2015 Industry Prediction Update: Last year, we predicted that IPOs would be announced for AirBnB and Uber, a new sharing app would disrupt a traditional consumer market, and business-to-business sharing would significantly increase. In this article, we review the evolution of the sharing economy in 2015.

Industry Prediction Update: Sharing Economy - Market Evolution

By Conor Henrie and Christopher Pires 

Sharing Economy Background and Evolution

  • Defining the Sharing Economy  

The sharing economy has made many of our lives easier, allowing for transport, physical space and other services to be readily available, often at the push of a button. With major players like Uber and Airbnb gaining publicity for this new segment of the economy, the importance of these types of companies continues to rise. However, despite the broad use of sharing economy companies, the definition of the sharing economy is difficult to nail down – with so many startups offering varied goods and services, the meaning seems to change depending on who you ask. For the purpose of this article, it is important that we first explain exactly what is meant by the “sharing economy.”

We define the sharing economy as a marketplace segmented into two unique models.

  1. Renting out underutilized assets
    • Airbnb – renting a home when not used
    • Turo – renting a car when not used
    • Uber/Lyft – service aside, the physical car you ride in can be classified as an underutilized asset
  2. Provisioning on-demand services
    • TaskRabbit – provisioning personal services in an on-demand fashion
    • Uber/Lyft – car aside, provisioning driving as an on-demand service

The sharing economy, per our definition, does not include P2P markets for transactions of ownership, such as Etsy. It is our view that for a company or a marketplace to be defined as part of the sharing economy, the transaction must result in a temporary rental, of an asset or of a service, rather than an exchange of ownership.

  • Implications of the Sharing Economy

The sharing economy has numerous benefits for businesses as well as consumers.  One such benefit is sustainability, which stems from the increase in asset utility.  A commonly referenced statistic is that the average car is idle 92% of the time3.  Monetizing the unused part of assets, such as cars, is at the core of sharing businesses. With this greater asset utility comes greater efficiency in terms of both cost and environmental impact – by recycling goods, or by circumventing ownership of goods altogether, businesses are able to achieve tremendous cost savings.  Furthermore, recycling or reusing assets means fewer goods must be produced, consuming fewer resources.  In this way the sharing economy is establishing more sustainable patterns of consumption and production.

2015 Industry Prediction: Disruption from the sharing economy continues

On the consumer side, the sharing economy’s principal benefit is increased access to goods and services.  By sharing access among a pool of other people, consumers are able to access goods that they could not afford themselves or have no interest in owning for the long term. Millennials drive significant demand for sharing services, as millennials are accustomed to a high standard of living but may have limited buying power.  Meanwhile, renting assets may serve as a supplemental source of income for sharing economy participants.  Opportunities for extra income are especially beneficial to millennials, whose employment needs are often not fully met by the traditional job market.

sharing-economy-participation

  • Changing Market Dynamics

An October 2015 decision by the SEC to allow small investors to invest in private companies may further impact the funding landscape for sharing economy startups. Prior to the ruling, private companies could only seek investment from "accredited investors" – those who meet a legal high bar of net worth requirements. By expanding the number of potential investors, the SEC is allowing a larger pool of individuals to buy stock in start-up companies through online crowdfunding. While this decision will have almost no impact on well-funded players like Uber and AirBnB, we expect to see the shift result in increased ease of raising capital for some of the smaller entrants in the sharing economy. As a result, we may see more disruption, or more attempts at such, in traditional consumer markets.

IPO Prediction Analysis

Despite investor hype and expectations, neither Uber nor AirBnB announced IPOs in 2015, with Uber CEO Travis Kalanick stating that the company is “nowhere near” the level of maturity needed for an IPO. With investors beginning to express concern about the sustainability of the bull tech market and private placements providing access to large-scale funding, sharing economy “unicorns” like Uber and AirBnB have little incentive to IPO. Additionally, continued controversy and regulatory uncertainty served to further impede movement towards an IPO in 2015; Uber and Instacart both faced criticism for their labor policies and AirBnB experienced a backlash for its perceived role in rising housing costs. This criticism resulted in unfavorable legislative proposals; however, as private companies, Uber and AirBnB were able to internally handle and mitigate the effects that these regulatory hurdles would have had on a public company's stock.

New Sharing Economy Apps

In the last year, several new sharing economy apps have gained substantial traction and are beginning to disrupt their respective consumer segments.  While the taxi services industry has already been majorly disrupted by Uber and Lyft, car rentals have remained mostly protected from disruption from sharing services.  That is beginning to change as Turo, a peer-to-peer car-sharing marketplace, is rapidly growing its penetration in the US.  Turo allows private car owners to rent out their vehicles through the internet.  Initially focusing on hourly rentals, Turo has shifted towards rentals for one or more days, thus putting more competitive pressure on traditional car rental services.  New disruption has also occurred recently in yard services, where New York-based Plowz & Mowz allows users to schedule yard work in as little as an hour’s notice via a mobile app.  In addition to offering competitive prices and flexibility to consumers, Plowz & Mowz empowers yard services workers who lack the means to advertise.  As the company gains traction throughout the US, it is sure to send a shockwave of disruption through the yard services market.  Meanwhile, some sharing economy platforms are causing a different sort of disruption, which is not focused on any particular consumer market.  For example, TimeRepublik, a platform that allows users to offer their time in exchange for other people’s time, has the potential to disrupt a wide variety of service industries.  In a broad sense, the emergence of person-to-person (P2P) services is beginning to disrupt the business-to-consumer (B2C) value chain across verticals.

Businesses and the Sharing Economy

Growth in B2B Sharing

As we predicted last year, 2015 has seen significant growth in B2B sharing, which spans several verticals, including real estate, construction, transportation, and financial services.  B2B sharing has been focused on helping businesses improve the monetization of capital assets such as office space and heavy equipment. WeWork, a coworking space provider which facilitates social networking and collaboration between its tenants, experienced strong growth over the course of the year – expanding from 21 locations in 2014 to 65 locations by the end of 2015. Flexible workspace marketplaces which match startups with companies with excess office space, such as LiquidSpace and PivotDesk, have also experienced growth in uptake in 2015. Other B2B sharing economy players which have demonstrated significant increases in traction include Yard Club, a sharing platform which helps contractors and construction companies maximize the value of idle equipment by renting it out. Following strategic financing from Caterpillar, Yard Club is expected to launch its platform in additional metropolitan markets in the US and Canada. The benefits of B2B sharing can also be seen in transportation, where Cargomatic functions as an Uber for freight.  Cargomatic connects shippers and carriers through the web and mobile apps, which is particularly helpful for transportation companies located in the same area.  B2B sharing is not limited to sharing physical assets.  In the Netherlands, Floow2 facilitates sharing of capital assets and personnel between companies. We expect growth in B2B sharing to continue, as the digital nature of sharing services allows for vast opportunities for businesses to integrate with one another.

Partnerships

Noticeable disruption in travel, food, and lodging has resulted from partnerships between sharing economy companies and traditional businesses.  Several major sharing economy companies have expanded their business partnerships in recent months.

  • Uber’s partnership with Hilton Worldwide, where Hilton guests can set Uber reminders that automatically give notifications to request rides to and from a hotel
  • Uber’s partnership with OpenTable, where users can reserve a car for pickup when they book a restaurant
  • Airbnb has begun accepting American Express points to pay for booking
  • Lyft’s partnership with Starbucks - riders can earn Starbucks reward points on the app and can also tip drivers with them

Uber is beginning to displace traditional hotel transportation services such as hotel shuttles through its Hilton partnership, and is squeezing demand for valet services by partnering with OpenTable.  Meanwhile, that American Express Points can be used to book with Airbnb can be seen as validation of Airbnb’s disruption of the lodging industry.  In the same way, Starbucks’s partnership with Lyft could be viewed by consumers as a stamp of approval, given Starbucks’s strong brand recognition and customer loyalty.

Looking forward, sharing economy companies will provide increasing value to businesses in the form of B2B sharing and will continue their disruption of consumer markets through strategic partnerships.

Leading up to our Year End Review, read about the ten events and themes we believed would shape the technology, media and communications industry in 2015. Which ones are leading the transformation?

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> Read our industry predictions for 2015 in our December 2014 Coordinates Newsletter