01 August 2017 16:18:53 IST

Why you should care about a sharing economy

Set to grow to $335 billion by 2025, the model optimises asset utilisation and cost-efficiency

From a young age, we have been taught by our elders not to be greedy and to share instead. But the new-age saying goes more along the lines of, ‘Don’t buy, share’. Thanks to the willingness to share — cars, homes, offices, human resources and more — there has been a shift from a conventional economy to a sharing economy, and from personal consumption to collaborative consumption.

Big share

The sharing economy is estimated to grow from $14 billion in 2014 to $335 billion by 2025. And according to eMarketer’s estimates, over a quarter of the US adult internet users (56.5 million) will use a sharing economy service at least once in 2017. This is predicted to grow to 38 per cent penetration among internet users (86 million) by 2021. Bank of America Merrill Lynch projects that the sharing economy is currently at around $250 billion, but will morph into a $2-trillion market in just a few years.

It is not just a local phenomenon in one country. Growth is driven by global companies such as Uber and Airbnb, which have operations in multiple countries across the world. Also, China’s sharing economy is expected to grow about 40 per cent this year to 4.83 trillion yuan ($705 billion). By 2020, it could account for around one tenth of China’s gross domestic product. This growth has helped new sharing-models — such as bikes from firms such as Mobike and Ofo — in the country.

The reasons to share are quite elementary. Take the case of cars. Data show that private vehicles go unused for 95 per cent of their life-time and average occupancy is 1.14. So, rather than idle a resource, using a shared ride service improves asset utilisation and, hence, costs. Likewise, room rates with stay-sharing platform Airbnb are about 30-60 per cent cheaper than hotel rates.

There are also environmental benefits to utilising assets better. Sharing can also offer a more social experience. Data from Uber show that riders who shared rides in Delhi helped save 936 kilo-litres of fuel and reduced 22 lakh kilos of carbon dioxide emissions by cutting over 19 million km of travel.

All these benefits make sharing a trillion-dollar idea. And many of the service providers command high valuations and have attracted big funding. Airbnb has raised a total of $1 billion in funding and was valued at over $30 billion in March 2017. To compare, Hilton’s market cap is about $20 billion.

Care to share?

Growth in co-working office spaces will change the dynamics of the office property market and property developers, agents and facility service providers have to rethink how to position themselves. The hospitality and automotive industries are already witnessing the impact of shared resources.

The idea of sharing is not new; but in a sharing economy services are provided to a stranger for money rather than helping a friend for free. This kind of economy traces its origin to 2008, when Brian Chesky and Joe Gebbia offered their air-bed in San Francisco on rent for a night. This idea launched Airbnb and the realisation that people may be open to sharing their idle assets for payment.

There are five key segments in sharing that are seeing fast growth — accommodation, transportation, lending and crowd funding, online staffing and media. Some researchers, such as eMarketer, only include community-based online services that coordinate property, goods and services and exclude crowdsourcing and used-product market places.

Market for share

Besides global names, the sharing economy in India has many home-grown players in key segments. In ride-sharing, for example, Blablacar acts as the Uber or OlaCabs for inter-city drives; Greenpool allows car owners to carpool and get compensated.

Co-working space is a large and growing segment, given the high cost of office space for smaller firms and start-ups. Awfis and Regus are big names in this space. US-based WeWorks is also making big moves in India. Besides lower rent, tenants also get benefits such as interacting with others and get discounts on services such as accounting and compliance. Providers with offices in multiple cities let you use their facility in different locations if you are visiting.

Labour is another resource that is being time-shared. The idea of freelancing consultants is not new, but companies such as UrbanClap and Housejoy offer the services of plumbers or painters.

Peer-to-peer lending or crowd-funding is another service that is gaining currency. Faircent and LenDenClub are among the many lending platforms that let you ‘share’ idle cash with a potential borrower.

Music and other content-sharing through streaming services is a growing category. Sale of used products is also seen as sharing, though one can debate this point.

Besides these large segments, there are also furniture and home appliance sharing (or rental) services such as RentShare and Rentomojo; clothing and accessories sharing through Flyrobe, Renttherunway and Rentacloset. Home-cooked food is also ‘shared’ with others on platforms such as Whatscooking and Homemade.

Share of woes

Potential benefits notwithstanding, sharing is a rough ride. Uber, for instance, faces opposition in many countries. Airbnb has been pulled up by various courts. Indian providers such as Stayzilla have closed operations.

One reason for the problems is lack of clarity on regulation. For example, a person who offers a room in their house for rent may be treated as a hotel service provider and may have to meet onerous regulatory requirements. A person carpooling with others and getting paid may be treated as a taxi service. Often, the providers do not want to be bothered and the users often do not ask.

Another issue is evolving quality metrics that must be adhered to. The system works on trust and feedback, but users may face unforeseen issues such as low quality, downright risky services or loss of property.

Also, there may be privacy concerns. A platform may want to share a lot of personal information to build trust among users, which may lead to issues of racial and gender biases or other risks created due to location and other data being shared.

Despite these challenges, however, the sharing economy model has come to stay and will, no doubt, change how the future looks.