The sharing economy: how it might develop, and what it means to big business
There’s lots of buzz about the sharing economy, and confusion too with similar-but-different ideas like collaborative consumption and circular economy. At a recent roundtable, organised by The People Who Share, I heard from the best, and had to organise my own thoughts. Here are my highlights.
We have to start by unpacking the jargon. The People Who Share describe a sharing economy as one based on sharing finite resources, from physical goods through to intangibles like skills and time. That’s practically the same as the Wikipedia definition of collaborative consumption (“a class of economic arrangements in which participants share access to products or services, rather than having individual ownership”). But I think it would be great if we could avoid ‘consumption’, if for no other reason that when you do car-sharing you don’t use up (‘consume’) the car.
Then there is ‘circular economy’, where human activity moved from ‘take-make-waste’ to closed-loops that fit with how living systems work. In practice one of the best ways to achieve a circular economy is through sharing, so you can think of them as different lenses. I suspect we’re going to see a tussle between the different champions over which lens is more effective.
Then there are the pressures for a sharing economy.
- Resource price increases and volatility. The 2000s saw commodity prices double after decades of a low plateau. This caught many companies on the hop. I know one apparel company who say they rely on cheap, predictable cotton and energy, and now their very business model is threatened.
- The sharing economy “serves customer needs better”. Austere times have prompted people to look for cost savings without losing quality and convenience. New digital technologies make it much easier to connect people who have something with others who want to use it. Now you can book a room through AirBnB with confidence, why stay at a hotel chain? Now you can book a car through ZipCar with confidence, why go through the hassle of owning a car (if you live in a dense urban area)?
All well and good, but how might it develop? I remember what a Strategy Director at a major ICT company told me: “all this sharing stuff is inevitable, but no one knows how you win in the long run”.
That’s because the development is going to be very context specific. Some things are more ‘shareable’ than others, and different sectors are at different stages. So, you are unlikely to ‘share‘ many of your clothes, but you might rent a special outfit for a special night. AirBnB could build a business around under-utilised bedrooms. But will people really spend 30 mins finding and borrowing a power drill for a 10 minute job? Besides, how do you build the critical mass of paying users and prevent them from defecting to your rivals? Conclusion: there will be different pathways for different sectors.
The other factor here is that the business case for incumbents to develop a sharing business model is much smaller than the business case for new entrants. Conclusion: there will be a rash of entrepreneurs with a variety of business models and strategies, including for-profit and non-commercial. As with any emerging sector, most will fail and some will succeed. Those who make it may well find today’s incumbents are interested in buying them up (as Avis did with ZipCar).
But it’s worth emphasising why the Strategy Director thought it was inevitable. Digital platforms like eBay or Facebook have grown massively over the last decade. But the technology is still innovating and we haven’t seen the half of it. Digital in the 21st century is like the steam engine in the 19th century, and will revolutionalise industry after industry. As our thinkpiece Wired for Change makes clear, it also provides a fantastic opportunity to shape a sustainable future.
Finally, what does this mean for big business? You should expect to have a challenge from a sharing economy alternative at some point. Best to spend some time now looking at when that might be (are you in a sector which has a high potential for sharing?) and what you want your response to be. Will you buy up (or otherwise form alliances with) the successful entrepreneurs? Or, do you want to innovate proactively yourself?
If you go the proactive innovation route, then the recommendations from our guide to Breakthrough Innovation apply.
- Make sure you have some resources for disruptive concepts, so you have an innovation portfolio balanced across incremental and breakthrough.
- Embed the breakthrough ambition in your culture. The report mentions 20 different ways to do this. Two of the most important: accept that you are going to cannablise your sales (better you eat your own lunch than someone else); and do experiments where you fail fast, fail cheaply and learn the lessons for the next time.
- Use management structures to protect and nurture breakthrough innovations. Perhaps you need a separate team on it full time, so they don’t get distracted by the existing business. Perhaps you need to have deep collaboration with someone. The report has 10 ways you can do this.
- Read our guide to Breakthrough Innovation
- Read our digital thinkpiece Wired for Change
- Find out more about our Sustainble Business work here - http://www.forumforthefuture.org/our-work/hub/sustainable-business
- Follow @davidbent on Twitter