Share and Share Alike
This piece was commissioned by and first published in Euro Asia Industry Magazine, Issue #5, 2016:
From the exponential growth of Uber and the exciting possibilities of TechShop in developed markets to locally-tuned rideshare apps in emerging ones, the shared economy is a term that’s on every savvy investor’s radar. Helena Haimes looks at its extraordinary evolution and potential for further growth, alongside the regulatory obstacles that could threaten its expansion.
Every day, an average of a million people in 400 cities around the world order an Uber taxi through their smartphone; AirBnB enables 500 million people to spend the night in private homes in 57,000 cities in 192 countries, and online marketplace Taskrabbit offers local services to its 1.25 million users. Those companies have become so ubiquitous that their names have become part of our everyday lingo – how many times have you “jumped in an Uber” or “stayed in an AirBnB” in the last couple of years?
The rise of what’s become known as the shared economy is one of the internet’s biggest success stories, with potential global revenue across all its sectors – from accommodation and car rental to shared manufacturing and food and beverage services – forecasted to reach US$335 billion dollars by the end of 2025. Though the term can cover peer-to-peer lending, companies renting out spare space and equipment or even putting a solar panel on your roof then selling the excess energy back to the grid, the real foundation of the shared economy is ordinary people renting their biggest assets – their homes, cars, household goods and skills – to each other. As advocates of the phenomenon like to put it – “access trumps ownership”.
Drummond Gilbert is the founder and CEO of GoCarShare, an online platform that connects car owners with passengers to enable them to share journeys. As a key player in the arena and one of the earlier adopters of the shared model, he gives us some insight into the reasons for its initial advances. “With jobs in scarce supply, the first sharing economy platforms that became popular were the ones that people who had been out of work could quickly derive an income from,” he explains. “Uber became popular because it enabled people who were underemployed to derive additional income from their cars; TaskRabbit was a similar example where if you needed a task done, you could get ‘regular people’ to perform tasks for you from your smartphone.”
What’s in a name?
On the one hand the term can cover altruistic activity (what could be more idealistic than ‘sharing’ goods and services with your community?), but as the revenues at stake grow exponentially and it increasingly disrupts a multitude of industries, other labels have been coined by economists and business academics. It’s also been less commonly referred to as the ‘collaborative economy’ and ‘crowd-based capitalism’, the latter a term that has (arguably more accurate) commercial connotations.
Whatever you want to call it, more than one million full and part time jobs are predicted to have been generated in the field globally by the end of 2016. And while the term has become synonymous in the public consciousness with the giants that are Uber and AirBnB, it is becoming ever more evident that other industries are eager to learn from the behemoths’ success and exploit the advantages of sharing.
The nascent field of ‘shared manufacturing’ is a prime example of the ways in which the shared model is impacting previously uncharted sectors and stretching itself far beyond consumer rental options to expand the collaborative possibilities for industrial entities. Recently released research found that it is set to branch into more markets and industries in the years ahead, with perhaps the most exciting opportunity on the horizon relating to the impact on making things. Shared services in manufacturing will, the research predicts, aid in drawing manufacturing back to Western economies that typically outsource such operations to the Far East and the Asia-Pacific region at present.
Shared manufacturing is starting to operate via the concept of collaborative innovation, alongside technologically-advanced workshops such as ‘TechShop’ – a chain of member-based workshops in the US that lets people of all skill levels come in and utilise industrial tools and equipment to build their own projects. Members pay a monthly (US$125) or annual (US$1,200) fee for 24/7-access to pricey equipment such as laser cutters, 3D printers and water jet cutters. Day passes are also available for US$25. Similar organisations have emerged in the form of NextFab and Generator, signalling a new era of shared manufacturing entities that have the potential to reduce production times for prototypes and concepts, while aiding in scaling up the manufacturing operations of young start-up businesses.
Mark Hatch, CEO of TechShop, says the old model meant that an entrepreneur had to fork out at least US$100,000 in order to create a prototype for a new product. With sharing workshops offering access to million of dollars’ worth of tools, the cost can now be a fraction of that. “When you move the cost of entrepreneurship from $100,000 to between $2,000 and $4,000, you completely change the operating terrain for entrepreneurs and inventors,” advises Mr Hatch, whose company announced in June its commitment to help launch 10,000 new startup businesses by 2022. The initiative will leverage TechShop’s 7,500 members and multiple locations across the United States in addition to an ecosystem of supporting companies and institutions interested in helping entrepreneurs launch their companies.
Emerging market movements
Increased access to contemporary technologies across the globe has made it possible for us all – from Europeans and Americans to Africans and Asians – to share our assets, skills and services more affordably and easily than ever before. In fact, some of the most intriguing developments in the shared economy are taking place in emerging markets, as those countries adapt existing Western shared models to suit their specific needs, as well as establishing new shared economy innovations of their own.
In India, for example, smartphone penetration has grown to such an extent that it has become the world’s second largest consumer of mobile internet provision – a fact that is crucial to the growth of shared models that rely heavily on apps and other on-demand technology platforms for their success. Unsurprisingly, it is the relatively established ride-sharing sector that has made the biggest impression there so far. Uber India (operating in 18 cities) and homegrown rival Ola (which has established itself in over 100) compete stiffly for their respective shares of the country’s potentially lucrative transportation revenues.
In a nation whose transportation and logistics sector is notoriously fragmented, public transport struggles to keep up with demand and car ownership rates are relatively low, it’s easy to see why these businesses are making such rapid progress. The services offered by both Uber and Ola are quick, simple to organise and reasonably cost-effective, with vehicle owners and truck drivers enjoying more sustainable, increased and predictable earnings than before. For both organisations, tailoring their businesses to local demands has also been key to their respective growth, with Uber providing more personal transport services customised to local Indians and the intense market research undertaken by Ola meaning that they cater to food delivery and grocery ordering needs as well.
As the world’s fourth most populous country and South East Asia’s largest economy, Indonesia is also being widely vaunted as a potentially highly remunerative market for shared economy organisations. According to recent statistics, 87 per cent of Indonesians are willing to use products and services from other members of a share community, compared to just 66 per cent worldwide. Again, it’s transportation that is leading the way, with foreign leaders such as Grabcar and Uber making their presences felt in the larger cities, and local startups using their domestic knowledge to give themselves enough of an edge to compete.
Established by local government as a response to worsening traffic issues in Jakarta and known as the Indonesian ‘Uber for motorcycles’, Go Jek has become a household name in the nation’s capital and is a key example of the shared model being used in a locally beneficial capacity. Started as a response to the city’s inefficient public transport system, it offers a new take on the traditional, informal ‘ojek’ system, which entails looking for a driver, haggling over a price and climbing on. Go Jek, by contrast, enables customers to book motorcycle taxis directly to and from bus shelters and track bus schedules in real time – a boon in a country with unpredictable bus timetables and where shelters are often a long walk from people’s homes.
Despite such success stories, shared economy organisations in both established and emerging markets are nonetheless facing a number of challenges as they develop – from disgruntled established rivals and questions surrounding regulation, to limitations posed by lack of technological progress hindering growth in certain otherwise promising markets.
Such businesses are often displacing existing providers rather than opening up new capacities – witness the Europe-wide protests and appeals for regulation by taxi drivers against Uber’s encroachment onto what they saw as ‘their’ territory. In fact, it is regulatory uncertainty that is widely acknowledged to be the shared economy’s biggest challenge in the West, with the best known example being the increasing backlash against AirBnB. The firm and its hosts were heavily fined for breaking Barcelona’s strict regional laws that prevent the renting out of rooms in private residences, and the service has also received short regulatory shrift from officials in Paris and Berlin.
It’s an issue that Mr Gilbert sees as key to the field’s future prospects, especially in relation to consumer rights issues. “For us, getting the right balance of consumer protection and regulation is important,” he tells us. “There’s clearly interest in ensuring that consumer rights are protected – but should the platform be liable in the case of customers not treating each other the way they wish? If they were, this would put a huge burden of the platform and stifle future growth in an industry that is in many capacities still in a very nascent stage.
“It’s clearly important that consumer rights are championed in this industry, where currently legislation does not adequately cover it,” he continues. “But any legislation needs to be introduced in a way that’s not damaging.”
Regulatory challenges related to displacement of traditional services are undoubtedly present in emerging markets as well. Popular as it is, Go Jek – together with the online booking service for female muslim motorbike drivers, Ojek Syar’i – have faced a stiff backlash from the local motorcycle taxi drivers whose business has been disrupted. However, many of the obstacles in Indonesia and other emerging markets are technical and consumer-based. Only 23 per cent of Indonesians currently have smart phones, for instance, and the country is still very much a cash (rather than credit card) based economy – something that homegrown startups (Grabbike, Go Jek) tend to accommodate more readily than their foreign counterparts.
A peer into the future
Despite regulatory obstacles in established economies and the technological challenges faced by emerging ones, forecasters are universally optimistic about the shared economy’s huge potential for growth over the next decade. Mobile industry analyst GSMA Intelligence forecasts that it could generate more than US$33 billion this year, and estimates an extraordinary 25-30 per cent per annual growth rate from 2016 onwards. The technological barriers faced by operators in developing markets are also set to lessen – for example, the number of smartphone users is expected to rise to 92 million in Indonesia by 2019, so consumer internet access is very much a temporary bottleneck preventing the shared economy’s reaching its full potential in the South East Asian nation.
For Mr Gilbert, snowballing technological advances are leading to ever-more exciting and potentially lucrative avenues for GoCarShare. “We’re now starting to use the location-based functionality of an app to see where people travel and when,” he says. “This means we can start to make predictions as to where people might travel in the future, making intelligent recommendations that are communicated via push notifications, taking us closer to a real time ridesharing solution.”
Perhaps the most telling sign of the field’s extraordinary potential lies in the reaction of traditionally structured companies, who are consistently getting in on the act as the competition heats up. Daimler has recently acquired a share in carpooling.com, Ford offers incentives to customers who rent their cars using sharing site Getaround, and worldwide investment in sharing economy startups stands at over US$12 billion, more than double the amount that social networking ventures like Facebook and Twitter attract. It seems that caring about sharing really is the best way forward.