The Sharing Economy. Introduction

Transcription

1 The Sharing Economy Introduction One of the big trends today, on which disruptive business models are based is the sharing economy, in which individuals and businesses instead of owning assets prefer to share them. And instead of buying products, people and companies like to consume them as a service as and when they need to use it. What are the implications of the sharing economy? The rise of the sharing economy As writer and thought leader, Rachel Botsman explains in her TED talk, ( ption), sharing comes naturally to human beings. Human beings have been sharing things for thousands of years. But the big difference today is technology. Technology has reduced search, transaction and interaction costs, allowing assets to be shared in a cheaper and easier way than before and on a much larger scale. (See also The Economist, March 9, 2013). Before the arrival of the internet, renting a power tool (used only for minutes in its entire lifetime!) from someone else was feasible, but the cost exceeded the value. Now whole ecosystems have developed that enable such transactions to be done efficiently. Websites such as Airbnb can match owners of spare bed rooms and renters. Smart-phones with GPS help people locate the nearest rentable car. Social networks provide a way to check up on people and build trust. And online payment systems handle the billing. Social networks and digital technologies are taking us back in time in a manner of speaking and helping us to rediscover our urge to share and lead a more collaborative life style. The Internet is enabling us to transform ourselves from passive consumers to active creators and highly enabled collaborators. When we want something, the internet is allowing us to locate and interact with those who have it. Many of us are millennials. As millennials, we have grown up used to sharing things with each other. We do not want stuff, we want experiences. We want access to a service or benefit, not own the asset which provides this. The key stumbling block in a market transaction involving strangers and that too separated by distance is lack of trust. Indeed, trust is the bedrock of sharing. Without trust, how is sharing possible between strangers? Fortunately, on the web, we leave behind many trails. These trails, which together add up to our

2 reputation capital, are generated in various ways. Besidesbackground checks carried out by platform owners, online reviews and ratings are usually posted by both parties to each transaction. This makes it easy to spot errant individuals and service providers. By using Facebook and other social networks, we can check each other s credentials directly or through common friends (or friends of friends). With all this data floating around in different formats on the web, and with the rapid emergence of the tools needed to make sense of this data, the day is not far off when a Google search will help us to know the reputation of a stranger and help us decide whether we want to do any business with this person. From hyper consumption to collaborative consumption The rise of the sharing economy implies that we are moving away from the world of hyper-consumption to collaborative consumption. Hyper-consumption refers to the consumption of goods for non-functional purposes. It also reflects the associated significant pressure exerted by the modern, capitalist society, to consume goods for the sake of consuming. In the world of hyper consumption, we were somewhat self centred and maximized individual getting and spending. Or in other words, we bought things to show off whether we needed them or not! The sharing economy is moving us to a world that is focused on the rediscovery of the collective good. We are looking for value and in many situations, that value is being created by collaborative consumption fuelled by technology platforms. This change in consumer behaviour has to some extent been shaped by the global financial crisis when people lost jobs and became aware of the pitfalls of reckless borrowing and spending. The post 2008 economy can be described as one in which we as customers are looking for value more than ever before. We want to get the maximum for every dollar we are spending. We are also becoming more environment-friendly and trying to recycle and redistribute assets wherever possible. The disruptive impact of the sharing economy We keep saying that technology is disrupting traditional business models. One of the main reasons for disruption in the sharing economy is the phenomenon of disintermediation. By rapidly eroding the power of intermediaries, technology is fuelling peer to peer transactions. Thus people can lend and borrow money from each other without the need for a bank. People can bypass the traditional university system and enroll themselves on Coursera to pick up new skills. Technology platforms enable people to run their own part time businesses be it doing an errand, driving a taxi ( by passing a car rental service) or offering a bed

3 room to a guest( bypassing a hotel or a travel agent). And in some cases, encouraged by the initial success, these part time businesses may evolve into full time ones. In early 2013, Airbnb hosts in San Francisco rented out their homes for an average of 58 nights a year, making $9,300. Car owners who rented their vehicles to others using RelayRides made an average of $250 a month with some making more than $1,000. A second important reason for disruption is products turning into services and the focus shifting from ownership to usage. Industrial giant GE believes that even sophisticated and expensive capital equipment like turbines can become services in the long run. Instead of supplying a turbine, it will be power as a service! The transition may take time. Initially very expensive machines such as aircraft engines may not be offered as a service but in the long run, competition and customer preferences and buying behaviours will encourage the proliferation of as a service models. Already, for even expensive equipment, we are seeing a trend of products and services being bundled together with more and more value moving into the service component. Wasted and underutilized assets and their lack of availability when we need them constitute a third reason for disruption. An example to which we can all relate is in order here. We all know that at a given point of time, there are many conference rooms lying idle in any large organization and yet they are not available to people even when they desperately need them. Marriott, the hotel chain faced a similar problem. The chief sales and marketing officer in Marriott s Asia Pacific division realized that hotel conference rooms were underutilized. And yet ironically enough, she often saw people searching Marriott s lobbies and restaurants for a quiet spot to work. So, in 2012, Marriott partnered with LiquidSpace, an online platform that lets people quickly book flexible workspaces by the hour or day, testing the idea in 40 hotels in Washington DC, and San Francisco. It was not just hotel guests reserving spaces, but also locals from lawyers to independent workers to consultants. Currently hundreds of Marriott hotels have meeting spaces listed with LiquidSpace and because many of the people reserving space are not guests, Marriott is now able to reach out to new consumers. The response from the incumbents While startups are taking advantage of the sharing economy to disrupt market leaders, the incumbent players are also noticing the trend and realizing the need to respond quickly. How can Hilton stay watching as a silent observer when Airbnb is expanding so rapidly? Or how can Ford ignore the rise of Uber which makes car sharing so cool and car ownership not so cool? A simple way for the

4 incumbents to start is by developing hybrid models, listing excess capacity (whether vehicles, equipment or office space) on peer-to-peer rental sites. Or use the sharing economy to fill a gap in the existing service. For example, the logistics and parcel delivery giant DHL has realized that in many emerging markets, it does not offer last mile delivery. People have to pick up their parcels at a designated spot, leading to a sub optimal customer experience. DHL has launched MyWays, a mobile app connecting customers (both senders and recipients) with people willing to transport parcels on demand. It piloted the program in Sweden, charging delivery fees of about $4 to $20. My Ways thus creates possibilities for flexible delivery while allowing interested individuals to make some extra money by delivering parcels. Another option for the incumbent players is to acquire the tech startups or take a big stake. GM Ventures, the investment arm of America s biggest carmaker, was among the investors who put $13m into RelayRides in ZipCar, a pay-by-thehour car-rental firm that maintains its own fleet of vehicles, led a $14m investment in Wheelz, a peer-rental firm, in ZipCar was in turn acquired by Avis, a conventional car-rental firm, in January 2013 for $491m, giving Avis a stake in Wheelz. BMW is realizing that the car is an underutilized vehicle that remains stationary for most of the day. At the same time, many of the support services that go with cars can also be shared. BMW has invested in ParkatmyHouse (which matches parking spot owners with people needing places to park) and ChargeatmyHouse (which matches electric vehicle drivers with homeowners willing to share their charging stations). GE has invested $30 million in Quirky (a marketplace for crowdsourcing invention ideas). Partnerships between the current market leaders and the startups are also becoming common. TaskRabbit, an online marketplace for outsourcing errands, has teamed up with various companies including Pepsi, GE, and Walgreens. It has offered delivery of Walgreens products to patients during the flu season. Patients can use the Walgreens button on TaskRabbit s app or website to have the medicines delivered by an errand runner enrolled with TaskRabbit. Anticipating disruption Botsman has summarized neatly the essential tenets of the sharing economy in her September 2014 Harvard Business Review article, Sharing is not just for startups. The sharing economy unlocks the value of all kinds of assets (resources, skills, utilities and time) through models and marketplaces that enable greater efficiency and access. In her article, she gives a number of examples, including DHL briefly referred to above.

5 Botsman has identified 5 types of vulnerabilities which open the door to the disruptive business models: redundancy, broken trust, limited access, waste and complexity. Botsman explains these vulnerabilities using banking as an example. The banking industry has redundancy in the form of too many retail branches. Trust in the system is low especially among the millennials. Many people have limited access to bank accounts, venture funding, and loans. There is a lot of waste as customers leave their money in savings accounts which generate close to zero interest rates in developed countries today. Banks are known for their complex fee structure and processes. Not surprisingly, tech startups (Fintech as they are called) pose an existential threat to the current leaders. Crowd-funding platforms such as Kickstarter, social lending systems such as Lending Club, and peer-to-peer currency transfer platforms such as TransferWise are exploiting these vulnerabilities to great advantage. Their business models are characterized by directness, openness, empowerment, efficiency and simplicity. To give an example, TransferWise eliminates the need for complicated currency transfers by making it inexpensive and simple for people to send money abroad. Concluding notes The sharing economy is gaining momentum. Technology platforms are enabling new entrants with asset light business models and creative technology platforms to compete with established players. How can these established players cope with the disruption threat posed by the startups?