Dr Jekyll and Mr Hyde: the two faces of the sharing economy

Don’t get me wrong: as most of the people that are going to read this post, I am an regular user of both Uber and Deliveroo.

The points raised below are more question marks that concern most investors and startup ecosystem professionals that focus on sharing economy. Because Early Metrics rated so many ventures in this space (and because I’ve had so many conversations with Uber drivers) I thought it was time to highlight the differences between two industry trends we have been witnessing throughout 2016: the sharing economy tapping into unexploited value, and the sharing economy changing the structure of the workforce. The former is Dr Jekyll, the latter, Mr Hyde. Let me explain why.

Exploring reservoirs of unexploited value: the good side of the sharing economy

Let’s start by what has been the key driver of the sharing economy in the early 2000’s: A deep diving into unexploited reservoirs of value!

The typical example is AirBnB a few years back — but they are many other startups that are doing well such as the French car sharing unicorn Blablacar. The basic is always the same: creating value out of relationships that have been virgin from any monetization attempt before. It could be your car when you are away and don’t use it or just the two back seats of the same car when you are driving from London to Bristol. More exotic examples include new ventures trying to use the produced heat of your shower to warm your neighbours’ apartment and reduce both your energy bills.

These use cases are not creating or destroying any jobs, just making the most of something (and not someone) that is already out there.

If you look at these types of startups, you won’t see as many famous names or unicorns as on Mr Hyde’s side simply because:

  • it takes a huge effort to find that balance between supply and demand in terms of users, but most of all to find and maintain a fair and balanced value proposition for both parties;
  • the sharing micro-economies are usually operating with a social mindset, whereby high revenue generation is not the main objective. It implies that the price points are low and the commissions for the platform even lower. Moreover with today’s online user acquisition costs, it is becoming hard to make the numbers stack up.

Changing the structure of the workforce: perfection coming at a cost

Unlike actors of the first trend, practitioners of the second sharing economy trend live by the motto The client is king. The best example is Uber. What do you except from a perfect cab? Nicer drivers, cheaper fares, shorter waiting time between ordering and accessing the service, etc. In these aspects, Uber gave us what I strongly believe is a nearly prefect transportation service. Likewise, Deliveroo is another example of a nearly perfect food delivery service.

What we do see in these two examples — and other we might have in mind — is the magic duo:

New work structure (most of the time based on freelance) + Strong technology to allow scalability

But do these companies actually really partake in the “sharing” economy? Let’s challenge that:

  • First, we are not talking about Tom, Dick or Harry as individuals interacting on a website anymore, but of a client, a provider and a platform. The likes of Uber, Deliveroo and others are professional systems: Uber drivers buy cars together and share them to run them 24/24. Nowadays, most AirBnB locations in Soho are operated by professional renting agencies who buy buildings and run them as hostels.
  • Second, there is no real need to find that sharply balanced value proposition between supply and demand as Supply is a paid provider and Demand is a paying client. As the Uber and co. are now representing a massive quantity of potential clients, the suppliers have no other choice than come opt-in to Uber and accept all the conditions.

Don’t get me wrong, I am not bashing Uber and Deliveroo. Although I believe they are not new or greatly innovative ideas, they are certainly incredibly good incremental innovations. The old school cabs or hotels systems were not good enough, and got topped by platforms working better. What I am saying however, is that we must call a spade a spade, and go beyond the illusion that all startups claiming to operate in the sharing economy, well “share”. Or change the definition altogether.

If you look at the pool of startups using the magic duo formula, you will see many more famous names and unicorns than on Dr Jekyll’s side simply because:

  • there is more money involved, and therefore more room for monetisation;
  • the markets were already mature. At a company level, it’s always easier to attack an existing market than to create a brand new one where you need to educate consumers with no or few budget for marketing. It the market is poorly addressed by competitors (see the traditional cabs), even better.

Of course, as consumers we all want these new perfect services to keep running and provide us cheap quality services… but lately we have all been made aware of some key challenges. And they are not tiny tech issues…

Take shared costs/revenues for instance. As we witness the growth of the sharing economy mass force — which could be initially seen as a positive news from an employment prospective — many modern countries have employment rules, payroll taxes and many other administrative regulations that have complicated the life of the likes of Uber in the last few months. Say your revenue as a company equals £3 per ride, and you acquisition cost equals £2,8, that traditional £1£ billed by HMRC for your activities actually matters, as I may well turn your profit upside upside down…

And this is just one out of the few clouds that are in the sky!

So yes all theses services are great and nearly perfect. But no one would be brave enough to declare them 100% sustainable or that there is much sharing involved!