Our Space Blog

The Shared Economy: What Is It and Where Is It Going?

Posted by Megan Hanney on May 24, 2017

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The Market Itself

Some of the world’s most successful start-ups have roots embedded deeply within the shared economy; a sector otherwise known as ‘collaborative consumption’, the ‘peer economy’ or the ‘access based economy’. Consumer demographics and spending priorities have largely fed the exponential growth of the shared economy,  penetrating multiple markets globally.

As market leaders in their fields, companies including Air BnB, Uber and WeWork are all pioneers of the shared economy, providing services from accommodation and taxi services to sharing space. Notably, none of these companies own a single car or real estate asset.

If you’re wondering how a company’s business model is built to constitute a contribution to the sector, the concept broadly encompasses technology related businesses which allow owners to lease objects for short-term use by consumers; by doing so, they are disrupting established business models as we know them.

As a result, consumers enjoy a lifestyle with increased freedom; they escape large monetary investment for the long term and are granted greater flexibility with time and enhanced geographical mobility at a lower cost.

From the USA, to Europe and the Middle East

 Air BnB is referred to by Forbes as the ‘San Francisco poster child of the collaborative consumption sector’, however San Francisco is not where it starts and ends. Jonathan Hewett, CMO at Octo Telematics states that the UK is now “firmly established as the bellwether for Europe, [it’s] sharing economy is expected by PwC to continue to expand at over 30% per year over the next decade. According to the same study, peer-to-peer transportation will remain the largest of the UK’s sharing sectors, driven by urban ride-sharing apps and parking sharing platforms, which are growing at over 35% per year.”

Meanwhile, the Middle East has been using the shared economy to its advantage by embracing the likes of Air BnB and Uber to maximise their tourist potential. Dubai alone welcomed 4.57 million visitors in Q1 2017, an 11% increase on the same period last year. When it comes the technology, the city has seen a complete transformation and the pace of change is set to continue. Simon Press, Senior Exhibition Director at Arabian Travel Market,            stated the future market  “will be based on the sharing economy.” Andy Levey, Head of Marketing at La Perle by Dragone adds: “just because you’re sharing something, it doesn’t steal from the experience. It only whets the appetite for people to want more.”

Challenges

The most prominent challenge in the shared economy is referred to as the ‘chicken-and-egg’ problem; platform providers rely on both consumers and producers to create a sustainable marketplace. Consumer’s won’t participate without producers and producers won’t participate without consumers. Hence, Harvard Business School held a Digital Transformation Summit in April 2017 titled "Beyond Chicken and Egg: Strategic Challenges for Digital Marketplaces”. Over 400 engineers, scholars and entrepreneurs gathered to discuss opportunities of a digital market and strategize solutions for challenges faced by the shared economy.

Will These Companies Make a Wider Impact?

The business of  renting, lending and sharing goods instead of buying them has been referred to as one of “10 ideas that will change the world” by Time Magazine. As much as the start-up bubble may be perceived as a cluster of tech companies itching to be the hottest trend in the millennial market, many have gone a step further to prove they are on a mission much greater than this.

Greg Doyle, from Cause Consulting, points out how car sharing platform, Lyft, is a prime example of one company making a greater impact than anticipated: “Following President Donald Trump’s proposed immigration ban, Lyft pledged $1 million to the American Civil Liberties Union. Lyft is also donating $100,000 to the USO to support service men and women with their transportation needs.”

Who Feeds The Market and Why

The trend of sharing is rife amongst millennials, who have proven to embrace behaviours vastly different to older generations. There is an overwhelming amount of data proving that millennials are rejecting ownership and placing greater value on access. 

 The burdens of ownership now outweigh the benefits for millennials; not only have they witnessed their parents and grandparents suffer the aftermath of the financial crisis, but they’ve lived through their own struggles including the housing crisis and the rise of student debt, forcing many out of major cities due to unaffordability. The shared economy therefore provides millennials with a means to achieving the lifestyle they desire, despite not having the means to ownership.

Jeremy Rifkin, Author and Economist states that “25 years from now, car sharing will be the norm, and car ownership an anomaly.” Goldman Sachs   echo this sentiment in their most recent data investigation, noting how “Millennials have come of age during a time of technological change, globalization and economic disruption. That’s given them a different set of behaviors and experiences than their parents. The must-haves for previous generations aren’t as important for Millennials. They’re putting off major purchases or avoiding them entirely.” 

Millennial spending priorities are devoted more than any generation before to experiences,travel, exercising and eating right, as opposed to making traditional purchases such as houses and cars. 

Who Holds the Future of the Shared Economy in their Hands?

In May 2017 the Chinese government’s shared economy research office reported 600 million Chinese people to have conducted business worth $500 billion in the sector in 2016, up 103 percent over 2015. Chinese companies within the sector raised around $25 billion last year and as much as the Chinese economy is slowing, China’s shared economy is set to account for 10% of GDP by 2020.

The past few months have been a huge success for China’s start-ups. The Japan Times reported that the “bike-sharing industry landed its first unicorn, and companies that allow phone users to share battery packs have raised at least $150 million in recent weeks. But at the same time, one startup recently announced that it expects to share at least 500,000 umbrellas in Guangzhou this year while a Jiaxing-based basketball-sharing company is getting positive coverage in the state media.”

In line with our millennial observation above, China sees millennials as the engine for the sharing economy as they avoid large splurges on cars and houses and instead save for lifestyle experiences such as travelling or seeding their own start-ups. However, China also sees the embrace mobile payment systems, including AliPay and ApplePay, as an engine for the economy. Both of these payment systems took 50 times more payments in China than in the US in 2016. Could it be that China’s climate is more ready than Silicon Valley for world innovations in the sharing economy?

Our Space supports a whole network of global entrepreneurs, many of whom have businesses centred around the shared economy. Learning from fellow entrepreneurs is usually one of the fastest ways to progress within the sector. If you’re interested in becoming a member, don’t hesitate to book a tour at our first location in Marbella, Spain.

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