The sharing economy is a mega trend in its infancy stage. The narrow definition of the sharing economy limits it to providing temporary access to tangible assets from peer-to-peer. But the wider sharing economy includes significantly more. As this trend enters an ever-increasing amount of industries, many experts extrapolate the emerging opportunities.
“The sharing economy coordinates exchanges between individuals in much the same way as a traditional market, but does so:
- in a flexible,
- self-governing, and
- potentially revolutionary way.
These burgeoning benefits are profound:
- more sustainable use of idle and underutilised resources;
- flexible employment options for contractors;
- bottom-up self-regulating mechanisms;
- lower overheads leading to lower prices for consumers;
- and more closely tailored and customised products for users.“
Yes, this is a liberal think tank but we will also talk about some of the criticism later in the article.
The sharing economy (wider definition)
Last time we talked about the narrow definition. This time we are looking at the wider definition. I like Jeremiah Owyang’s (and many collaborators’) listing:
- Learning: Peer-to-peer, instructor lead
- Goods: Bespoke goods, loaner products, pre-owned goods
- Health & wellness: Wellness, healthcare
- Food: Shared food prep, shared food
- Logistics: Shipping, local delivery, storage
- Service: personal services, business services
- Corporate: private label, supply chain, employee services
- Transportation: transportation services, loaner vehicles, optimisation analytics
- Utilities: telecommunications, energy
- Space: workspace, personal space, rental optimisation
- Municipal: safety, industrial equipment
- Money: cryptocurrencies, money lending, crowdfunding
Please note that media and software are excluded. Some others list Netflix and other streaming incorrectly as part of the sharing economy.
What are your opportunities?
I firmly believe you do not need to be part of the sharing economy to get inspiration and ideas from it. Now we are going to look at some of the key defining characteristics of sharing economy companies as a starting point for your innovation ideas.
Let’s look at ride-hailing, particularly Uber, to see opportunities exploited by sharing economy companies and how it can inspire your ideas.
(1) Use already existing assets (including someone else’s assets)
Uber uses already existing assets: Uber cars are not on Uber’s balance sheet. And Uber pays also nothing for their operation (e.g. fuel) or their maintenance (servicing, repair.) This puts Uber already at a big advantage compared to traditional taxi companies who own their cabs.
Even if taxi firms were to lease their cabs, the asset’s depreciation, service and other costs would be included in the lease costs. With this, the taxi operators would pay for vehicle-related costs, whereas Uber does not. These are business model benefits. But for a competitive advantage to be sustainable, we are also always looking also for economic benefits. And there are.
(2) Add economic value by utilising existing assets better
Ride-hailing companies help to utilise the existing cars better: It is a fair assumption that most cars owned by Uber drivers are not purchased purely for the purpose of driving for Uber. In London 40% of Uber drivers have another job and drive for Uber to earn additional money. Uber cars get utilised higher than they would be without participating in Uber. Yes, in an economic sense taxis will get utilised respectively less. But this is only temporary. As those fleets become underutilised they will be retired earlier. This will let the higher utilised assets take the victory.
Many statistics confirm that cars are parked 95% of the time. There is little doubt ride-hailing companies will help improve this. This is an economic benefit that indicates the potential of the ride-hailing business model better than the anticipated success of one individual company. “Using almost 50 million individual level observations and a regression discontinuity design, we estimate that in 2015 the UberX service generated about $2.9 billion in consumer surplus in the four U.S. cities included in our analysis.” [Peter Cohen, et al. pdf]. This is a clear economic benefit.
(3) Add economic value through big data
Big data on supply/demand patterns helps to further improve car utilisation: Uber collects data from users and drivers. Uber’s big data on demand and supply patterns has drawn the fascination of economists. You can find some in-depth articles on this here (Economist) and here. Both sources describe the surge price adjustments.
But especially the latter source gives a glimpse into the power of the data. The use case described here are short-term spikes. But aggregated over longer periods a number of other benefits can be achieved, including better utilisation of cars. uberPool is a service that is based on predicting demand. It pools several passengers (that otherwise would have taken separate rides) into one ride further improving asset and resource utilisation.
Incumbents innovate within the box but you can do better
Well, most people will be asking themselves how this can help them. You are probably working in a company that is not part of the sharing economy. But guess who else was not part of the sharing economy: the tens of thousands of companies who are in the personal transport industry that did not come up with the idea or ride-hailing.
Within these industries:
- Car manufacturers
- Car rental
- Car sharing companies
- Personal/public transport
- Consulting companies
there are easily tens of thousands of companies and millions of employees. And yet the idea for ride-hailing came from a start-up.
Isn’t it miraculous?
Well, it actually is not so miraculous. Because it is a common observation that most companies innovate within the box (this is a theme that comes out of many talks and books from prof Clayton Christensen.) But this is a discussion for another time.
Pay-per-use business models are already half way there
You can first ask what your customer really wants. (I mean really, really!)
Last time we have used the famous example of the drill (the hero of the sharing economy.) Nobody actually wants a drill. All that people want is a hole. Yes, there sure are some people who want a car. But given the cost related to owning a car most people want a convenient transport available any time they require it.
So, what is it that your customer really, really wants? Take some time to think about it.
Hilti, a power tool company, has indeed realised that their customers do not want a drill. They want holes. So, Hilti has started offering tools on demand. Their customers are construction companies. And they can hire tools – yes, including power drills – on demand. However, the minimum period is 3 months. And also Hilti owns these tools. Therefore, it falls under the pay-per-use (or on-demand) business model. But it is a step in the direction of the sharing economy.
If Hilti included tools that other construction companies possess and allowed the renting for smaller time units, they would be much closer to the sharing economy than they are now. Yes, they will need to overcome the challenges related to the sharing economy that I have described in the last article.
This may sound risky. But they can be overcome. Innovation always bears risks. But there are also massive opportunities. Pay-per-use (=on-demand) are half way there to making use of sharing economy opportunities. I will elaborate the details of the opportunities in more details soon you in an article soon (so you don’t think I am making this up.)
In this respect it would have been a fair expectation that the pay-per-use car sharing companies, like Zipcar, were to be the first one to come up with the idea of ride-sharing. But this was not the case. In fact, it was Sidecar, a start-up, who came up with the idea of peer-to-peer ride-haling. They went under, despite being backed by Richard Branson, Google Ventures and other venture capitalists. But their idea has survived and Uber and Didi are the biggest players at the moment.
Risks and other views
I have pointed out some of the risks in the last article. There has been criticism in the way how some of sharing economy businesses have are turning out. And the criticism is larger, the larger the company shapes up.
Among other things, AirBnB is being criticised for supporting housing shortage in some cities and not doing much about many AirBnB hosts avoiding taxes.
Uber is the really bad boy. They are being portrayed by their critics as the mega company that puts taxi drivers out of work and “facilitates a bunch of rip offs,” being unsafe and circumventing minimum wages.
As innovator, we need to take the public opinion and our footprint serious. I would in particular caution not to try to play the nice guy if your main interested is to be a (mega) profitable and large.
This is also where the importance of adding economic value comes into play (which is why I have pointed it out earlier.) If your success is based on the fact that you have to comply with fewer regulations than the incumbent your success may be temporary.
Uber is said to have lower safety standards compared to taxis. They are said to not be training their drivers a to taxi drivers as opposed to the taxi firms. And they are said to be saving payroll tax, etc. If these were your only competitive advantages, your business would be at risk.
If this temporary regulatory difference was your only advantage you may find your business model is not sustainable. But as I have shown above there is a real economic benefit. There is also a better customer value proposal (and that at the lower cost.) These are two important factors that will indicate a sustainable advantage beyond a short confusion period until the regulator comes to a position about your business.
Participate in the public debate but do not squander the opportunity due to lack of decisiveness. In Europe, new guidelines (but not laws) have been issued to bolster workers rights in the wake of the new businesses & technologies.
Take action now & boost your innovation skills
Go to Jeremiah Owyang’s (and many collaborators’) listing (go to the actual page). For each of the listed industries, there are several companies listed that are part of the sharing economy. Check them out and try to understand the ways by which they provide value to the customer.
- What does your customer really, really want?
- Do they really want the physical good/asset you are selling to them or do they only need temporarily its function?
- Who already has this good? How utilised is it?
- How can you facilitate a higher utilisation of the asset?
- Check out (randomly or based on gut feel) 3 other companies from this chart. Understand how they provide value. How can you apply similar ideas to your own company/role?
On a parting thought
Prof Juliet Schor from Boston College describes to potential benefits in a balanced way: “So what are we to make of the sharing economy? There is little doubt that the prosharing discourse is blind to the dark side of these innovations. At the same time, the critics are too cynical. There is potential in this sector for creating new businesses that allocate value more fairly, that are more democratically organised, that reduce eco-footprints, and that can bring people together in new ways. That is why there has been so much excitement about the sharing economy. The emergence of P2P communities that share goods, space, and labor services can be the foundation of a new household model in which people are less dependent on employers and more able to diversify their access to income, goods, and services.”