The Sharing Economy is built on people sharing assets – they own or someone else own – to unlock value in their downtime, decreasing therefore the opportunity cost post purchase of having an idle asset without transferring ownership. These under-utilised assets are made accessible online to a community, leading to a reduced need for ownership of those assets for the rest of the market.
This is a manifestation of the increasingly preference for access rather than ownership (e.g. Spotify vs iTunes) and the cultural change of what “rich” means, which is now often considered having what we want but only when we want it.
Sharing economy and more generally the peer to peer / disintermediation of certain services/products seem to be the next thing after mass production, thanks to the increasing connectivity that internet and mobile technology brings to the table.
What do we share? Life’s balance sheet
The disruption agenda of the Sharing Economy seems to follow the balance sheet of individuals, what are those assets that have the highest opportunity cost? Your second home? First Home? Your car? The biggest the asset usually the largest the unlockable value by a sharing economy marketplace. For instance, property is the most valuable asset most of us will ever own, small amount of idling capacity translates into a substation earning potential, think about idle capacity as cash that could yield a return if invested.
Marketplaces are as old as commerce itself, even online they take time and money to be built, they can lead to significant ROI but they tend to be binary, the winner takes all. Online marketplaces have the same expectations as every “native” creation of the web: cheaper, faster, easier and more fun (better experience) than the offline counterpart.
Trust lubricates a marketplace, increasing transparency creates a culture of accountability and will be a key factor for the mainstream adoption of these services. I trust this will be achievable as “Face & Name” – an offline reputation system – seems to have worked well and suggest that online reputations system – that could be more advance than that – should function well too.
There are two models: P2P (micro entrepreneurs) and B2C (often characterized by astonishing efficiencies).
For P2P it is interesting to breakdown the participants of the marketplace:
- Offer: Underneath engine of this economy are micro-entrepreneurs properly incentivized to share idle assets and gain a partial financial independence or income diversification (micro capitalism)
- Demand: Early adopts are often “prosumers”, which are increasingly a big part of the entire consumer “pie” and are part of a well connected and informed network.
The incentive structure of the Sharing Economy is made of three main pillars, the first being often a pre-requisite, the second and third being what make these services and products unique.
- Money: saving money, because purely sharing efforts are altruistic and sound beautiful, but whether we like it or not, the profit motive is the main engine for a lot of activity on this planet. Sharing Economy businesses are sustainable because they are anchored firmly on self interest and free market principles.
- Human: sense of humanness and belonging and authenticity, the human factor that comes after mass production, which is tied to our primitive needs to have human interactions and as much as we would like it to believe, our genes do not change at the same speed as culture or technology.
- Status & Values: when possible, consumers tend to vote with their time and their wallets in what they believe and value.
There is a big hurdle to pass (the “Goldilocks Complex”) in order to move to a service/product of this economy while the rest of the crowd is not there yet, hence the three pillars needs to be large enough to counterbalance this initial hurdle.
What about the others?
“If you don’t build a value cycle one will be self organised, and it will commoditize you. Certain industries have to rewire themselves or prepare to sink into the quicksand of the past.” Umair Haque
It is known that once markets are disintermediated, they stay disintermediated. Shifts in behaviour are powerful and often trump industries that do not move fast enough.
We keep seeing services performed separately and unbundled from the core institution, which are better, faster and cheaper than the bundled version. Disruption will eventually get to the door of the more conservative industries when value of unbundling and disintermediating becomes too large to justify or ignore.
Companies in the Music industry for instance went through the corporate equivalent of Kubler-Ross model of grief:
Music in the 90s is the textbook example where a new technology can dramatically take the (perceived) value provided by existing market players to zero (pirating) – commoditisation at the extreme. Then a new business model can take that same technology and build services to bring a new value cycle, in the case of music for instance, where subscription services via convenience have trumped pirating.
The raising efficiency of unbundling and disintermediation that connectivity is unleashing, combined with the network effect of this behavioural changes will certainly fuel interesting disruptions in the coming years.
This is the summary of my marginalia of “The Business of Sharing – Making it in the New Sharing Economy” by Alex Stephany. If you want to dig more into this subject I strongly recommend you to read Alex’s book, it is well structured and rich of examples. (link)