The idea of sharing may be as old as humanity itself. History is replete with examples of people pooling their resources or providing others with access to goods and services. Cooperative societies emerged in Europe, primarily in Britain and France, in the 19th century. One of the most famous examples was the Rochdale Society of Equitable Pioneers, established in 1844: A group of 28 English tradesmen (mainly weavers) banded together to open a store selling food items they could not otherwise afford. The first kibbutzim were founded in the early 1900s by immigrants to Palestine, borrowing ideas about collective living and working arrangements from communal experiments attempted over the previous centuries. Even the U.S. government has encouraged the practice of sharing: During World War II, it promoted automobile ride-sharing to conserve resources.1
But over the past decade, the concept of sharing has undergone a technology-fueled transformation, unleashing disruption in a number of traditionally organized industries.
Take farming in India, one of the least productive agricultural sectors in the world. Only about 15 percent of the country’s 120 million farmers use mechanical equipment.2 Tractors cost about 250,000 rupees (approximately $3,700), which many small-scale farmers cannot afford.3 In the past, they were forced to rent tractors from often-unreliable owners, and prices surged when demand peaked, such as at harvest time. But in March 2016, India’s Mahindra & Mahindra, the top tractor company in the world by volume — it sells more than 300,000 units annually — launched Trringo, a program that allows farmers to rent tractors for 400 to 700 rupees an hour by placing a call or using a smartphone app. Within 12 months, more than 100,000 farmers across 5,000 villages had used the service; Mahindra hopes to reach 1 million farmers this year.4
Halfway around the world, in Silicon Valley, Yerdle launched in 2012 as an internet-based used-goods marketplace. Since then, the company has helped 950,000 members share more than 1.2 million items, from jackets to tents. Yerdle allows users to give away some of their belongings in exchange for credits that they can use to “buy” other people’s castoffs. Fortune called the website a “sharing economy powerhouse” for its innovative approach to e-commerce.5 Today, it also works with leading brands to develop so-called white-label resale channels. (A white-label product is made by one company and rebranded and sold by other companies as their own.)
What connects these two platforms, one in rural India and the other in the technology capital of the world? The rapidly developing power of the sharing economy.
The sharing economy is an economic system in which assets and services are shared, either for free or for a fee, typically through the internet. Sharing may be old, but this is a new model for doing business, and the demand appears to be huge. According to a PwC study, the global revenue of the sharing economy will rise from $15 billion in 2014 to $335 billion by 2025. Since 2014, nearly 50 percent of North Americans have become familiar with the sharing economy and over 110 million people have used one or more of its platforms.6 A November 2015 Time survey estimated that nearly 22 percent of adults in the U.S. — some 45 million people — have already offered products or services through the sharing economy.7
The convergence of technologies facilitates all-but-instant connections between people and assets, as well as knowledge of the availability and location of underused or shareable products.
Start-ups in this new economy have threatened established companies in a number of industries. Famously, Airbnb in hospitality and Uber Technologies in ride-sharing — both launched in the past decade in San Francisco — now boast multibillion-dollar valuations. In its March 2017 funding round, Airbnb was valued at about $31 billion, roughly the same as hotel giant Marriott International after its acquisition of Starwood Hotels & Resorts Worldwide. Airbnb averages some 500,000 guests per night, or over 180 million guest stays annually — more than Hilton Worldwide Holdings, which served 160 million guests in 2016. Meanwhile, Uber operates in more than 750 cities worldwide and as of December 2017 was valued at $48 billion, a figure that exceeds the market capitalizations of airline companies Delta Air Lines, American Airlines Group and United Continental Holdings. In New York City, there are nearly three times more Uber vehicles than traditional yellow taxis.
Still, as a report by Boston Consulting Group (BCG) notes, it is a misconception that the sharing economy is restricted to car services and hospitality. Investors are funneling money into a wide array of asset-sharing businesses. From 2007 to 2016, $5.7 billion was poured into peer-to-peer (P2P) lending ventures, while start-ups offering shared workspaces, storage, delivery and logistics platforms received a total of nearly $2 billion in funding.8
This large and expanding force is making its presence felt in almost every sector. Online learning platforms provide access to courses and degrees in many subjects to students around the world. Silicon Valley’s Coursera, for instance, has over 28 million users and more than 2,000 courses. New York–based WeWork is revolutionizing commercial leasing with its shared workspaces for start-ups, freelancers and small businesses in more than 50 cities and 20 countries. New York’s Storefront lets companies rent short-term retail spaces for pop-up shops or boutiques in highly trafficked neighborhoods in cities like San Francisco, London and Paris. New York’s Rent the Runway is a successful online service for designer dress and accessory rentals, with more than 6 million members and 400 designer partners. Amsterdam-based 3D Hubs, an online 3-D printing service platform that allows users to upload designs and select providers to print and ship them, has a network of 6,000-plus 3-D printing providers in 150 countries. Finally, there is social media, a broad sharing of experiences and thought. Facebook has more than 2 billion active users globally (logging in more than once a month); there are 330 million active Twitter users.
Characteristics of the Sharing Economy
To recognize and cope with this new economy, incumbent companies must understand its characteristics and the economic and behavioral rationales that shape it. That requires a deeper look at what makes the sharing economy tick.
A report by McKinsey & Co. explains a few common themes that define companies engaged in the sharing economy: disintermediation (the reduction of intermediaries between producers and consumers), the sharing of excess capacity and increased productivity.9 Platforms like Trringo and Yerdle are cases in point. Trringo connects small farmers directly with tractor owners, cutting out intermediaries, and enables more productive use of resources that would otherwise be idle; at the same time, access to mechanized equipment leads to improved crop yields and reduces losses. Yerdle also allows the reuse of everyday products: The company provides a way for a community of almost a million members, who act as both users and providers, to connect with one another, and facilitates the distribution of unsold merchandise of brands like Patagonia and Levi Strauss & Co.
As we’ve noted, the sharing economy has been driven by rapid advances in technology. Digital technology, for instance, allows platforms to easily match providers and users of goods and services. As a 2016 World Economic Forum report asserted, the modern sharing economy has been formed from a series of intersecting technological trends, including the proliferation of compact, mobile, intelligent devices such as smartphones; the arrival of near-ubiquitous connectivity through the internet of things (IoT), mobile payments infrastructure and social media–based trust and verification systems; and the collection and analysis of Big Data.9 The convergence of these technologies facilitates all-but-instant connections between people and assets, as well as knowledge of the availability and location of underused or shareable products, services, space, labor or capital. This leads to declining transaction costs and search frictions. This new world helps consumers understand terms, supports timely logistics and aids in enforcing agreed-upon contracts. Formerly frustrating transactions have become hassle-free, or close to it.
The sharing economy is a set of platforms that permit users to gain temporary access to goods and services they desire or need. There are three main platforms in use today: business to business (B2B), business to consumer (B2C) and the aforementioned P2P.10 B2B refers to the sharing of resources among businesses and includes companies like Yard Club, which allows construction companies to share equipment by renting it out when it’s not in use, and Cohealo, which facilitates the sharing of expensive medical equipment among hospitals. In the B2C category, companies like Zipcar and Rent the Runway own resources that are exchanged within a user community. The P2P category covers platforms on which peers exchange products or services and the platform provider owns virtually none of the shared assets; these include Airbnb and TaskRabbit, an online marketplace that matches freelance labor with local demand.
People generally think of physical assets when they think of the sharing economy, but an overlooked aspect of this evolving ecosystem is the opportunity it provides for sharing intangible assets. These include intellectual property and resources, which are the main drivers of value for global corporations today. People share knowledge and experiences with their peers through online ratings and reviews. The growth in the number of freelance workers and level of contract-based employment means that talent is shared among employers, which have to adapt their employment strategies accordingly. The field is rich with experimentation and shifting lines of authority and control. In 2013, General Electric Co. spearheaded a partnership with an online inventor community called Quirky. The $30 million deal gave Quirky’s inventors open access to GE’s patents and technology, resulting in a joint venture that generated such new products as a smartphone-controlled window air conditioner, a propane tank gauge with fuel sensors and a home monitor that can be set to track motion, sound and light. The joint venture garnered a lot of publicity before running into trouble. Quirky lost access to some 500 patents after GE sold its appliance business; the company had difficulty getting more of its products to market and declared bankruptcy in 2015.11 Not every innovative idea works out.
The BCG and PwC reports list some of the popular accounts of the rise of the sharing economy. They are often framed in terms of culture or ideology. A common belief is that demographics plays a big role — that millennials, for example, do not want to be trapped by owning expensive goods such as houses and cars. Playing a role in this assumption is the notion that experiences produce more contentment than purchases do. Another factor: the belief that sharing is good for the environment and promotes sustainability by reducing waste.
But these reports also make clear how much economics drives the sharing economy. Consumers are finding that sharing services provide good economic value. In fact, the sharing economy really took off in the aftermath of the 2008–’09 economic downturn, when many of the successful sharing economy platforms — including Uber, Airbnb and TaskRabbit — began operations. Sharing or renting emerged as a new social ideal, pushing back against the perceived overconsumption and debt accumulation that many saw as the cause of the crisis. Having an extra source of income by renting out assets far outweighed concerns about sharing them with strangers.
Access to a greater variety and higher quality of goods is another factor. After Airbnb launched, it sought to build an inventory of distinctive, unique properties. When it tested cookie-cutter rental apartments in some locations, it found that they performed poorly. Plain-vanilla offerings did not fit the brand or satisfy customer demand for value and a distinctive sharing experience. Peer reviews and ratings allowed users to develop trust in the services offered. Trust has grown as the sector has expanded and people have become more comfortable with the wide range of products and services that the sharing economy captures.
Disruption: Challenge and Opportunity
Typically, there are two kinds of commercial disrupters — those that evolve industries (clever disrupters) and those that dissolve them (destructive disrupters).12
Boston-based Zipcar is a car-sharing company with a fleet of nearly 10,000 vehicles and over 1 million members in 500 cities in nine countries. Like similar platforms, it has cleverly disrupted the transportation business by inspiring automakers to embrace car sharing to the point of changing their mission from selling cars to offering “premium services for individual mobility.”13 A prime example is General Motors Co., which in January 2016 invested $500 million in San Francisco–based ride-sharing company Lyft, an Uber rival, and has set up a program in the U.S. to rent out Chevy Volts (GM’s electric car) to Uber and Lyft drivers.
The same is happening in hospitality, where alternative accommodation providers like Airbnb and HomeAway are forcing incumbents to evolve. Europe’s largest hotel operator, AccorHotels, with over 3,500 hotels in 95 countries and brands such as Ibis, Novotel, Pullman and Raffles under its umbrella, has joined the sharing trend: CEO Sébastien Bazin recently called it “foolish and irresponsible to fight against the sharing economy,” and his company has purchased or invested in home rental platforms including Oasis, onefinestay and Squarebreak.14
Industries have been disrupted both cleverly and destructively. By unbundling albums into songs, Apple’s iTunes virtually destroyed the album business but at the same time saved the music industry from rampant piracy. Netflix has had a similar effect on video: Though the service has hurt cable TV and the movie exhibition business, movie studios are seeing growing revenues as a result of increased digital consumption via streaming media. At first glance, iTunes and Netflix may not seem to belong to the sharing economy, but they essentially own assets (the latest song, movie or TV show) and charge users for renting them out — that is, for sharing them.
These two examples highlight how the sharing economy represents both a challenge and an opportunity. Although many incumbents feel threatened by the rise of the sharing economy, it opens up new revenue streams and avenues for innovative and flexible companies to exploit. The sharing economy has shown that it can attract consumers who either cannot afford to buy specific products or don’t feel they need to own them. For example, ShareGrid, a Seattle-based camera rental platform, is expanding access to high-end equipment for more than 40,000 photographers and other creative professionals across seven U.S. cities. Moreover, the sharing economy is set to grow in emerging markets, where ownership of many products, including those as essential as tractors, has been out of reach for most people. Consumers appear willing to pay higher prices for goods that can generate a revenue stream by being shared. The sharing market for high-quality or niche products will grow at the expense of cheaper versions or those that represent a compromise among multiple functions, such as minivans, crossover bicycles and sit-on-top kayaks.
How Incumbents Can Respond
As the sharing economy grows, how can incumbent companies in mature industries avoid being disrupted and losing market share? Sharing is too big an opportunity to miss and too big a risk not to at least attempt to mitigate. Companies need to assess the potential for consumers to band together to form P2P networks that undermine their value propositions. These networks are most likely to emerge in categories where products and services are widely distributed, involve high fixed but low marginal costs and are often underutilized, such as transportation, hospitality, retail, communications, entertainment and tech. The best assets for sharing are interchangeable: The user does not need to reconfigure them for each use, and they are accessed for relatively short periods of time.
If such potential exists, organizations need to decide how to tap into it. They can choose to create networks to complement traditional sales channels. German truck manufacturer MAN, for example, established its Loadfox sharing platform in 2016 to help smaller logistics providers and carriers supplement the cargo of trucks with less than full loads. Loadfox extends MAN’s business beyond manufacturing while providing a platform for additional services and visibility into usage patterns that can potentially influence product design.15 Of course, companies can acquire, partner or invest in new entrants to gain exposure to the sharing economy. In September 2017, Sweden’s IKEA Group announced the acquisition of TaskRabbit; GM and AccorHotels made their own deals to gain toeholds in the sharing economy.
Companies can try to monetize underutilized assets or spare capacity by sharing with other organizations. Marriott, for instance, has partnered with online platform LiquidSpace to convert empty conference rooms into rentable work spaces. The result is not just a new revenue stream but also a way to increase exposure to Marriott properties. Pharmaceuticals giant Merck & Co. recently signed an agreement to share Medimmune’s manufacturing facility, providing long-term use of excess capacity for Medimmune while giving Merck flexible access to manufacturing facilities as needed. Similarly, organizations can look to monetize their excess technological capacity and share their IT infrastructures with other companies.
They can also focus on building products that are durable or have other qualities that make them suitable for sharing. For example, Zipcar acquired Local Motion, which is developing keyless entry and online fleet management tools to facilitate sharing. Companies can buy sharing services to improve costs and efficiency. Incumbents can adopt the popular characteristics of sharing platforms, such as transparency and easy payment methods, without actually sharing assets. Apps from Arro in the U.S. to mytaxi in Europe allow traditional taxi fleets to mimic the user experience of ride-sharing services.
The Future of the Sharing Economy
BCG predicts that increasing internet penetration, smartphone usage and disposable income levels in emerging markets will add consumer groups to the sharing economy.16 Adoption of the IoT and other technologies will further reduce transaction costs and facilitate internet search. As BCG concludes, “Every person and object of interest is connected to every other.” As self-driving cars, drones and delivery robots become commercially viable, the effort and expense of transferring goods will fall and the potential market for shareable goods will expand geographically. Blockchain, a distributed ledger technology developed for use with cryptocurrencies, can help document asset provenance, usage history and identity. The Ethereum blockchain, for instance, supports smart contracts that automatically release payments when certain conditions are met and is able to regulate payment and enforcement.
It is possible that the current sharing economy is just an intermediate phase between traditional notions of ownership and a future of “everything as a service.” This is the model of access versus ownership: All needs met by on-demand services, obviating ownership entirely — food, clothing, accommodation, transportation, entertainment, education, employment and health services all just a click away. Why hassle with ownership when you can rent?
That may be some way off, if it ever fully arrives. And it may well turn out that the shaping technologies of the sharing economy will simply produce a new split between ownership and sharing. There will be some goods that people simply want to own, and many they’ll be quite happy to share. Still, there is little doubt that the sharing economy will continue to expand and disrupt traditional businesses. More and more goods, services and people will be easily connected, and more and more experiments in sharing will begin.
1. Credit Suisse. “The Sharing Economy: New Opportunities, New Questions.” Global Investor 15, November 2015: 8-11.
2. Judith Wallenstein and Urvesh Shelat. “Hopping Aboard the Sharing Economy.” BCG Henderson Institute, August 22, 2017.
3. Chris Graham. “Uber for Farmers: Trringo Tractor-Hailing App Launched in India.” Telegraph, October 18, 2016.
4. “Trringo to Add Value to 1 Million Farmers in the Next One Year, Says M&M.” Economic Times, July 18, 2016.
5. Yerdle website, https://www.yerdlerecommerce.com/about-us.html.
6. “The Sharing Economy.” Consumer Intelligence Series, 2015.
7. Katie Steinmetz. “See How Big the Gig Economy Really Is.” Time, January 6, 2016.
8. Wallenstein and Shelat. “The Sharing Economy: New Opportunities, New Questions.” Global Investor 15, November 2015: 8-11.
9. Alberto Marchi and Ellora-Julie Parekh. “How the Sharing Economy Can Make Its Case.” McKinsey Quarterly, December 2015.
10. Boyd Cohen. “Making Sense of the Many Business Models in the Sharing Economy.” Fast Company, April 6, 2016.
11. “GE’s Quirky Idea.” Harvard Business School, Technology and Operations Management course, November 18, 2016.
12. Nikolay Malyarov. “How the Sharing Economy Is Changing Publishing.” Medium, November 1, 2016.
13. Ludwig Willisch. “BMW Recap Keynote.”D. Power conference presentation.
14. Deanna Ting. “Everything AccorHotels Has Acquired and Invested in Over the Past Year.” Skift, April 13, 2017.
15. Wallenstein and Shelat. “Learning to Love (or Live with) the Sharing Economy.” BCG Henderson Institute, September 5, 2017.
16. Wallenstein and Shelat. “What’s Next for the Sharing Economy?” BCG Henderson Institute, October 4, 2017.
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