Sharing Economy: How will it affect traditional businesses?

Sharing economy is one of the fastest growing sectors today, attracting billions of dollars’ worth of private equity funding resulting in astronomical valuations of players. It is redefining the way people work, and how consumers and sellers transact with each other. Commonly referred to as the “sharing economy”, it goes by many names as it is seldom about sharing — crowd-based capitalism, collaborative consumption, peer-to-peer economy, platform economy, or gig economy.

Arun Sundararajan, a professor at NYU’s Stern School of Business, and the author of ‘The Sharing Economy’ sees us at the early stages of a fundamental transformation in how the world’s economic activity is organised. In a recent interview he said, “The transformation that we’re going through is far deeper than simply tapping into spare assets. We’re also changing the relationship that customers have with what they acquire. We’re shifting from people owning things, like cars, to people thinking of automobiles as a service on demand.”

Businesses are moving towards a 21st century model where large companies are drawing on resources from a distributed crowd. According to Arun Sundararajan, the winners will be the Uber’s of the world; the losers will be the auto manufacturers. “They are seeing the competition shift from what they’re good at to what the tech companies are good at — building a relationship with the customer through a digital interface,” he adds.

While the idea of ride sharing isn’t likely to dent auto sales in a rush, there is a possibility of cars ceasing to be a product and becoming a service. Auto companies must embrace the digital platform to stay in the game. In 2011, BMW spotted an opportunity in car-sharing and launched DriveNow, which turned profitable last year. According to a report by BCG, car sharing will reduce worldwide vehicle sales by approximately 550,000 units by 2021 and cause a net revenue loss to OEMs of €7.4 billion.

The trend amongst the new generation is to own less and share more. How will the new sharing economy disrupt other traditional businesses? Take Airbnb, for instance, which has challenged the global hotel industry. With a valuation of $30bn, the company isn’t far behind the $34bn market cap of Marriott International. Then there’s Storefront, seen as the Airbnb of pop-up retail. The company is disrupting the commercial real estate space by connecting brands with over 30 million square feet of unoccupied retail space across the world.

The sharing economy is here to stay. Ultimately, trust, reputation and regulation will determine its success. We’re already seeing peer-to-peer lending and crowdsourcing challenging financial services firms. There will come a time when driverless cars (resulting in fewer road accidents) may threaten the motor insurance sector. Soon battery technology will be good enough to store the solar power that we generate and we may become distributors of energy to our neighbours.

What else can be shared? Have you thought about how the gig economy will impact the business you’re in?


This post was written by Nandita Harendra, ValueNotes

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