Why is the sharing economy so successful and how can it be applied to traditional industries?


startups, Sharing economy

It’s been said that the sharing economy is causing the biggest societal shift since the industrial revolution and it’s predicted that every sector, will, at some point be affected. But what exactly is the sharing economy and how will it impact some of the UK’s biggest industries?

Businesses in the sharing economy provide platforms that sell or rent unused products or service capacity. In many cases, the most successful businesses to embrace the sharing economy are start-ups, largely because they act as platforms between buyers and sellers, without the headache of inventory. We all know that the world's largest taxi firm, Uber, doesn’t actually own any cars, the largest provider of accommodation, Airbnb doesn’t own any property, and the world's largest retailer, Alibaba doesn’t carry any stock.

One of the world’s most successful brands, Airbnb, cemented its position as a poster child of the sharing economy along with Uber, thanks to its pioneering efforts in using technology to carve out a multi-billion-dollar opportunity in the massive global hospitality industry. The company, which boasts nearly 6 million lodging options across 191 countries, is estimated to now be worth $38 billion.

To really put this into perspective, when combined, Airbnb and Uber have a market cap of $102 billion which would rank them as the 38th wealthiest country in the world, just behind Italy.

But the million-dollar question is why is this business model so successful, and how can it be applied to traditional industries?

Firstly, it’s about supply and demand. It might sound pretty simple, but it’s something many traditional organisations struggle with. Let’s face it, demand is always changing – week by week, day by day, hour by hour. But with traditional businesses, supply is fixed. To become a taxi driver, for example, you have to submit paperwork, complete hours of training and pass several tests, meaning taxi companies would find it extremely difficult to employ more drivers to accommodate spikes in demand.

For sharing economy companies like Uber, however, this isn’t the case. To become an Uber driver, you simply need to sign up online, apply for a licence, jump in your car and off you go.Because this process is so slick, Uber can better match long-run demand, while the taxi industry remains stagnant. And even if Uber’s supply outmatches user demand, the company doesn’t lose any money. Taxi companies, on the other hand, would lose profit by hiring too many drivers.

The second reason the sharing economy is so successful is because it’s so efficient. It goes beyond matching supply and demand. It creates supply and provides it with unmet demand. The sharing economy incentivises people to offer services they otherwise would never have offered.

For example, imagine you are trying to find a parking space in London, you’ll typically have two options: pay an outrageous sum of money at a car park, or go on a desperate hunt for an available spot on the street, which will most likely be miles away from where you need to be.

Meanwhile hundreds of parking spots in garages all across the city are sitting idle while people are at work or away on holiday and this is where the sharing economy comes in. With platforms like, JustPark, these vacant parking spaces can be offered to those who need them. Without a platform to facilitate this, people would never bother to rent out their parking spaces, but the sharing economy makes it easy - it’s making our society more efficient.

There’s also the plethora of producer and consumer benefits. For producers, the sharing economy doesn’t require any major commitments – it’s incredibly flexible. For some people it might be an easy way to earn a few extra pounds, for others it might be a full-time job. Either way, there’s a huge range of possibilities.

Consumers also benefit greatly because a huge portion of what is being “shared” is services, which consumers would otherwise be doing themselves. With the sharing economy, there’s on-demand everything: grocery shopping, home-cleaning, laundry services, you name it. By essentially outsourcing these services via the sharing economy, consumers can save a great deal of time.

There’s also more variety, both in price and product. The producer spectrum is incredibly diverse - it doesn’t consist of uniformed workers strictly following the policies of a large corporation- it’s people providing services through the sharing economy, but essentially on their own accord. Producer diversity inevitably leads to consumer variety.

Start-ups have been quick to drive the sharing economy and they have the advantage of starting a business fit for the 21st century with all the latest technologies and practices at hand. But what about traditional industries such as healthcare that are being held back by legacy technology and age-old processes?

Some healthcare providers are already looking into how they can provide a sharing economy-based care model by developing a mobile app that allows patients to video call a doctor, rather than going to their local GP or outpatients service. This will allow patients to see a doctor more quickly and is likely to reduce A&E & GP waiting times.

Over in the US, healthcare providers have also been exploring the concept of providing medical equipment through a model of ‘access instead of ownership’. This is because the purchase of expensive and advanced medical equipment often leads to situations where hospitals are found to be operating over capacity. Boston-based technology start-up, Cohealo, is enabling hospitals and health systems to share medical equipment across facilities, so they can optimise spend, accelerate cash flow and improve access to care. 

But it’s not just healthcare that could be revolutionised through the sharing economy. The professional services industry is set to evolve as customers search for fast, friendly and secure platforms on which people or businesses can find contractors for hire. Freelancers could earn extra money sharing their trade skills and expertise.

The retail and ecommerce landscape is also poised to change dramatically. Some sharing economy services have already appeared with brands such as Rent the Runway launching to allow you to rent the latest style of formal dress rather than spend hundreds of pounds on a garment you’ll only wear once or twice.  Designer handbags can be rented via websites like Bag Borrow or Steal. Fitness equipment like treadmills can be rented. Maternity clothes can be rented. There are even e-commerce sites where parents can rent good quality children’s clothes that are then returned when the child outgrows them—to be rented again by another family.

The sharing economy’s explosive growth has astounded market pundits. There are now many thousands of sharing economy platforms operating in almost every sector and activity around the world, making it no longer a millennial preference, but an integral part of modern society. With the sharing economy only set to grow further, we’re excited to see how it will begin to influence traditional organisations to revolutionise the way we buy and consume products and services in the future.

 

Posted by Helen Thomas