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Managing excess capacity is nothing new. Goods and services have long been traded in mutually beneficial ways, often on a supply-and-demand basis, and resources have been shared to bring costs down.
Traditionally, however, this has mainly been done at a local, informal level. But developments in technology are allowing the sharing economy (see below: 'What is the sharing economy?') to operate on a much larger scale.
“Fixed goods being used on a part-time basis has always been an issue,” says Steven Perkins, global leader for technology at Grant Thornton. “But two things have changed. First, there’s been an extraordinary confluence of technology – mobile, social and analytical – that has made sharing small amounts of excess capacity practical. The second is social change: a move from ownership to access mentality.”
Technology has given consumers the ability to research, discuss and make purchasing decisions in real-time, according to Perkins, while the social change creates a willingness to buy services in non-traditional ways. Together, they create a user feedback loop, driving the sharing economy forward.
What we are facing, says Perkins, is not an incremental change to business models but a massive and disruptive change more akin to a revolution. “It can seem quite strange to those from a generation, mine, for whom ownership and control – of houses, cars or consumer goods, for example – was a touchstone. For millennials, however, there is a greater willingness to participate in the sharing economy and to trust the technology.”
Pros and cons
For the entrepreneurs who spotted the trend and responded with smart technology solutions, the results have been extraordinary. Eye-popping valuations – Uber at $40 billion and AIRBNB at $13 billion – have earned the interest of the media and the attention of governments and regulators.
Many businesses have had to consider the sharing economy early. “If they didn’t, there was a risk that they wouldn’t be around in a few years’ time,” Perkins says. “We’re already seeing people move past trying to ignore the sharing economy or deny its viability and into a period where they are first fighting it and then adopting it.”
While the low cost of entry for new sharing businesses can be seen as a threat to traditional organisations, established firms have advantages of their own – their brands, their deep customer knowledge and their understanding of quality and customer service. Ultimately, much will depend on whether they can import technology into the mix to deliver a smooth, convenient customer experience. If they can, sharing could produce enormous cost savings, particularly in the use of energy and raw materials.
Take BMW’s investment in DriveNow, a car-sharing joint venture with Sixt. Serviced by an app, customers can locate, unlock and drive vehicles in city environments, charged by the minute without the need to drop the vehicles off at the point where they collected them. For BMW it looks like a classic example of building your worst enemy before someone else does. Going head to head with services like Zipcar and Uber, it’s striking for many reasons, not least that it’s helping BMW reach a demographic that’s more than 10 years younger than its traditional customer.
As with the adoption of internet technologies, the biggest challenge for traditional businesses is finding the right expertise. “The ability to reinvent a business and manage change on a constant basis is a core competency of successful organisations,” says Perkins. “Understanding the radical possibilities of technology and analytics is no longer something that needs to be found among functions, such as marketing or logistics, it’s something that has to live at board level.”
In other words, businesses must find individuals who are technology- and business model-savvy, with the risk-taking profile to help them reinvent themselves.
But what of regulation? Complaints from existing operators about rules being flouted and concerns from governments about lost revenues are focusing attention on how to respond to the sharing economy. From Perkins’ perspective, however, he sees no sign that it’s hampering investment: “Many of the concerns are legitimate, of course. However, some regulators, such as those in London, San Francisco, Paris and Amsterdam, have already shown their intent by relaxing rules around home sharing, while also ensuring safety and taxation norms are met. The key for businesses is to build capacity so they can engage early with governmental institutions.”
A much bigger question is where the sharing economy will go in the medium term. The pace of technological change, along with our willingness to try new ways of working and consuming, means it no longer makes sense to believe that there’s a limit on the business applications of technology.
“You used to hear analysts saying ‘people will never buy clothes online’ or ‘people will always want to own music’,” says Perkins. “But now people are increasingly comfortable flying to a city on business and not booking a room until they arrive. With this attitudinal change and the impending arrival of technology - such as 3D printers and the Internet of Things - you should be sceptical of anyone who says ‘here’s a line that will never be crossed’.”
What is the sharing economy?
The global sharing economy – whereby businesses are built on the sharing of resources, allowing customers to access goods only when needed – is growing at pace. The market is dominated by start-ups, including AIRBNB, car hire business ZipCar and SnapGoods, which facilitates the sharing of household goods.
Another example is Uber, an app-based business that provides an alternative to traditional city taxis. It pairs drivers with ride-seekers, bypassing the cab companies altogether. Uber’s success has been built on a combination of convenience and competitive pricing, both fuelled by the model of the sharing economy.
Providing taxis with the location of nearby customers and informing them how long they have to wait has removed the ambiguity of waiting for a passing taxi. Cars and drivers are in good supply due to far less stringent testing and licensing requirements. And the lower cost of becoming an Uber driver allows for lower fares.
As with any market disrupter, Uber has faced challenges. Questions have been raised about the quality of its drivers. And it has faced legal threats in countries including the US, Germany, India and France, where its Paris operation was banned following protests by incumbent firms. However, with 8 million users worldwide, Uber is certainly maximising the potential of the sharing economy.
But this is not just about start-ups. China-based Haier Group is a long-established white goods manufacturer that has adapted its business model to take advantage of the sharing economy. It delivers thousands of washing machines and fridges across China every day, but has replaced its fleet of vehicles with an online platform that lists planned deliveries for each day. Local people with delivery vehicles can then bid for customer orders – a review system has been put in place to help protect against any potential drop in service and quality.