the Growth of the Sharing Economy
Waking up to a new world
We are already facing a paradigm shift as far as our economy and modes of consumption are concerned. Not all of us are aware of the term and its implications – but regardless, we can definitely feel its effects.
Theodore Levitt the brilliant marketing professor at Harvard, said it right, “People don’t want to buy a quarter-inch drill. They want a quarter-inch hole.”
This article will attempt to simplify the concept of the Sharing Economy, its global impact, and bring to light certain facts and features so that entrepreneurs understand why it is important to engage with it.
Owning is not everything
There haven’t been many surveys or studies that cover the characteristics of the sharing economy in India – however, we do have ample evidence from the ones conducted in the United States. Overwhelmingly, consumers are realizing that owning is rather cumbersome and clutter-oriented. Instead, they prefer access – mostly time saving, instant access that can get the job done instead of you taking care of the infrastructure.
Take a simple example – cars are the best, since Uber’s domination is something we all have come to acknowledge and understand. These were once signs and symbols of status, bearing considerable cost to maintain and purchase – yet, according to a PWC study, 8% of all adults in the US have been part of the sharing automotive economy. (PWC, 2015) Meaning, they’ve all basically used an Uber or equivalent at some point, choosing mobility and access over car ownership.
The same goes for Airbnb – people do not want to own various spaces in different countries where you can just ‘share’ someone’s space for a price that is cheaper than the neighbourhood Ritz-Carlton, or renting apartments and the like. Incidentally, it has also beaten the Ritz-Carlton and the Hilton Group, averaging nearly 425,000 guests every night – that is 22% more than the Hilton worldwide, as cited by the Economist. (The Economist, 2013)
The sharing economy also signals a shift in many directions apart from basic ways of thinking, and has certain characteristics of its own.
- Underused assets: This is perhaps the key to defining what may be called a ‘sharing’ economy. Car users renting out their cars, people renting out their rooms – and many other such assets that some may own while a majority may not – enabling a platform for access and subsequent income. Renting, swapping, subscribing, reselling, donating and lending these assets is what a typical platform in a sharing economy would engage in.
- Trust: The sharing economy is built on trust. Take Airbnb, where you trust strangers with your housing, or are housing at a complete strangers’ – it goes both ways. The same applies for the Uber driver and the Luxe Valet (A parking service!). User-based review and rating systems have also become new indicators of trust instead of advertisements and other media campaigns.
- Technology: This is the most crucial aspect of this economy. The need to build technology that can automate and regulate the fluxing nature of sharing economy businesses is felt everywhere – companies are paying top dollar to app and other technical software developers that can provide these services.
- Inconsistency: One of the few critiques of this kind of economy, apart from the fact that it’s not as popular as yet. Since many of these companies employ contractors on a need-basis, retaining employees effectively is not something they can guarantee. Indeed, many delivery services like Saucy and Sprig face this issue – their delivery men simply don’t have that much incentive. Nicknames like the ‘gig’ economy, or the freelancer-based economy have arisen as a result.
- Flexibility: On the flip-side, it allows for more flexibility as regards working hours for the service providers – and saves time for consumers also, since most of these are timed services. For example, people who were previously driving cars and are now using services like Uber – treat this time as downtime – as it would be for shoppers and the like.
Sharing Economy: The Growth Curve
The sharing economy’s growth rate and postulated importance by 2025 reveals certain staggering figures. These are the statistics compiled from three-four legitimate sources, namely, PWC and Data Day Studies. There have been studies done by Ernst and Young for assessing the growth of this model in the Indian and global contexts.
Types of Sectors
The Sharing Economy works within several sectors now. It’s helpful to understand how diversified it can be in today’s multi-access based world –
Hospitality and Dining: Airbnb, Feastly, Saucy etc.
Automotive and Transportation: Lyft, Uber, RelayRides etc.
Retail and Consumer Goods: Tradesy, Poshmark etc.
Media and Entertainment: Wix, Spotify, Soundcloud etc.
These sectors are important because it has been observed that different generations of consumers hit up different markets, and preferences may shift accordingly.
Two Generations, One Economy
Since the sharing economy depends on digital platforms for its operation, consumers have been divided according to the ease with which they can access these platforms. Simply put, the ones who are technologically savvy, and the ones who are not. The divide, interestingly, is also generational – as the technological behemoth exploded only in the last 20 years or so.
For convenience, we shall borrow the terms for these generations from a Hitwise ‘Data Day USA’ study conducted in 2016. These are –
- Digital Natives – Those aged 18-34, familiar with the internet and technology – also called the millennial generation.
- Digital Migrants – Those aged 34+, have had to familiarise themselves with the internet and corresponding technology.
They also are prone to accessing different services. The Natives visit a lot of office sharing and co-working websites as compared to the Migrants, who look to the sharing economy for space rental websites (10% more likely than the natives – PWC, 2015) for the ideal vacationing experience. Natives also access these room-sharing sites, but prefer more casual ones like Couchsurfing.
As concerns other services, Natives look toward financial sharing sites, or crowdfunding to boost the businesses of their choice – or even build one themselves. 33% have visited Kickstarter and over 22% have visited Indiegogo for these purposes. (Data Day, 2016) Migrants engage with platforms that aren’t as flexible as crowdfunding sites, but have been shown to visit sites like Prosper, a peer-to-peer lending website.
With the Sharing Economy acting as a global effect, and having the masses involved, the growth was inevitable. The question that now stands is, will it continue to grow further or will a saturation hit the sharing economy? Speculations have people thinking a decline might be on the horizon, but considering the trend of experimenting and being open to risk with the masses currently, the sharing economy won’t see a decline or saturation anytime soon. Ideation is what keeps the sharing economy thriving, and those can be endless, some make it big, some don’t but the inflow of ideas aren’t stopping anytime soon. More ventures are on the horizon, and the buck isn’t stopping any time soon.