What is Shared Economy?
The sharing economy is the biggest change since the industrial revolution. It is projected to reach $335 billion worth in 2030, (by PWS report in 2015 ) which will constitute more than 50% of the global consumer market.
Collaborative consumption, as it is also being called, can be defined as sharing, bartering, lending, trading, renting, gifting and swapping of goods and services, redefined through technology and peer communities on a scale and in ways never possible before.
Low-asset, high-valuation startups centered around collaborative consumption are coming up and are trying to cash in on the adoption of this culture amongst people. Uber, the biggest player in the car-sharing space snags a $28bn valuation. Airbnb, the biggest player in travel & hospitality, is said to be raising funding at $30bn valuation.
Characteristics of Millennials that most induce them to concept of Sharing Economy :
The Millennial Generation, who were born in the early 1980s through the early 2000s and for whom simplicity and efficiency are musts, are leading the Sharing Economy movement because of their distinctive personality traits, values and belief system that resonates with what Shared Economy offers to provide. They are the early adopters and biggest proponents of this movement setup to borrow, rent and share.
- Millennials breathe technology! – though that may be an understatement!! Millennials are technologically savvy, they embrace technology like no other generation and mobile is the technology closest to their hearts. They spent most of their lives with the World Wide Web and are highly connected, earning them the nickname digital natives.
- Millennials are progressive and don’t just accept the status quo if they can sense scope for improvement. They advocate new ideas. Millennials are open to change and don’t agree with doing something a certain way just because that’s how it’s always been done.
- They value flexibility and want freedom of choice in everything.
- Millennials are a social generation and are more likely than other generations to stay, travel, shop with groups. Their sharing habits on Facebook, Tripadvisor, Zomato etc reflect their eagerness for connection. They keep looking for opportunities to interact, collaborate & cooperate with people and love being part of a team. And shared economy platforms like Couchsurfing offer them just that. It offers them friendship rather than just an accommodation.
- Millennials are civic-oriented which means they have a strong sense of community and focus on larger societal change rather than individual needs. That’s the reason why they are universally more engaged in Corporate Social Responsibility efforts.
- When it comes to economic and environmental issues, Millennial is the most conscious generation to date. They are a green generation and are willing to pay extra for products and services that come from companies who are committed to positive environmental impact.
- Millennials have a greater inclination towards saving, for both emergencies and retirement, than the previous generations. Millennials don’t chase after traditional status and wealth symbols. Millennials consider experiences more important than “things” and emphasize quality-of-life choices over acquisition of material goods.
- They are the most educated generation. Educational achievement and college education is most important for millennials.
Key drivers of Shared Economy:
- Critical mass – the minimum size of a network for it to be worthwhile for potential users to enter
- Idle capacity – untapped value of unused or underused assets
- Higher costs of ownership
- Belief in the commons – belief in the value of communities of shared interests
- Trust between strangers: Reputation is the new currency and trust is the new key
- Growing distrust of large corporations, banks and governments – Millennials trust people over brands
- For few, a recommendation from friends for such shared service, seem to be the major driver
- Technology, economy, environment and community
- People getting more comfortable with sharing with strangers and in using second-hand or pre-owned products rather than considering it a taboo
Participation of Established Companies in Shared Economy
It’s not just startups, even corporates do not want to stay behind. In response to the Millennials preference for sharing, BMW last year launched the DriveNow car-sharing service featuring BMW electric cars, in collaboration with the rental company SIXT. This illustrates how corporates are adapting to the new reality of collaboration. What’s revolutionary here is that car-sharing is being offered by a company in a vehicle manufacturing industry — that stands as a threat to cannibalize its mainstream business to car-sharing operations. But instead of competing or resisting, BMW is embracing it as an opportunity. This is an example of how companies are evolving their business models.
Technology as the enabler for Shared Economy
The concept of sharing is not new. In the olden times when there was no monetization, people used to exchange goods in what was called the barter system. What is new is the use of “technology” to share. And it will continue to fuel the growth of strong sharing economy.
The rise of the Internet has lowered transaction costs, reduced friction and information asymmetry in the marketplace, and created a new brand of community building by providing greater reach. Collectively, these technologies go by the acronym SMAC, which stands for Social, Mobile, Analytics and Cloud:
- Social: Social networks enable participants to freely share their data to let others know what they need
- Mobile: Mobile facilitates easy-to-use digital technologies like location-based GPS
- Analytics : Big-data algorithms are applied to make recommendations based on where there’s idle capacity available to meet needs
- Cloud: Sharing of goods and services has been made possible by the cloud technology
Benefits of Shared Economy
i) Rational Benefits
- Financial Saving: It’s less expensive to share goods than to own them individually. Helps save a few bucks and makes the consumers feel frugal.
- Affordability: Pay per use helps one lead an affordable life.
- Convenience & Efficiency: Renting and sharing turns out to be more convenient and efficient because it does not need care, maintenance, service, support etc.
- Flexibility & Mobility: Millennials value flexible lifestyle and choice. They choose to buy mobility as opposed to just buying a car. The more stuff one owns, the harder it is to adapt to change. Things can now be replaced by applications helping us lead a less-is-more lifestyle. For Sharing is the new buying!
- Trial before purchase : Not sure if a particular appliance is apt for you? Wouldn’t it be better if you could try it at your place till you take the right decision.
- Reduces waste: Pooling together and sharing helps reduce over-consumption. Our space would be filled with a behemoth lot of white goods unless we take it onto ourselves to stop accumulating and start decluttering. As Rachel Botsman puts it in ‘What’s mine is yours’ – ”Advertising has us chasing cars and clothes, working jobs we hate so we can buy stuff we don’t need”. Owning feels like a burden in the era of sharing. Availability is the new ownership!
ii) Emotional Benefits
- Unique Experience : Sharing provides amazing experiences and adventures that Millennials crave.
- Sharing is caring : Sharing economy is a rising movement. Throughout the world, communities and companies are adopting and enabling this movement. It gives a sense of belonging to a community and helps in building a stronger community by blurring out the line between what’s mine and what’s yours. Access trumps ownership.
- The new cool : Sharing and being frugal are now perceived as cool and clever. And ownership is not a necessity anymore.This trend is rapidly growing and is being considered more fun and engaging than traditional purchasing. Possession is fast going out of fashion.
- Environment friendly : Global warming, e-waste, deforestation, pollution, depletion of ozone layer, green house effect and whatnot! Sharing economy might not be the ultimate answer to all the environmental issues but it sure helps curb them to an extent. It helps in sustaining and preserving our planet Earth!
How will it work in India?
Startups are fast tapping the trend in India too. Thousands of sharing economy companies have sprouted up, and consumers are actively engaging in collaborative consumption.
In India, a few other conditions along with the aforementioned benefits, make sharing economy a more viable option.
- Purchasing power : When compared to India’s western counterparts, the purchasing power is substantially less. Hence, it makes more sense for Indians to share resources.
- India is a land of millennials : Millennials love the concept of sharing economy and considering the fact that more than 65 percent of India’s population is under the age of 35, India seems to be a welcoming place for the sharing economy boom.
- High-population density : India has a very high population density of 368 per sq.km,while in the US it is 33 per sq.km. This means that we have 10 times the population density of the US! On the flip side, this means that there are more goods and services available much nearer than in any other country. This helps in enabling hyperlocal services which eases the availability and logistics issues.
- Increasing urbanization: The trend of sharing is more popular and acceptable among the urban population. It is predicted that by 2025 India will have about 42 percent of its population in urban cities, which in turn would lead to a large number of people adapting to a collaborative economy.
The shared economy has become a huge movement, a huge revolution, a sign of a fundamental societal and cultural attitude shift and not just a niche trend or passing fad. As we witness users flocking in huge masses to join this movement across the globe. It is a socioeconomic groundswell that will transform the way companies think about their value propositions and the way people fulfil their need. This revolution is surely here to stay.