What the sharing economy means for incumbents
The growth of the sharing and on-demand economy is prompting incumbents to reassess business and revenue models.
Ownership to access is one of three areas we focus on as part of the digital consumption cross-industry theme. The other themes we examine are products and services to experiences and hyper-personalization.
Today, an economic model, built around ideas of peer-to-peer collaboration and on-demand access has become big business. Companies such as Uber, Airbnb, BlaBlaCar, Didi Kuaidi, HomeAway, WeWork and Lyft have rocketed to $1 billion valuations (and, in some cases, far beyond) by offering users on-demand access to cars, homes or office space.¹
The global market for shared goods and services across five key sectors is estimated to reach $335 billion by 2025.²
While sharing and the desire for access to goods and services may be age-old concepts, increased digital connectivity has enabled greater efficiency and access to services and products through peer-to-peer markets and matching platforms. Moreover, the growth of social has unleashed the power of peer reviews and laid the foundations for building trust in peer-to-peer transactions.
Customers are attracted by the convenience of on-demand access, the prospect of financial savings and the potential for it to improve their quality of life. More than half of people surveyed recently in North America said they would consider switching from buying to sharing if it lets them save 25%.³ Others value the opportunity to avoid the risks of owning an asset, such as a car, without losing access to the benefits it provides.
The impact on traditional revenue models
It is easy to see that a fundamental shift from buying to accessing (or sharing) stands to have a very significant impact on traditional revenue models. Automotive manufacturers are looking at a future where a large part of their customer base may forgo ownership of a car in exchange for real-time access to mobility provided by disruptors such as Lyft. Alternatively, customers could develop a preference to access a wide variety of automobile models, each for a fixed period of time, rather than have to permanently choose one brand over the other.
Access-based models also hold larger economic implications by potentially improving asset utilization rates (and reducing waste) in a number of industries, and spreading economic gains across a number of asset owners and seekers (see case studies).
Cohealo, a US-based technology company, has created an innovative platform offering on-demand access to medical equipment. It’s a pioneering example of an access-based model being used in the B2B world. Cohealo allows health systems to share equipment across hospitals, reducing the need to buy unnecessary equipment and boosting profit and utilization rates. With one study finding the average utilization rate of hospital equipment at 42%, Cohealo aims to boost this to 75 to 80%. Cohealo is now being used by healthcare providers serving around 15% of the US population. Cohealo says that its service has saved hospitals $1 million to $2 million each and claims that this could rise to $7 million if they use the service longer.
Caronetas is an exclusive ride-sharing platform launched in Brazil that allows users to place or find a ride and earn financial rewards that can then be redeemed at partner stores. The platform encourages sharing and promotes environmental benefits by creating financial incentives which users can evaluate and negotiate for each trip. The company allows only authenticated users (using their corporate email addresses) to add an additional layer of security and reliability. More than 900 companies registered with the service during its first year and the platform has now reached 250,000 employees through its corporate customers.
Where will access-based models emerge and where does the urgency lie?
So far, much of the disruption from access-based models has focused on two sectors: space and transport. We are, however, seeing access-based models spreading to other sectors in both the B2C and B2B worlds, including luxury consumer goods, and even the B2B construction and medical equipment markets.
The scale and speed of change across sectors, however, is likely to be driven by a series of factors, including the value of the ‘asset’ after adjusting for transaction costs, the level of underutilized asset capacity, a ‘shareability quotient’ accounting for user willingness to share, and the regulatory environment in a particular sector. Some sectors will have more potential for disruption by access-based models than others (see Figure 1).
Several incumbents have identified this shift in customer expectations and are taking action to benefit from it. Some have invested in digitally native rivals. Avis, for instance, acquired Zipcar, the car-sharing service, for $500 million in 2013.⁵ Others such as BMW, with its own DriveNow car-sharing service, have gone further by adapting their traditional business model to take into account their customers’ preference for access over ownership (see case study).
BMW is an early example of a mainstream company adapting to the collaborative economy with its own sharing service. BMW’s DriveNow service is available in San Francisco and a number of European cities. It gives users on-demand access to BMW i electric cars, based on the principle of ‘pick up anywhere, drop off anywhere’. Customers are billed by the minute, with fuel costs, insurance and parking charges in public car parks included, and hire costs limited to a maximum of $60 a day. Although there is potential for the DriveNow service to cannibalize sales of new BMWs, this may be a necessary strategic move by an analog incumbent to meet customers’ preference for access over ownership and perhaps even expand its customer base.
Imperatives for companies
1. Identify and adopt the features that drive access-based models in your industry. Recent research suggests that consumers participating in the collaborative economy are willing to switch to sharing from buying if certain conditions are met, the most important of which are price, convenience and brand (trust).⁶ Locality and convenience – two closely related factors – are almost as significant as price in prompting customers to share rather than buy (see Figure 2). It should be noted that while these factors are driving customers toward sharing models, they are also relevant factors in customer decisions to switch back to buying. Almost 70% of ‘sharers’ are willing to switch to buying if offered a lower price.
Understanding the drivers of customer decisions to share rather than buy will be critical for industries and companies. Companies will need to focus on adopting the core innovations of the collaborative economy that are relevant to their particular context. Walmart, for instance, created an aftermarket called Trade In, which allows buyers to resell electronics like cell phones and videogames, enabling lower total costs of ownership and reducing the incentive for customers to shift to sharing-based models.
2. Choose the most relevant form of participation in the collaborative economy. Access-based models currently exist in one of two forms: peer-to-peer platforms and direct lending marketplaces. Peer-to-peer platforms such as Uber, Airbnb and Cohealo connect asset owners with prospective users of those assets and play a key role in reducing transaction costs, increasing transparency and improving convenience. These models have traditionally been adopted by new entrants acting as intermediaries. At the same time, traditional companies such as BMW have relied more on direct lending models that give customers the convenience of access to a product or service. The critical difference in this model is that businesses maintain ownership of their assets, and extend access/rental options alongside their standard purchase offerings. Notably, digital technology allows companies to ensure transparency, provide security and monetize usage.
Companies can play different roles in access-based models, either by engaging in strategic partnerships with existing players or by actively launching a platform or marketplace of their own. For instance, Ford encourages new buyers to rent their cars to others through a partnership with peer-to-peer marketplace Getaround. Hotel chain Hyatt invested and partnered with home sharing platform OneFineStay to make its hospitality experience available to customers looking to stay in luxury home properties.
2. The Sharing Economy, PwC Consumer Intelligence Series
3. “What customers want from the collaborative economy”, Alexandra Samuel, Harvard Business Review, October 8, 2015
5. “Sharing’s Not Just for Start-Ups,” Rachel Botsman, HBR 2014.
6.”What customers want from the collaborative economy”, Alexandra Samuel, Harvard Business Review, October 8, 2015
Digital consumption is one of four cross-industry themes (along with digital enterprise, societal implications, and platform governance) that have been the focus of the World Economic Forum’s Digital Transformation of Industries (DTI) 2016 project. An overview of the DTI program can be found here.
Our in-depth analysis of the digital consumption cross-industry theme is available in a white paper, which can be downloaded here.
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