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Unlocking the “sharing economy”

Unlocking the “sharing economy”
August 7, 2014in Business2014-08-072014-08-13businessen
Collaborative consumption and production are revolutionizing business from the ground up - with a little help from technology.

Collaborative consumption and production are revolutionizing business from the ground up - with a little help from technology.

Sharing is caring, or so parents say to children who insist on sole ownership. As it turns out, businesses can learn a lot from mum and dad. The sharing economy is here, and it’s changing the way that customers do business.

At the heart of the sharing economy is a focus on reclaiming value from underused resources. Companies like Uber, Lyft, and AirBnB are disrupting industries that have enjoyed distinct advantages for decades: a high barrier to entry, strong brand loyalty and regulatory protection.

AirBnB has disrupted the hotel industry, as tens of thousands of property owners (and a considerable number of tenants) have rented out rooms and entire apartments to visitors, who prefer that style of accommodation to a sterile hotel room. In many cases, it’s cheaper, too.

Uber offers people the chance to get a lift, again often for far less money, and in a better vehicle. And it has taxi drivers hopping mad. In early June, 12,000 drivers of London’s famous black cabs congregated for a protest against Transport for London, the authority that regulates transportation in the capital.

They were upset that the regulator refuses to classify the start-up as a taxi company, arguing that its method of using smart phones to record fares “do not constitute the equipping of a vehicle with a taxi meter”.

central role of technology

Technology underpins all of these developments, as participants use mobile and cloud software to find each other. Without smartphones and innovative web apps, none of these companies could exist. Now that they do exist, they could change all kinds of entrenched business models, say experts.

“I see point-to-point urban transportation, the taxi industry, being almost exclusively provided by technologies or platforms like Uber or Lyft in the near future,” says Arun Sundararajan, professor of information, operations and management sciences at New York University’s Stern School of Business, and a frequent commenter on sharing economy issues.

“I don’t see much of a future for the survival of future taxi services.”

might your company be next?

The significant thing about the hidden value in underused resources is that there are many such resources out there. It isn’t difficult to think of other areas in which technology could be used to root them out and make them shareable – probably to the detriment of incumbent companies’ profits.

Logistics is an obvious target area. Uber is just a few careful steps away from becoming a last-mile logistics company, which can use others’ time and resources to help deliver food, documents – anything, really.

The company already trialed a partnership with Home Depot to deliver Christmas trees on demand within 10 major US cities. It’s difficult not to see that as an experiment for something more wide ranging, especially given that the company recently changed its tagline from “Everyone’s private driver” to “Where lifestyle meets logistics”.

how to react to competition?

“Some of the practices that are set up inside large corporations aren’t really helpful to the instincts and values that are set up behind the sharing economy,” says Andy Milligan, founding partner at business growth consultancy Caffeine.

“Large corporations will struggle to do it unless they go and acquire these firms,” he says, arguing that they’re often geared to do business in more traditional ways.

Those acquisitions have happened in the past. In January 2013, rental car firm Avis snapped up Zipcar, which rents cars by the hour, for $491m. But Uber and AirBnB may be beyond that now, valued as they at $17bn and $10bn, respectively.

There is another way, says Marco Torregrossa, founder and lead administrator of the European Sharing Economy Coalition. He expands our definition of sharing economy into different areas, including shared production, rather than just shared consumption.

Companies can encouraging shared services by creating their own platforms, and partnering with others, he explains.

“Create a peer-to-peer buyer and seller marketplace, so you create a platform where customers give feedback and give value to the company via online platforms,” he says. “Otherwise a company can be disintermediated by customers.”

ahead of the curve

Large brands are already using technology to create these new platforms and partnerships, to stay ahead of the curve.

High-end sportswear company Patagonia, for example, teamed up with eBay to create a second-hand market for its own products. It makes no money from the sales. But what it does gain is environmental credibility with its audience, while opening up its brand to a whole new demographic of younger people who can’t afford its products off the shelf - yet.

Ikea also trialed its own ‘online flea market’ for people to sell its furniture second hand through its digital marketplace. Like Patagonia’s project, it fuels the firm’s kudos for its corporate sustainability project, but it also flushes older products through its existing customer base, paving the way for new sales.

Projects like these, and others, generate social capital for companies, pulling together a community of users who will become more loyal to their brands.

seeking partnerships

Partnerships will play a big part in this movement, as large brands learn from nimble young firms who are natives of the sharing economy. In 2011, for example, BMW partnered with ParkAtMyHouse, an online digital marketplace that allows participants to rent parking space to each other. The result: instant carbon emission reductions.

“You’re able to move away from a buy-sell transaction to a longer-term relationship with your end users,” says Torregrossa. “These ways, companies gain more data insights on the usage of their products, and they can maximize the value of the service that they provide.”

The alternative is to become more rigid, hardening your traditional business model and lobbying regulators to put up barriers to shared economy business models.

When London’s black taxi drivers tried that, they created such publicity for Uber that its signups increased 850% in a single week, it claimed. Sometimes, it’s better to surf the tide, than to try and stop it.

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