This post is about the sharing economy and its particular focus is why consumers may opt to transact by sharing rather than buying. HBR offers recent research on the subject.
The first thing to note is that the sharing economy is growing and it is growing rather quickly. Folks are finding more and more ways to participate in re-selling or renting than ever before and the trend is likely to persist.
It turns out that most people are primed to make the shift to sharing if certain conditions are met. A majority of customers report that they would consider sharing instead of buying if it allows them to save 25% on their purchase—and among younger customers in particular, the vast majority are swayed by potential savings. About a third will switch from sharing to buying if it offers convenience—whether that’s in the form of delivery, ancillary services or customization. And just as many can be swayed if the sharing service offers them access to brand-name goods or services.
To summarize, we are looking at price discounts, convenience and access to brands. But price is the most important of the three. Non-sharing companies may be able to compete on price by offering opportunities to re-sell on their platforms. They can compete on convenience by offering rental and purchasing options. Or they can link up with a sharing platform to create better packages of goods and services (like a hotel offering a deal on rental of fashion brands).
An interesting conversation is developing about how current trends will affect our overall economic framework. The first shot was fired by Paul mason for the Guardian, where he argued that capitalism as we know is dying. Steve Denning, writing for Forbes, thinks this is an overstatement.
The two disagree on some things, but not on a basic idea – there is a huge pwer shift underway. The old dinosaurs of the 20th century with command and control institutional hierarchies will die out. They will be replaced by something more flexible and more creative. I agree.
This has implications for firm organization and strategy. It will impact how younger folks develop their ideas about career as well. And we are just getting started.
A key thought — if you look at the trend from 19th to 20th century, work got easier. Humans could leverage their physical and mental capacities with machines. This is the longer term path we are likely to continue following in the 21st century. Refinements in machines will make work even easier. This frees up human capacity to do other things. Denning is right – that will not be just to take more vacation. It is more likely to think more carefully about what value added stuff we want to create. As we do this, we will get better contorl over our future as a species. Yes, i am an optimist.
A friend of mine is doing a deal that will mean taking on a lot of debt. On the surface, that sounds like a bad thing. And it will impose discipline via the payback schedule. But looking at cash flow, it seems likely that the debt can be serviced. So at least the deal doesn’t look crazy.
But this thumbnail analysis also misses the point. The question really is what will happen over time. There are a few possibilities. The business might take off which will make this investment look relatively small. As Fred Wilson puts it, the value that can be found may grow considerably. That is the hope. The business may not take off and things may run along as they are now. In this scenario, debt service will always be a headache. Finally, the business may crater, which will lead to a garage sale of assets.
In this case, the hope that the business will take off has some foundation. There are reasons to believe that this could happen by expanding the pool of clients and products. But as Fred points out, one has to factor in the risks that it will not before you decide that this is a good deal.
The above is pretty standard thinking. But things get a bit weird when you try to figure out the human element in developing opportunities and managing risk. How creative are the key actors? How motivated are they? Are they in this for the long haul? Tough questions. And in my experience, the human element plays a huge role in determining potential value.