Updated on August 3, 2016
Oftentimes, a business model must change to keep up with innovation, particularly technological innovation.
Technology has empowered a new way of doing business. In an effort to remain competitive and appeal to today’s customer expectations, organizations have increasingly adopted new technologies into the workforce. The unification of these communication devices inside a single platform provides the mobility, presence, and contact capabilities that extend far beyond traditional business models. It also brings considerable interest and passion around the potential of the Sharing Economy.
Many companies in the Sharing Economy begin with a simple idea of leveraging excess capacity, but it is the technology-enabled ease of use that makes them work, says one article published by the Wharton School of the University of Pennsylvania. However, according to a 2016 global survey from The Center for Global Enterprise, “platform companies have also been disruptive, upending numerous brick and mortar chains and making deep inroads into other industries from television to transportation.”
This spring, Lemonade, an insurance startup founded by Daniel Schreiber and Shai Wininger, will begin selling property and casualty insurance to New Yorkers. The company became the world’s first peer-to-peer insurance platform in February 2016, when the company announced it would receive financial backing from Lloyds and Berkshire Hathaway, as well as additional participants.
Lemonade uses behavioral science research on dishonesty to help the insurer learn what “brings out the best and worst” in people and tries to understand how people’s behavior can be changed for the better,”.Winiger adds, “We believe that behavioral economics, together with our unique technology, will help us decrease fraud, get rid of bureaucracy and lower costs for our customers.”
What’s also interesting about the shared economy is not so much the technology or unified communications that has made it possible, but the vast changes that it has triggered in society. One TechCrunch article says, “It has brought a renewed sense of community, engendered more collaboration, sparked new thinking and put a premium on trust, tapping into a need that transcends boundaries and is still rife with opportunity.”
The whole relationship between the client and the insurance company is “adversarial,” says Dan Ariely, Chief Behavioral Officer of Lemonade, “Clients feel like they’re going to be screwed over, and companies assume clients are going to cheat, leading to higher rates. Plus, there are conflict of interest.”
Basically, “reputation is now carried by a new system, which takes rather elusive notions of credibility, influence and status and turns them into measurable scores”, says Public Relations Director, W Magazine, Adriana Stan in this TechCrunch article. “It’s “digitizing” relationships and social connections, extracting value and insights from our associations and both codifying and commodifying trust — signifying it and selling it.”
But, however you define it, the Sharing Economy is a disruptive force in a slew of industries, and it’s here to stay.
Ever since John Legere took the reins as CEO of T-Mobile in September 2012, the company has focused heavily on re-branding and marketing strategies to reposition themselves as a cutting-edge phone provider with speedy wireless internet.
In March 2013, T-Mobile disrupted industry standards when the company announced its plans to become the first “Un-Carrier”. This meant no more 2-year service contracts. No more overages. No more limits on your network. This unconventional strategy focused almost exclusively on “doing opposite” to whatever other phone providers in the telecommunications industry were already doing; basically changing the playing field for the 4 major market share owners: 1. Verizon, 2. Sprint, 3. AT&T and 4. T-Mobile. It wasn’t long until the other carriers started copying T-Mobile’s new business model, offering similar services to remain relevant and stay competitive.
Around the same time the T-Mobile “Un-Carrier” plans were announced, Caroline Howard, a Forbes writer published an article explaining the difference between innovation and disruption. The article said: “Innovation and disruption are similar in that they are both makers and builders. Disruption takes a left turn by literally uprooting and changing how we think, behave, do business, learn and go about our day-to-day.”
Today, we are seeing same concept of “Disruption” everywhere. Just as T-Mobile disrupted industry standards in 2013 with its customer-centric “Un-Carrier” business model; today, the new Sharing Economy business model– where peers can offer and purchase goods and services from each other through an online platform – continues to be applied to new industries from car sharing to peer-to-peer fashion, among many others, according to an article by the Harvard Business Review (HBR).
And, they are now well poised to go mass-market, driving costs for companies and consumers down to near zero, according to an article by Entrepreneur. To support that claim, according to Forbes, the revenue flowing through the sharing economy directly into people’s wallets will surpass $3.5 billion this year, with growth exceeding 25%.
For companies in a growing number of industries, it’s no longer sufficient if you leverage digital technologies to rationalize and optimize your internal processes. If your business relies on a model of consumption that is inefficient for your consumers, HBR says, chances are that there’s already a new Sharing Economy marketplace that is looking to streamline it for them.
In conclusion, it’s worth remembering, while business processes will continue gaining efficiency, business will always have a cost — what’s important is staying adaptable.
Although it’s been going on in smaller scale for a long time; today, sharing services are turning out to be more pervasive. The rising utilization of mobile technologies for e-trade enables the creation of digital platforms that connect providers and users.
Basically, taking resources you don’t frequently use and charging an expense for others to utilize them is the premise behind the numerous peer-to-peer business models emerging in the Sharing Economy.
When considering the potential size of exchanges occurring within these networks and the anonymity which the Internet provide users, bad conduct become a potential danger. In turn, peer-to-peer rental sites use digital platforms to tackle the “trust” obstacle. First, they need to create a centralized hub for sharing, reaching a “critical mass of consumers that will be interested to interact with each other’s products or services, then , they need to manage issues of security and trust.
According to PricewaterhouseCoopers, trust challenges underlie every peer-to-peer exchange. Yet, building and maintaining user trust is essential for all participants who take advantage of this connected sharing ecosystem. PwC asks, “Why would one trust a complete stranger to drive her from point A to point B? Or feel comfortable staying in a stranger’s house overnight?” In traditional large scale taxi or hotel services, providers build a reputation over time that customers can trust, such as through branding or via physical presence. Additionally, PwC says, trademarks can be used to protect company’s goodwill around products and services. Even as many sharing economy platforms have established themselves as powerful brands, these sorts of mechanism are frequently lacking in the day-to-day peer-to-peer exchanges.
In 2016, there is another audience growing much more attuned to the potential monetary and operational advantages of hopping on the sharing economy bandwagon. Experts in the sharing economy refer to this new audience as corporations shopping for better business-to-business services.
Due to the importance of establishing some degree of trust among users, there is a strong incentive for sharing economy platforms to partner with major, reputable corporations. A recent Huffington Post article supports this by saying, 2016 will be the year the sharing economy moves from early adopters into the mainstream (supported by GM’s $1 billion bet on Lyft). But before this happens, trust will need to be taken much more seriously for many of these sharing economy companies.
- http://www.huffingtonpost.com/jim-pickell/top-myths-of-the-sharing-_b_8966454.htmlGet Version 4.5.3
The age of networks combined with the increasing environmental pressures and consumer demands for business to design experiences over stuff has created what design leaders describe as the crucial jump from design creation to design thinking. According to best-selling book, What’s Mine Is Yours, by Rachel Botsman and Roo Rogers, design thinking means taking the process of intentional creation and applying it beyond discrete products to solving big problems using systems and experiences.
Today, design must continue to shape our everyday actions, reconfigure our spaces, and influence consumers. After all, Botsman and Rogers remind us that “life in the Sharing Economy is all about dematerialization, reducing and reusing products, using less, and seeking alternative sources of fulfillment such as group participation.” But the truth is, for many companies in the Sharing Economy industry, design is more vital than ever.
Largely due to the current state of technology, particularly apps, the responsibilities for designers have expanded across a multitude of disciplines.
For example, during the early days of Airbnb, the team was poring over their search results for New York City listings , trying to figure out what wasn’t working, why they weren’t growing. After spending time on the site using the product, Airbnb co-founder, Joe Gebbia had a realization. He said, “We noticed a pattern. There’s some similarity between all these 40 listings. The similarity is that the photos sucked. The photos were not great photos. People were using their camera phones or using their images from classified sites. It actually wasn’t a surprise that people weren’t booking rooms because you couldn’t even really see what it is that you were paying for.”
So, what did Airbnb do? The company decided to actually send professional photographers to hosts’ locations to photograph their property listing, for free. The outcome: Airbnb doubled its usage in one week. The company said their free photography program resulted in 2.5 times more bookings.
However, according to a 2010 Stanford study on Design Thinking for Social Innovation, the researchers conclude, “One of the biggest impediments to adopting design thinking is simply fear of failure. The notion that there is nothing wrong with experimentation or failure, as long as they happen early and act as a source of learning, can be difficult to accept. But a vibrant design thinking culture will encourage prototyping—quick, cheap, and dirty—as part of the creative process and not just as a way of validating finished ideas.
Today, the value of a brand is often linked to the social connections it fosters. Managing these connections is fundamental to successful marketing. In the case of sharing, experience design is critical to engendering emotional connections.
- Botsman, R., & Rogers, R. (2010). What’s mine is yours: The rise of collaborative consumption. New York: Harper Business.
- Stanford Social Innovation Review
A report from PricewaterhouseCoopers UK estimates that five sharing economy sectors: peer-to-peer accommodation, car sharing, peer-to-peer finance, music, TV and video streaming, and online staffing will grow global revenues to $335 billion by 2025. To make the most of this opportunity, the report includes five steps to help organizations position themselves for success in the sharing economy. Here they are:
Step 1: Understand Sharing Models and The Potential Role They Could Play in Your Sector.
- Organizations should assess the impact of two fundamental business models:
- The access model: renting subscribing, reselling, swapping, investing, gifting, lending.
- The peer-to-peer model: for example, carpooling and ride-sharing, peer-to-peer accommodation and hotspot sharing.
Step 2: Take Action: Protect, Prepare or Pivot.
- PwC sees three options for organizations:
- Option 1. protect the base: neutralize tactical threats,
- Option 2. prepare for change: test new sharing ventures by developing strategic partnerships,
- Option 3. pivot the organization: build and promote a full-service “sharing” model as a core business model.
Step 3: Focus on the Consumer Experience.
- Sharing economy platforms help people get what they need without imposing the requirement of ownership. Companies should ask themselves whether their current business model is the optimal way to deliver to their customers and if a collaborative consumption model can improve it.
Step 4: Conduct a “Sharing Audit” of Your Organization’s Asset Base: Tangible and Intangible.
- Manufacturing facilities operate at an average of 20% below capacity. Intangibles such as intellectual property, knowledge and brand assets are starting to become more sharable through technology.
Step 5: Anticipate Regulation and Highlight the Value of Your Organization.
- Proactively conduct talks with local policy makers, demonstrating the impact of your organization with credible evidence. Formalize your business models within existing regulatory frameworks through compromise.
Looking at the above steps and implementing them internally should be a first and important step to evaluate if a sharing economy is right for your business.
The products and services we’re seeing introduced to our lives via the sharing economy is having a greater positive impact than we could have ever expected. It simplifies our lives, utilizes underutilized assets and makes our communities more social, localized and connected. The “Sharing Economy,” has amassed $126 billion of investment by venture capital and private equity firms, according to data published by Crowd Companies.
However, according to one website, “building two-sided collaborative marketplaces is hard – really hard and companies in the space face a unique set of challenges, constraints and a complex web of relationships to navigate.” An example of one such failed sharing economy startup is Quirky, an online platform for inventions which had hauled in about $181 million in equity investments, according to industry tracker Dow Jones VentureSource. This follows the shutdown of HomeJoy, a home cleaning market place that raise $40 million.
There are 5 characteristics associated with failure that companies in the sharing economy should watch out for. They are as follows:
1.Scale: While it could be said that most companies need to reach scale in order to be successful, the unique dynamics of a two-sided marketplace, mean that the urgency of achieving a critical mass of both supply (‘providers’) and demand (‘customers’) is even greater, in order to demonstrate liquidity of the market and to provide a frictionless experience. It is basically the chicken and egg situation, if you don’t have enough sellers – buyers won’t be interested to come back to buy and if you don’t have enough buyers, sellers are not interested to sell on the platform.
2. Unclear Value Proposition: While many start-ups had the timing right to tap into the zeitgeist around this business model, positioning as the ‘eBay’ or ‘Airbnb of X’, some failed to clearly articulate and reinforce the necessity or even basic need for their service. Another common challenge is convincing customers they should first try and then keep using what is often a new or different behavior. Many failed startups were not clear about either the value they were providing or the indispensable role they could play in people’s lives.
3. Lack of Product Focus: The earliest players such as eBay and Craigslist were mass-market destinations for anyone to trade and exchange anything, however product focus is absolutely key for this new wave of businesses and niche players that are servicing a special need can be extremely successful. There are three common problems:
- Have an overly broad umbrella of ‘assets’ that can be exchanged through the platform. For example, there were a high number of failures in p2p neighborhood platforms that enabled people to exchange stuff from household tools to sporting goods to baby goods.
- A lack of geographic focus increases the problem of fulfilment where one person has what someone else wants, but not within a convenient proximity to make the exchange happen or economically viable.
- Mixing the types of behaviors for exchange on a platform. For example, if people have to choose whether they swap, share or say rent. It makes it challenging for people to clearly identity how they can and should interact with the platform.
4. Insufficient Funding: Between 2007 to 2010 collaborative economy startups had difficulty in raising capital as traditional VCs were initially skeptical of the viability of models. Over the past four years, there has been a massive influx of funding, though typically the start-ups have to prove they have traction around critical mass, and this can take much longer than expected.
5. Regulation: The jury is still out on many of the regulatory challenges the collaborative economy is facing, and we are just at the beginning of these conversations. However, sectors such as peer-to-peer car rental, peer-to-peer lending, ridesharing and peer-to-peer accommodation have all experienced some clear and hard responses from governing bodies, and many of the smaller startups in these verticals have been unable to weather the storm.
Nonetheless, it is hard not to see the high growth potential and disruptive effects on established industries for companies engaged in the sharing economy. According to an opinion survey conducted by Latitude Research, “75 percent of respondents predicted their sharing of physical objects and spaces will increase in the next five years.” Many industry analysts agree with these optimistic forecasts that the Sharing Economy is here to stay.
Sharing is part of human nature, and the sharing economy is simply a new term for something that has been going on since the dawn of time. The rise of the formal sharing economy, as we see it today, has been enabled by the ability of technology to give us real-time information on availability of under-utilized assets. Although it is hard to encapsulate the qualities of the new Sharing Economy, it generally facilitates community ownership, localized production, sharing, cooperation, small-scale enterprise, and the regeneration of economic and natural abundance. According to a report by Credit Suisse, consumer-focused sharing services can be grouped into three systems:
- Redistribution of products: The involves platforms that allow individuals to sell products to others that may not be needed by the owner.
- Product and service offerings: These typically include members who pay for the benefit of using a product or service without needing to own it outright or perform it themselves. These services can be on a P2P or P2B basis for example individuals renting themselves as freelancers to firms.
- Collaborative lifestyle related services: These include platforms allowing people to share or exchanging mostly intangible services. Examples include reviews (i.e. Tripadvisor), knowledge (Wikipedia) or funding (crowd funding or P2P financing).
Tangible examples of the sharing economy include the well-known Airbnb for lodging, Uber for transportation, thredUP for clothing consignment or Pley for sharing toys.
There is no doubt that the shared economy comes with considerable potential for job creation, economic development and sustainable use of resources. According to American Action Forum, “the ride-sharing industry alone helped bring in an additional $519 million in economic activity from 2010 to 2013 for independent workers, while injecting 22,000 jobs into the sector.” In total, there could be as many at 30 million people working in the gig economy amounting to 20 percent of the entire labor force.
Additionally, experts estimate that the five main sharing sectors (peer-to-peer finance, online staffing, peer-to-peer accommodation, car sharing and music video streaming) have the potential to increase global revenues from around $15 billion now to $335 billion by 2025, according to a report by PricewaterhouseCoopers. With that said, one thing becomes quite clear: As the technological organization of our lodging, transit, and other vital services accelerates, the sharing economy is here to stay.
Today, the world is changing who we are and how we go throughout our days and make decisions. Ultimately, this affects how people engage with businesses and how companies and organizations operate across various industries.
Business expert, Brian Solis would probably relate this new type of economy to “Digital Darwinism”, a term he coined and used to describe the evolution of consumer behavior when society and technology evolve faster than your ability to adapt. The digital and social technologies that have sprung up are connecting us to the rest of the world. Therefore, consumers have become empowered. Today, the average consumer is more educated, savvy and demanding. Some of the top trends in consumer behavior include:
- Increasing diverse marketplace
- Entrepreneurial explosion
- Growing power of women
- Health care, aging, & alternative medicine
- Rising demand for adult education
- Surging demand for luxury goods
Additionally, these new technologies and ways of communicating are also transforming our physical world. Since the reinvention of traditional market behaviors– renting, lending, swapping, sharing, bartering, gifting– through technology, the economy has changed in ways and on a scale not possible before the internet. At the same time, this growth brings more opportunities in different industries. One Forbes article says, “The promise of profitable independence has lured millions to do business through the likes of Uber Technologies and Lyft (car services), TaskRabbit and Gigwalk (odd jobs), DogVacay and Rover (pet sitting), Airbnb and HomeAway (vacation rentals), and many others.”
New sharing economy concepts are forcing many traditional companies to reevaluate their operations and policies. Instead, to remain relevant to the emerging sharing economy brands need to get closer to their customers and identify the business models that make the most sense for today’s consumers to interact with their brand and consume products and services.
- Dr. Ashli Q. Stokes, Public Relations Associate Professor at University of North Carolina at Charlotte (UNCC): http://communication.uncc.edu/people/full-time-faculty/stokes-ashli-q
As the world becomes more and more divided, the more we need crave for the feeling that we have things in common (i.e. we share things). And the best part about sharing things is that it’s accessible to everyone, regardless of age, social status or race.
Are you part of the Sharing Economy? A better question: Do you participate in the Sharing Economy? To help answer this, consider these two questions: Have you ever considered taking an underutilized asset at your home (an empty room, unused tool, unused toy etc) and renting it out to someone who needs it? Would you ever imagine that would be the basis for a multi-million dollar businesses? Services like these are becoming more and more common and are at the core of a new economy– born from the movement to be more inclusive and less distrusting; to be more democratized and less traditional; to help each other make better decisions about resources, while harnessing the best aspects of technology to do so and conserving our planet.
With increased technological advancements and peer-to-peer sharing, consumer behavior is disrupting outdated modes of business and reinventing not only what we consume, but how we consume it. A recent Forbes article describes it this way: “Just as YouTube did with TV and the blogosphere did to mainstream media, the sharing economy blows up the industrial model of companies owning and people consuming, and allows everyone to be both consumer and producer, along with the potential for cash that the latter provides.”
This “disruption” in business is necessary for progress toward creating a new economy that offers consumers more advantages. However, some question the nature of that progress and recently, the implicit assumption that it provides net benefits to the community. Nevertheless, the Sharing Economy is changing attitudes to basic things that we took for granted until recently like car ownership, product ownership (do i really need to own everything?), travel, lodging/housing, and much more.
So, how do you share?
According to a New York Times study: The Psychology of Sharing, these are the six personas of online sharers:
- Altruists: helpful, reliable, thoughtful, connected and only use email to share.
- Careerists: savvy business networkers that are more likely to share content on LinkedIn.
- Hipsters: less likely than other sharers to use email for sharing content.
- Boomerangs: share info to get a reaction and to feel validated.
- Connectors: creative, relaxed, thoughtful that use social media as a tool to organize their social lives offline.
- Selectives: resourceful, careful and thoughtful.
If you identify yourself as part of the six personas types and you value access over ownership, you can find the Sharing Economy very rewarding on a personal, economical and intellectual level.