sharing economy

Businesses operating on the traditional, production & consumption-based business model obviously still represent the vast majority of the current economy. However, the Sharing Economy, already estimated to be worth £22.4 billion in the UK or 1.3% of GDP is predicted to rise to 15% within 5 years. 1

Since this positive growth trend is backing the sharing market and the economic outlook is not suggesting any significant improvement to consumer incomes anytime soon, the Sharing Economy could well be one of the next disruptive innovations challenging or even displacing current ways of doing business. The Summer 2014 strikes by taxi drivers in London, Berlin, Paris and Madrid as taxi drivers against the taxi service app Uber are testament to just how disruptive Sharing Economy business models can be.

What’s your sharing economy strategy?

Massive changes in consumer behaviour have surprised established players before, and the Sharing Economy is clearly driven by consumers and the technologies that facilitate such change. Incumbents, especially big corporates, tend to find it difficult to respond to such changes quickly and effectively. Their sheer size keeps them from moving fast enough, especially when they have to rethink the fundamental basis of their business model.

How then can businesses that aren’t participating in the sharing economy prepare themselves for the changes that peer-to-peer and collaborative models are bringing about?

The three most commonly observed business strategies

1. Buying a P2P / collaborative consumption company and try to learn about this new market model from their experience. The biggest caveat here is that integrating such knowledge and such a different business culture still poses a challenge especially to large companies.

Interestingly, so far we’ve primarily seen established P2P companies buy smaller local businesses to accelerate their global expansion (eg Germany-based P2P Property Rental Company 9flats bought Canadian iStopOver, US vacation rental company HomeAway Inc. internationalising their business through several acquisitions) rather than corporates going on a P2P shopping spree. This may change with the notable acquisition of car sharing market leader Zipcar by Avis Budget Group in Spring 2013.

2. Developing peer-to-peer know-how inhouse. German car manufacturer BMW, renowned for testing the waters early, has tapped its toe into the P2P space with DriveNow, its car sharing offering focusing on big cities. They’ve flexed their muscles by adding service aspects such as the ability to drop a car off at a different spot rather than having to return them to the pick-up point.

Such an offer wouldn’t be economical (yet) for P2P companies like Zipcar. This approach allows BMW to explore what new sharing concept means to their established business model.

3. Watching what happens. Staying outside such new developments to see what happens and decide about which strategic route to take can work out. But it is the one approach that bears the highest risk of being left behind as happened to Microsoft’s late entry into the search engine market with Bing.

There’s a fourth way for the truly innovative, and may we say daring companies: opening their business model to the collaborative nature of the sharing economy. In this scenario corporates do what they do best – provide economies of scale, investment power and an optimised framework –while individuals add localisation, specialisation and customisation. Robin Chase, founder and CEO of Buzzcar and former CEO of Zipcar, calls this collaborative model “Peers Incorporated”. She suggests that “Once the right platform is in place, the Peers Incorporated model delivers the speed of collective action, with the benefits and beauty of individual creativity, ingenuity, and innovation.” 2

Indeed, the fact that the global resources our current economic model so heavily relies upon are finite, may well become the main motivation for traditional companies to participate in the sharing economy. The authors of the “Cradle-to-Cradle” concept, William McDonough & Michael Braungart, recommend – as part of their call to transform human industry through ecologically intelligent design – that traditional manufacturers move away from selling products that go on to landfill and instead change their business model to one based on leasing their products to customers and take them back to re-enter them entirely into the production of new products. 3

Similarly, the Ellen MacArthur Foundation campaigns for a “circular economy”: “Rethinking our economic model does not only involve a re-organisation of manufacturing processes, the change goes as far as redefining the relationship between objects and consumers.”

They encourage companies to look at new models of ownership to make better use of resources. McKinsey & Company, in a report commissioned by the Ellen MacArthur Foundation, estimates the potential cost savings in a circular economy scenario to amount to between USD 340 and USD 630 billion, depending on adoption levels. 4

In the end participating in the sharing economy may simply make business sense. As always in fundamental shifts in our economic environment we expect that there will be some dinosaurs that will eventually become extinct. The question is who will they be?

This is an amended excerpt of the white paper “State and impact of the Sharing Economy”, co-published by Opinium Research and Your Allies. If you’re interested in the full report please contact us.

Sources:
1 collaborativeconsumption.com
2 http://ubpost.mongolnews.mn/?p=1311
3 http://www.mcdonough.com/cradle-to-cradle/#.Va9SzPlVhHw

Photo credit: CC BY unsplash.com, published unchanged