease of app use is a huge positive for Uber. The other not so talked about feature is the smart planning of Uber to get the tipping business out of the way. The fact that you could just walk away after taking the ride without taxing yourself how much to tip the cab driver based on his service quality is a big relief to many.

The Fourth most important factor is Complexity of the business model. When you are dealing with mass population, it is but given that higher complexity of business model is a recipe for disaster for a marketplace economy. Hence the simpler it is for the buyers and sellers to understand and execute the process, the better are the chances of success. It’s no coincidence that all marketplace economies such as eBay, Uber, Airbnb, etsy have the most simple business model. Particularly important in this case is the sell side complexity, as this could drastically reduce the service providers in the marketplace.

This bring us down the Fifth and the most important parameter of Risk. In Most marketplace economies, the primary risk of service quality or product usage is mitigated through user reviews. However there are graver form of risk such as physical harm or legal liability that could drag down this economy quite easily. In this hyper-connected social world that we live-in and where bad information could spread like a wildfire, management of Risk remains the single most important parameter that will determine the success of the sharing economy.