Earlier this year, I travelled to Melbourne for a conference. Instead of paying to stay in a hotel like I normally would, I paid a local couple to stay in their spare room. On arriving at their clean and tasteful apartment high above the city streets, my hosts handed me a cold cider and we chatted about our lives.
This warm welcome was a sharp contrast to the experience of arriving alone to a lifeless hotel room. I thoroughly enjoyed my stay, it cost less than a typical hotel room and I was within a few minutes walk of the conference venue.
The business that facilitated this experience was Airbnb, one of the poster children of a movement known as collaborative consumption. Established in 2008, Airbnb hooks up people who have room to spare with people who need somewhere to stay. More than 500,000 properties are listed worldwide and more than 8.5 million people have stayed in them. Clearly, others are getting as much out of the Airbnb experience as I did. Last year, the company was valued at US$2.5 billion.
Airbnb is only one of a plethora of businesses that are buying into the collaborative consumption model. It’s an economic model based on access rather than ownership. Collaborative consumption startups use the internet and social media to facilitate peer-to-peer exchanges, allowing people to share assets and services directly with those who require them.
This emerging sharing economy includes marketplaces like eBay and Gumtree, car sharing services like GoGet, bike sharing services like Melbourne Bike Share, peer-to-peer rental services like Open Shed, errand services like Airtasker and clothes swapping services like the Clothing Exchange. Many more startups focusing on diverse products and services are operating in Australia.
Clearly, this emergent sharing economy is a potential threat to established business models. If consumers are sharing things they already have, then they don’t need to buy something new - or at least, they don’t need to buy so often. If I stay with a local in Melbourne, I’m not giving my money to a hotel chain. In short, if the sharing economy takes off, existing businesses will be selling fewer products and services.
Collaborative consumption initiatives tap into idle capacity in the economy - unused rooms, tools that are gathering dust, spare seats during the morning commute and unused skills - and make this capacity available to consumers at a lower price than the incumbents.
As well as being financially attractive to consumers, participation in the sharing economy reduces environmental impact by making more efficient use of existing resources. On top of that, participants can make new social connections with the people they share with. It’s a win-win-win proposition for consumers - they can feel good about their environmental impact, build new social relationships and save money at the same time.
Despite this attractive business case, the sharing economy has so far been too small to pose much of a threat to existing business interests. For example, only 1% of tourists visiting New York stay in Airbnb properties. Globally, there are about 1 billion cars, but only 2.3 million members of car sharing programs. Nevertheless, the sharing economy constitutes a new disruptive element that is growing rapidly. Revenue in the global car sharing market is expected to grow from US$1 billion in 2013 to more than US$6 billion in 2020.
Just how big the sharing economy could grow remains uncertain, but there is some research on its market potential. In a Masters research project, more than 84% of the Dutch respondents expressed interest in participating in collaborative consumption of some sort. While current uptake in Australia falls well short of these levels, new collaborative consumption startups are appearing on a regular basis and participation is growing.
Recent legal responses to the disruptive emergence of the sharing economy may indicate that it is indeed seen as a threat to the establishment. In New York, Airbnb is caught up in an investigation into possible breaches of a 2010 law that makes it illegal to rent out your own apartment in the city. New York City’s Attorney General filed a subpoena for data on all Airbnb hosts in the city. Ride sharing startups in the United States have also run into legal trouble in several cities.
The responses of businesses that may be threatened by the sharing economy are also instructive. Several car manufacturers have responded to the threat posed by car sharing startups by launching their own car sharing services. Earlier this year, Ford launched its FORD2GO car sharing service in Germany. BMW also offers a premium car sharing service called DriveNow in Germany and San Francisco. Presumably, these manufacturers are entering the market in response to the competition posed by car sharing.
Given the clear financial, environmental and social benefits of collaborative consumption, it makes sense for existing businesses to find ways to tap into the sharing economy. Rather than seeing the sharing economy as a threat, smart businesses will recognise it as an opportunity to find new, more sustainable ways to connect to consumers.
This is the second piece in our series on the disruptive forces hurting big business.
Read the other pieces: