The sharing economy is transforming the way we do business

Businesses entering this arena have attracted considerable funding.
Picture: Shutterstock

Sharing isn’t new. Giving someone a ride, having a guest in your spare room, running errands for someone, participating in a stokvel — these are not revolutionary concepts. What is new is that now you are not helping a friend for free; you are providing these services to a stranger for a return.

Dubbed the ‘sharing economy’, this socio-economic ecosystem is being built around the sharing of human, physical and intellectual resources for mutual benefit and has the potential to replace the traditional corporate-centered model of doing business, argues Arun Sundararajan, a professor at New York University’s Stern School of Business in his book The Sharing Economy.

This type of disruptive change does not happen smoothly. In countries around the world, metered taxi operators have protested at the disruption caused by ride hailing service Uber and local authorities have wondered how to tax the mushrooming of Airbnb operators. On the other hand, the music industry, which was mauled by file-sharing services like Napster, is being revolutionised by music streaming apps like Spotify and Apple’s iTunes for which users pay a small fee.

Like it or hate it, the democratised sharing of access to goods and services is transforming 21st century business models and the services mentioned above are simply the tip of the iceberg.

As far back as 2011 Time magazine noted, “The sharing economy is one of the top ten ideas that will change the world”. It has now mushroomed into a billion dollar business and the Bank of America Meryl Lynch (BoAML) has labeled this “a global theme to watch” and explores the concept in a report called Uberfication: The global sharing economy.

The key to this economy lies in unlocking the value of unused or underused assets, which is enabled by technology that matches buyers and sellers to reduce market inefficiencies. This implies a shift away from the notion that a business needs to own the means of capital or production, which has dominated business thinking since the dawn of the steam engine.

Web technology is enabling the removal of the middleman by providing means to create efficiency and trust. This, in turn, is driving powerful social shifts, says collaboration thinking pioneer Rachel Botsman, author of What’s mine is yours: How collaborative consumption is changing the way we live.  “We are moving from a society of passive consumers to active and connected creators, collaborators, producers, financers, and providers.”

There are four key drivers of this change

What is driving this change is converging disruptive technological factors, says Felix Tran, an equity analyst with BoAML and author of the report. “Smartphones and apps provide the gateway, mobile internet fuels faster growth, location-based services mean whenever or wherever service provision, digital payments kill cash and recommendations and reviews are digitising trust.”

What is also changing is consumer values as people recognise that about 80% of their belongings are used just once a month. As society becomes more connected people are rethinking what ownership and sharing mean to them.

Economic realities are also forcing people to think about wealth and assets in a different way. “In an ongoing era of austerity, areas that have a high share of consumer wallet such as housing, transport and food are ripe for disruption in our view,” Tran says.

Environmental pressures are also changing people as people increasingly recognise that resources need to be used more efficiently.

While the sharing economy is largely being driven by younger generations of people, the report notes that all demographics are involved. For instance while consumers of these services tend to be younger, Baby Boomers (+55ys) are now the fastest growing group of Airbnb hosts in the US and other regions. Participation in the economy is also not restricted by wealth or urban/rural settings.

Businesses entering this arena have attracted considerable funding and this is set to grow exponentially. BoAML says the sharing economy attracted $45 billion in global financing and investment between 2012 and 2016.

Allocation of funding in the

sharing economy between 2000-2015

Transportation

60.7%

Space/housing

16.9%

Money

7.6%

Services

5.0%

Goods

3.6%

Learning

2.2%

Logistics

1.9%

Source: Frost & Sullivan

What is interesting however, is that 75% of this funding has been allocated to just five companies: Uber, Airbnb, Lyft (San Francisco-based ride-sharing company), Ola (Bangalore-based taxi company) and Instacart (US-based grocery delivery service).

BoAML values this global market at about $250 billion currently, with the potential to rise to $2 trillion by about 2025. In the US, PwC estimates it could grow to $335 billion with transport, home-sharing, and streaming the fastest growing sectors.

The top ten sharing economy startups by estimated 2017 valuation

Uber

$68 billion

#1 global ride-sharing

Ant Financial

$60 billion

Crowdfunding, QR payments, peer to peer wealth management

Didi Chuxing

$50 billion

#1 China ride-sharing

Airbnb

$31 billion

#1 global home-sharing

Lufax.com

$18.5 billion

#1 global peer to peer lender

Meituan-Dianping

$18 billion

#1 global on demand delivery platform

WeWork

$17 billion

#1 office sharing

Spotify

$13 billion

#1 music streaming

Pinterest

$11 billion

Visual sharing social network

Dropbox

$10 billion

Cloud/file sharing

These targets sound less fantastical when you consider that leaders in this space are growing at a much faster rate than incumbent tech companies and ecommerce. For instance, on-demand services like Uber and Lyft reached 5.1% penetration of the US addressable market in 2016 less than a decade after launching. By comparison, e-commerce has only reached about 9% of total US retail sales at the end of 2016 more than 20 years after its introduction, according to the report. Furthermore, it took Uber four years to reach a market cap of US$1 billion compared with Google at eight years.

According to BoAML there are 12 industry sectors, collectively accounting for 8% of global GDP that are at risk of disruption. These include education (just think about Coursera where millions of people are taking classes taught by faculty from the best universities around the world, creating open access to education that used to be just for the privileged few); financials (think of Zopa, a peer-to-peer lending platform that works by connecting individual savers and borrowers, without big banks in the middle); food, logistics, storage & equipment, healthcare, cloud, staffing & services, media, retail, travel and transportation.

“Idling capacity is everywhere, though it’s not always easy to see: empty seats in cars; unused holiday homes or spare bedrooms; underutilised Wi-Fi; unoccupied office spaces; latent skills and capital; and of course underused consumer goods,” says Botsman.

However, regardless of how the space grows and what you choose to call it, “let’s not lose or dilute its power to humanise the way we live, work, bank, learn, travel, and consume in the 21st century,” she says.

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