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The rise of the sharing economy: Collaborative consumption explained

The sharing economy has turned the accepted notion of supply and demand on its head. Based on a simple economic model that allows individuals to borrow or rent assets owned by someone else, it represents a game changer for traditional industries.

Well-established market behaviours, such as renting, lending, swapping and bartering, are now taking place on a scale never thought possible before. By harnessing technology to create new access to under-utilised assets and services – whether that’s a room for the night or a ride into town – businesses within the sharing economy are providing a whole new way for consumers to get what they need, when they need it.

Sharing on the rise

recent report from peer-to-peer lending firm RateSetter shows that almost two-thirds of all Australians used the sharing economy in the past six months.

The sharing economy is part of a larger concept called “collaborative consumption”. Rachel Botsman, author of What’s Mine Is Yours – The Rise of Collaborative Consumption, writes that the concept is based on the shift from centralised hierarchical institutions to decentralised networks and communities. Botsman claims that collaborative consumption is driven by factors such as complexity – when there are ways to simplify frustrating customer experiences – as well as broken trust with big institutions and a growing trust in our peers.

While collaborative consumption includes “sharing” ventures, such as Airbnb and Uber, it also encompasses new learning models, such as Massive Open Online Courses (MOOCs), decentralised forms of production, such as 3D printing, and even crowdfunding.

The business of sharing

One of the first businesses to emerge in the sharing economy was eBay, the peer-to-peer marketplace launched in 1995 that allowed anyone to be a retailer. Today, eBay is dominated by professional sellers and has a market capitalisation of US$27.9 billion.

When Apple launched its App Store in 2008, growth in the sharing economy gained lightening speed due to the increased ease of access. Research from PwC conducted in 2014 estimated that the five main sharing economy sectors (peer-to-peer finance, online staffing, peer-to-peer accommodation, car sharing and music and video streaming) generated US$15 billion in global revenues and have a potential revenue opportunity of $335 billion by 2025.

The sharing economy is more complex than you may expect and there are a number of business models that operate within it. Some of the bigger names in the sharing economy, such as Airbnb, Uber and eBay are profit driven. Airbnb, for example, was recently valued at US$30 billion, while Uber has raised US$15 billion since launching in 2009 and is thought to be valued at around $68 billion.

There is also a hybrid model within the sharing economy that encompasses for-profit companies that are also driven by a cause. Companies such as Australia’s Flexicar, which was purchased by Hertz in 2010, is an example of such a model. It was founded as a for-profit company, but has a clear goal to provide inner-city dwellers with environmentally sustainable access to cars.

A third business model is “mission driven”, whereby a company is not-for-profit but exists to benefit a cause. International non-profit company Kiva is an example – its mission is to connect people through lending to alleviate poverty.

Many ways to share

Some of the most popular sectors of the sharing economy include:

  • Peer-to-peer finance, which is the practice of lending money to individuals or businesses through online services that match lenders directly with borrowers. Companies include DirectMoney, OnDeck and RateSetter.
  • Online staffing, which offers a shortcut to finding qualified individuals with specialised skills for temporary work assignments. Companies include Task Rabbit for Business, Freelancer.com and Upwork.
  • Peer-to-peer accommodation, where an existing homeowner makes their home or spare room available for others to rent for short periods of time. Companies include HomeAway, Roomorama and Airbnb, which now averages 425,000 guests a night.
  • Car sharing, which provides a cheap, green alterative to car ownership. Companies include GoGet and Flexicar. While Uber is officially regarded as a ride-sharing company, UberX in Australia recently signed a deal with peer-to-peer rental firm DriveMyCar, which will allow both new and existing UberX drivers to rent out idle corporate fleet cars.
  • Music and video streaming, which provides instant access to a wide variety of digital music, films and TV. Companies include Spotify, Pandora and Netflix.

Digital technologies have helped pave the way for this whole new sector of the economy based on the simple principle of sharing. It is creating disruption within some industries and opportunities in others.

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