Prosper. Amazon. Expedia. These are just a couple of names that spring to mind when discussing the sharing economy. And whether consumers realize it or not, they are the ones that are driving the momentum in the sharing economy based on their willingness to share and not necessarily own assets. In fact, according to a recent Bank of America Merrill Lynch report, the sharing economy is “transforming 21st century business” as we know it.
In its loosest definition, a sharing economy connects people who would otherwise be strangers through technology platforms. Companies like Uber for on-demand rides, to Airbnb for travel and of course peer-to-peer lenders such as Funding Circle and VIAINVEST, all of which have become ubiquitous for the types of services they provide.
Professor Arun Sundararajan of NYU Stern School of Business put it this way: “Sharing isn’t new. What is new in the sharing economy is that you are providing these services to a stranger for money rather than helping a friend for free,” as cited on CNBC.
And while traditional companies won’t necessarily get Uber’ed out of their industry, the sharing economy is indeed causing market disruptions that appear to be having a trickle-down effect that knows no income barrier.
Sharing – the new value?
According to a Bank of America Merrill Lynch report, there is a whopping USD 6 trillion in commerce that’s at risk of being disrupted by the sharing economy across sectors – including transportation, travel, food, retail and the media. This represents 8 percent of global GDP. To put it another way, eight of the world’s 10 largest start-ups based on valuation are in fact sharing economy businesses.
Indeed, the consumer’s willingness to accept “access over ownership” is what’s driving a paradigm shift in the way that businesses are being structured for the first time since the Industrial Revolution. The shift is away from the asset-heavy model that is typical in manufacturing to a more asset-light approach seen in today’s sharing economy.
Take Uber, for instance, a company that uses the Internet to connect passengers with drivers. Uber does this with an asset-light business model, evidenced by the fact that the ride-sharing company doesn’t need to keep any vehicles in its inventory. By the same token, you won’t see an Amazon brick-and-mortar shop on every corner the way you would find a Starbucks.
Meanwhile Expedia, which continues to innovate to stave off competition from the likes of industry disrupter Airbnb, is doing some disrupting of its own. The travel site has in 2017 made an advertising push of Home-Away across the U.S. and Europe. Home-Away is the lodging business Expedia acquired a couple of years ago, which seeks to make home-sharing as common as hotel stays.
For peer-to-peer lenders, such as Prosper, Lending Club, Funding Circle and Zopa, to name a few, this means relying on the capital of investors to fund loans rather than relying solely on a balance sheet approach since they don’t take deposits.
This type of growth would never have been possible were it not for the rise of smartphones and the mobile Internet, which combined have powered the sharing economy. Navigation systems allow on-demand ride sharing to work, digital payments have taken the place of cash, while digital reviews have established a rapport among users. Meanwhile all of the above are gaining momentum at the expense of classified ads and even e-commerce.
As long as consumers are driving this phenomenon, the sharing economy will continue to expand. In fact, approximately 66 percent of global consumers are open to sharing or renting out their items.
Bigger Than the Internet?
Paul Hawken of The Environmentalist predicted that the business-to-business sharing economy would eclipse the Internet. He may be on to something.
The market value attached to the sharing economy is estimated at USD 250 billion, as per the Bank of America Merrill Lynch report. There’s seemingly a lot more room to run. In fact, the sharing economy market opportunity is pegged at USD 2 trillion, and it’s only getting bigger, the report indicates.
And while the baby boomers are catching on, it’s the millennials and Generation Z’ers that are driving much of this growth. These are the generations that are increasingly willing to forego owning an asset in favor of paying for the experience. As long as they are, it seems the sharing economy will continue to disrupt more sectors of the economy.