ANALYSIS: How will profit margins fare in a sharing economy?
The rise of the sharing economy presents a double-edged sword to businesses. The very nature of it turns consumers into service providers, creating a disruptive force to traditional markets. But it also works by sweating idle assets, many of which are owned by the companies that are being disrupted.
Consider how many car rides are single occupancy, or how many meeting rooms are left vacant during office hours. Throw into the mix community-based leasing and swapping schemes. In many cases, collaborative consumption is still at the small scale, but significantly it is already forcing some of the biggest brands to rethink their own business models.
According to social innovator Rachel Botsman, who has been studying the dynamics behind this shift, we are living in a unique time in history where we are seeing “the perfect convergence of technologies”. The global explosion of digital platforms is creating a ripe meeting ground for social location and mobile technologies to merge and unlock products and services that are currently being underutilised.
This is not only generating new forms of wealth, Botsman notes, but is reinventing what we consume and how we consume. Consequently, she feels it offers a “massive engine” for innovation. And if companies want a slice of this collaborative cake, they basically have three options open to them: partner with a smaller, more entrepreneurial firm; invest in similar start-up ideas; or reinvent their own business model.
There are already good examples out there. B&Q has teamed up with streetclub.co.uk, a street-networking tool that creates local clubs, provides platforms to start discussions and plans local events for communities. Google recently took a $125m stake in US-based Lending Club which matches borrowers and lenders through peer-to-peer lending for more competitive rates.
According to Botsman, such initiatives not only gives large corporations a stake in the sharing economy, it also humanises their brand while offering valuable insight into changing consumer behaviours which can help inform business strategy going forward.
These type of marriages between big business and small start-ups are set to become increasingly common, according to Marks & Spencer’s head of sustainable business Mike Barry. An advocate for embracing the disruptive, he warns that there is “no such thing as classical commodities anymore”.
Speaking at an event on resource scarcity earlier this year, he was quoted as saying: “No longer will companies be able to push onto society for free. Risk and radicalism – how do you pragmatically marry up the two? That is a real question for business.”
Some of the questions that companies should be asking themselves is whether their business relationships are based on mutuality, collaboration and shared value, how collaborative purchasing could be tapped into save resources, and what underused assets could be brought to life to create new revenue streams.
And you can’t argue with the level of opportunity out there. In the UK alone, the sharing economy is estimated to be valued at £22.4bn according to research from community movement group, The People who Share. It found that 33 million Brits (65%) are already sharing, and a further 14 million (28%) would consider it. It further estimated that UK consumers currently participating in collaborative consumption benefit from £4.6bn savings and earnings.
Maxine Perella is waste editor of edie
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