How disruptive is the 'Sharing Economy'?
At a TEDX talk in Sydney in 2010, Rachel Botsman, author of the book 'The Rise of Collaborative Consumption', asked the audience the question - 'How many of you use a power drill?' When nearly everyone raised their hand, Rachel continued by saying that as the power drill will only be used for about 12 to 15 minutes in its entire lifetime, why don't you rent the drill from someone, or even rent out your own drill to make some money? What seemed like a simple question at the start had brought a slowly rising phenomenon to the forefront of public debate – 'the sharing economy'.
Since the recession hit and concerns about the environment have grown, online networks have provided a connection to help others get by on less through the idea of sharing things with people who live nearby. This almost utopian ideal heralded what was deemed an 'empowerment of the people' to reduce their carbon footprint and go about their lives away from traditional routes. Some even named it a 'quiet revolution' of the people against big business. A report by PwC found that over 19% of the total US adult population has engaged in a sharing economy transaction since it has grown over the past 10 years or so. Among these US adults who are familiar with the sharing economy, they perceive many benefits to it. 86% agree it makes life more affordable, 83% agree it makes life more convenient and efficient, 76% agree it's better for the environment, 78% agree it builds a stronger community, 63% agree it is more fun than engaging with traditional companies, 89% agree it is based on trust between providers and users.
It is indeed true that for almost every user, the sharing economy provides a way to use an asset less expensively than has ever been possible before. Owners can gain some incremental income from a one off purchase and borrowers gain access to things they need when they need them without the burden of owning them. From goods exchanges such as Zipcar, Sparkbox toys and SnapGoods, group solving of social problems on Open Ideo, aggregating information through Ushahidi, crowdsourced financial lending services like Kickstarter, office space sharing through Loosecubes, teaching on Skillshare and even childcare and household help through co-ops such as Sitting Around or Taskrabbit, the sharing economy can be seen in many sectors.
There are certainly two companies that instantly stand out as big winners of the sharing economy over the last few years;
1. Airbnb Since its launch in San Francisco in 2008 between two friends renting their home out during a conference in the city, this online bed booking service offers over 250,000 rooms provided by private individuals in in over 30,000 cities in 192 countries. More than 4 million people have used the website —2.5 million of them in 2012 alone showing that the usage is increasing at a rapid rate. The Airbnb community supported 11,600 jobs in the UK last year, and generated $824 million.
2. Uber Also based in San Francisco and launched more recently in 2010, Uber uses a smartphone app to receive requests of people needing transportation, and then sends out these requests to their drivers who transport the customers to their final destinations. It operates in about 270 cities in over 60 countries worldwide and is expanding at a vast rate - the company is currently valued at an amazing $51 billion after a total of seven rounds of funding worth $7.4 billion since its launch.
With their quick rise to immense public usage and profitability, these two companies have been especially hot topics with the February TEDX talks in Vancouver featuring talks from Uber CEO Travis Kalanick and Cofounder of Airbnb Joe Gebbia, and speculation that the companies will go into public market shares this year – IPOs that will be highly valued and competitive.
So how disruptive has the rise of Airbnb, Uber and others in the 'sharing economy' been to big business? What is its real impact on the world today? And what is the future?
- Broader availability – The sharing economy will continue to grow into different geographies and demographic groups. In 2014, nearly 8 million adults or 14.5% of the adult population do not have access to the internet. Those who are not online could benefit from using sharing economy platforms. One group that could benefit are elderly people who are more likely to have under-used assets they could make money from, such as spare rooms and cars they are not driving regularly. Another market to target could be single parents who could get involved in tasking platforms such as Taskrabbit to earn money on a schedule that suits them and fits with their childcare commitments.
- Vertical and horizontal expansion – Existing sharing economy services will expand to capture other parts of the sectors in which they already play through developing a broader range of services both horizontally (e.g. an accommodation service expanding from rooms in the homes of individuals to underused space in existing hotels) and vertically (e.g. an accommodation service offering cleaning services to its providers, something Airbnb has started to include in its prices in some areas).
- Decline of traditional rental businesses - PwC estimates that the main sharing economy sectors currently generate $15bn in global revenues, taken from traditional rental businesses such as equipment and hotel rental. However, by 2025, these same sectors could generate over half of all overall sales in these sectors – a potential revenue opportunity worth $335bn. The UK’s 'slice of the pie' could be worth around $15bn (or £9bn) in 2025. This is because participation is growing in the sharing economy - in one study in the Netherlands, more than 84% of the Dutch respondents expressed interest in participating in collaborative consumption of some sort – and new collaborative consumption start-ups are appearing on a regular basis to provide even more routes for people to get involved. The sharing economy is therefore continuing to grow rapidly and traditional rental businesses need to find ways to adapt to this changing environment as more people become aware and confident in sharing economy routes.
- Finding collaborators – One way in which traditional industries can adapt is through finding collaborators in the sharing economy sphere. Tesla has started to team up with Uber to add electric cars to their fleets and with Airbnb hosts to install electric car charges and offer a Tesla car within their rent. Even Alphabet, Inc. has plans to make its self-driving cars unit a stand-alone business. This initiative could put Google in direct competition with Uber, as the lack of a driver could keep costs down in the long-term. If Google can offer lower prices to customers, Uber may struggle to compete. Even Alphabet, Inc. has plans to make its self-driving cars unit a stand-alone business. This initiative could put Google in direct competition with Uber, as the lack of a driver could keep costs down in the long-term. If Google can offer lower prices to customers, Uber may struggle to compete. However, as the technology for self-driving cars becomes more commercially available, it would not be out of the realm of possibility that Uber could develop new business strategies focused on autonomous driving. Rather than seeing the sharing economy as a threat, smart businesses will recognise it as an opportunity to find new, more sustainable ways to connect to consumers. Although there have of course been companies that have lost out from the rise of the big sharing economy winners (for example, Sidecar which will be defunct by the end of the year). However, for many businesses, the sharing economy has the ability to be incorporated into current products by focusing on designing ways in which they can be sharable. Ford's 2011 partnership with Zipcar was an early move in this direction, providing vehicles for the Zipcar fleet; the drivers of which they hoped would become future Ford customers. Car companies are also starting to develop wireless entry mechanisms so that owners can rent their vehicle without having to hand over keys.
- Expansion of stock reaching new audiences – It was originally thought that Airbnb operated in a different part of the market to hotels and so wouldn't feel the competition i.e. that it was a new form of couch surfing that only the cheapest of travellers would ever use. But with the publicity and visibility that Airbnb has gained, new providers of accommodation are being added daily with a huge range of accommodation covering anything from indeed a couch or spare room to an entire house or luxury penthouse suite itself. This has meant that Airbnb's appeal has vastly increased for business travellers who are bored of getting stuck in cookie cutter chain brand hotels and are looking for something more 'authentic and personable' – indeed 85% of guests that stay in Airbnb accommodation cite that they want to 'live like locals' during their stay.
- Marketing its convenience – The sharing economy has become so prevalent because it is a convenient and cheaper way to make money and use a service. Companies tend to focus on these aspects now to gain more customers rather than proclaiming the environmentally friendly original goal. For companies that ship goods, it would seem that sending products over longer distances would require more energy, and a bigger carbon footprint, than driving to pick up the item from a store. But that’s not always true - according to a study in the Journal of Industrial Ecology, a two-mile drive to a video store uses a few hundred times more energy than shipping DVDs 200 miles away. However, the old Netflix model of shipping DVDs has become redundant with the increase in streaming via their website for convenience. In the same study in the Journal of Industrial Ecology, it was found that the energy consumed while browsing Netflix’s website in a comfortable environment for 30 minutes would exceed the energy spent delivering DVDs to the customer's door. Customers are more concerned with the usability of the sharing economy platform rather than its environmental impact.
- One off purchase decline – With the ability that the sharing economy provides for using goods communally, there has been some decrease in one off purchases. For example, Sparkbox Toys aims to re-use children's toys that have a short life because of the quick development of children. Although a child could get attached to a teddy bear, toys that teach something such as time or scales will serve very little purpose after the skill has been acquired and a large amount of waste is generated by accumulating them. This means that parents can buy toys cheaper and then regain money when they sell them on through the sharing platform. This creates a longer term relationship with the consumer rather than simply a narrow ‘buy and sell’ transaction – it becomes a platform they will use again and again. In this process, companies can therefore gain more data and insight about the usage of their products through the entire user experience.
- Attractive prospect of owners making money – This factor has helped the sharing economy grow as more renters make their products and services available on sharing platforms in order to make money from underused assets. Airbnb says hosts in San Francisco who rent out their homes do so for an average of 58 nights a year, making $9,300. Car owners who rent their vehicles to others using RelayRides make an average of $250 a month; some make more than $1,000. Renters, meanwhile, pay less than they would if they bought the item themselves, or turned to a traditional provider such as a hotel or car-hire firm. It's a win-win situation for both parties.
- Unique structures – Sharing economy platforms have a unique structure that has caught the attention of investors. By incorporating social media, mobile apps, and real world engineering/problem solving, the platforms are extremely user friendly and encourage further participation and recommendations to grow the customer base. Before the internet, renting a surfboard, a power tool or a parking space from someone else was feasible, but was usually more trouble than it was worth. Now websites such as Airbnb, RelayRides and SnapGoods match up owners and renters; smartphones with GPS let people see where the nearest rentable car is parked; social networks provide a way to check up on people and build trust; and online payment systems handle the billing. The evolution of the sharing economy will continue to illustrate the powerful interplay between the physical and the virtual spheres in the modern world.
- Using technology to build trust - One of the most interesting ways in which the sharing economy has developed is by showing how technology can build trust between strangers in a transaction that is conducted entirely online. 69% of people agree they will not trust sharing economy companies until they are recommended by someone they trust – and so like all start-ups, these platforms need exposure and high take up rates. Trust fundamentally includes a form of risk by allowing yourself to assume the other's good intentions to meet your expectations. Sharing economy platforms therefore take trust extremely seriously, allowing users to write public reviews and provide comprehensive ratings which are displayed on each other's profiles. Some platforms check their members’ ID using third party ID verification tools. Where security is particularly important, some platforms will even do a criminal record check.
Regulation/legislation concern and lobbyists – Because the sharing economy started as simply a platform for individuals to share things with each other using the internet as a means to that end, there is a very unclear regulatory environment to the entire business model which has started to cause some concern. For example, are apartments rented on Airbnb subject to tax? A 2012 report by La Caixa found that over two-thirds of the estimated 1.1 billion overnight stays in Spain were from unregistered accommodations. In other words, the black market for vacation rentals is costing Spain millions in tax revenue. There is no legislation in place to deal with this type of business which has grown so rapidly and hotel companies have started heavily lobbying courts for a global crackdown on Airbnb. However, the problem is being dealt with on a case by case basis - New York courts recently ruled that renting out your apartment on Airbnb was illegal in the state because it violated rules that prevent tenants from turning their apartments into hotel rooms, yet in other states there is no such ruling. Uber has faced similar problems, being banned in the Netherlands and parts of Thailand, India, China, Vietnam, Singapore and Indonesia due to concerns on regulation and lack of driver background checks. The company also faced noncompliance allegations in New York for failure to adhere to requests from the city’s Taxi & Limousine Commission. Whether Airbnb and Uber have enough money and lawyers to win a case against the entire global hospitality and transportation industry is an open question. But there is no doubt that people want to use the service and care less about government regulation in comparison to peer regulation which 64% of consumers consider more important. This means it'll certainly be hard to crack down on.
So the sharing economy has had several disruptive impacts, not least ideologically. However, today there has been a shift in emphasis from the utopian ideal presented at the TedX talk in 2010. Some even goes as far as to say that the 'sharing' aspect of this economy is entirely dead. The supposedly 'sharing' economy has become more of simply a retail outlet - a digital peer to peer platform much like eBay and etsy that provide users with the infrastructure to buy and sell from each other directly and circumvent traditional routes. PwC's report on the sharing economy also found that the word 'sharing' was a misnomer, a savvy but disingenuous spin on an industry that is more about monetary opportunism than altruism. More apt titles could include the Trust Economy, Collaborative Consumption, the On-Demand or Peer-to-Peer Economy. It is a business where technology has been used for the advantage of reducing transaction costs of renting to other people but is still aiming to make profit, for a business that can’t make a profit won’t last long no matter how sustainable or ideologically 'good' it is.
Really, the sharing economy story is more of a disruptive start up story making the most of the digital capabilities that have evolved over the last few years – another step in the financial efficiency that peer-to-peer platforms provide. This, of course, means that as essentially a company running for profit rather than a service with a particular ideal, the sharing economy has not really disrupted big business, but rather simply become a big business in itself.