Business Digital

What the Sharing Economy Means for Business

Image via Shutterstock

Image via Shutterstock

With digital peer-to-peer platforms emerging in dozens of vertical markets, the sharing economy appears to be in its own Cambrian explosion of diversity. Participants share cars, bicycles, houses, clothing, tools, and a growing array of other consumer goods. “Collaborative consumption” is gaining traction among customers and finally attracting the attention of regulators and entrenched incumbents—not just taxi cabs and hotels, but increasingly automakers and manufacturers of other consumer goods that have built businesses on seemingly endless demand for ownership.

We call this behavior new, but humans have shared food, tools, time, and skills with neighbors and friends for millennia. And nearly 20 years ago—ancient history in Internet years—the first generation of digital peer-to-peer platforms, such as eBay, began providing users with infrastructure to buy and sell from each other directly and circumvent traditional retail outlets.

Today’s sharing platforms allow users more options: for example, rather than sell an under-used car, an owner can offer it as a rental for an afternoon. Borrowers gain access to assets without the burden of owning them. These platforms dramatically increase the scale for sharing that previously occurred in a narrow sphere among friends. They also make it possible to view our consumer goods as assets capable of generating incremental income. Sharing is just another step in the financial efficiency that peer-to-peer platforms provide.

Will the sharing economy grow?

Some question how much sharing will grow. The idea of renting a vehicle or apartment to a stranger seems quirky or even dangerous, and they can’t imagine such sharing will catch on. It’s worth remembering, however, that practices such as online shopping and social media initially faced similar misgivings, yet consumers adjusted (one-click shopping, anyone?). The long-term trend suggests that the sharing economy, too, will muscle its way into the mainstream, one slightly dented car at a time.

For some, interacting with strangers is actually part of the attraction of sharing, offering an opportunity for authenticity and uniqueness. For others, sharing is an ecological imperative, lowering environmental impact by decreasing the amount of stuff that needs to be made and sold. For almost every user, it’s a way to use an asset less expensively than has been possible before.

In considering the potential of the sharing economy, it’s important to remember how young these companies are. Their traditional competitors have had decades to perfect business models, develop infrastructure, brands, and other assets. But as sharing companies grow, they will gain operational efficiencies and scale and also benefit from network effects as each new participant adds value (and promotion) to the platform. Sharing also faces an unclear regulatory environment and opposition from lobbyists for incumbent companies like the hotels, which have already begun a tenacious battle against Airbnb. But over the long term the law usually adapts to match the changing needs of the economy.

What the sharing economy means for your business

Sharing has some stark implications for business. Overall demand for first-time purchases may shrink for products that consumers can use communally. The million people carmakers sold to last year can now rent to their neighbors, becoming a de facto million new competitors. Sharing platforms also allow for almost infinite product variation. Hotels, for example, now face hundreds of unique competitors at every price point, offering everything from couches to penthouse suites. The cumulative effect may be to shrink markets and narrow margins.

What can companies do? For one, consider the operational benefits of participating in the sharing economy by renting out underused assets like office space and production tools. Or design products to be more sharable. Some car companies are developing wireless entry mechanisms so that owners can rent their vehicle without needing to hand off keys. They can also provide warranties for group use. Some companies might consider creating their own platforms to encourage users to share their products. Ford’s 2011 partnership with Zipcar was an early move in this direction.

The real opportunity for product companies will be to evolve an array of services to increase the value that consumers (and those they share with) gain from using their products, for example, building in the ability to disengage a car’s security system via smart phone to allow private car-sharing.  This can expand the scope of interaction with consumers, moving from a narrow buy/sell transaction to a long-term relationship over the entire user experience. In the process, companies can gain more data and insight about the usage of their products.

Astute companies will have an opportunity to evolve from product/service vendor to trusted advisors who show consumers how to maximize the value of the products and services they are using. Trusted advisors will benefit from powerful economies of scope: the more they know about users, the more helpful they can become.

The evolution of the sharing economy will again illustrate the powerful interplay between the physical and the virtual. Virtual platforms help users gain more value from the physical products they use and share, while physical products can become the catalysts for relationships enriched by virtual platforms.

John Hagel III, director in Deloitte Consulting LLP, is the co-chairman of the Deloitte Center for the Edge based in Silicon Valley.  John Seely Brown is the independent co-chairman of the Deloitte Center for the Edge.

Tags: , , , , , , , , ,

  • Proprly

    Hi Guys-

    Nice article on the shared economy. It’s worth noting that new companies are growing up around the big players (i.e.- airbnb, etc.) for companies that support, or enable the collaborative consumption markets (e.g.- Proprly.com – Cleaning & Key Drop Services for Airbnb Hosts).

    As an early employee of eBay, we saw entrepreneurs tackling challenges that eBay couldn’t or wouldn’t address which ultimately led to a really robust API, and 3rd party community. In any new marketplace, massive opportunities arise to support the eco-systems of these disruptors. (e.g.- paypal).

    Cheers,

    -Randy Engler

    Founder & CEO
    Proprly.com

    • adamludwig

      Randy, thanks for your comment. The ecosystem of peer-to-peer markets emerging around Airbnb and other entrants is remarkable. Any predictions about the next wave of disruptors?

  • Vale

    ss

  • markmontgomery

    Let’s hope the sharing economy evolves in a manner where the wealth gap does not continue on current trajectory — otherwise I fear we may eventually have much greater concerns than sharing. It seems we are missing some fundamental economics and modeling here that could be catastrophic. It concerns me.