The sharing economy clearly has enormous traction in hospitality, with platforms enabling the sharing of cars and homes being valued consistently in the billions of dollars.
A recent investment research report from Piper Jaffray takes an exhaustive look at how this nascent giant of the economy functions, specifically considering whether or not the industry has legs as a fundamental shift in the value propositions sought by consumers worldwide.
The short answer: yes, the sharing economy has changed everything and has created a new set of corporate middlemen that offer more value to both sides of the transaction and thus builds its loyal user base. Here's an analysis of this fantastic report, and how it parses the ongoing success and future growth of the sharing economy across sectors.
#1: Wholesale shift in work realities post-recession
The impermanence of permanent work is the most obvious reason why the sharing economy will not lose steam during the ongoing economic recovery.
The two arrows below were added for emphasis to show how the reversal of the trend from previous downturns that saw a correlation between part-time and temp workers (who are leading indicators of FT employment): as the number of temp workers rose, the number of PT employed dropped.
The United States has now exceeded the number of temp workers from right before the dot-com crash, yet the number of part-time workers declined at a much slower pace than before. This is a 2% difference, meaning that more workers are staying within the part-time economy.
This data is confirmed by recent stats from the Freelancers Union that pegged the number of freelancers in the United States at 53 million — or 34% of the country's population. Work has clearly changed, and the sharing economy fits nicely within this shift as workers enjoy more flexibility with work to build a life of their own specific choosing.
Of course, the proliferation of sharing-style startups also makes it easier to do while also shifting jobs that were previously full-time onto a newly-minted part-time workforce.
Regardless of what came first, the economy has shifted towards favoring a patchwork income of part-time work, which nicely supports the economics of the sharing economy. These sorts of wholesale shifts take time to change again, so this work style is here to stay.
#2: It's a cheaper middleman with more diverse inventory
The transparency of the relatively open sharing platforms makes it easy to see how much savings can be reaped by moving business onto the sharing economy platforms. Here's a breakdown of savings when using private rentals rather than hotels in the world's largest studies, as per a Wimdu study:
The first reason for this pricing competitiveness is simply supply and demand: assuming a relatively constant demand curve, prices decrease as the number of suppliers increase. This means that legacy suppliers, such as hotels, would have to increase supply at great cost to compete on price. That would never happen, and therefore it reinforces the sharing economy's value.
This also reinforces the sharing economy's value propsoition as less costly, less corporate and more community-oriented than Big Business — even though a new Big Business is now taking a cut of each transaction.
The following decision tree outlines the reasons why users and asset owners decide to enter into the sharing economy in the first place — to both take advantage of low prices and more diverse inventory (user) and to reduce the cost and/or profit off the ownership of the asset (owner). This value equation is also something that is hard to compete with, as far as providing value to both sides of the transactions.
These are the fundamental economics of the sharing economy, and once an owner has acquired and shared an asset to great financial benefit, it reinforces the cycle of supply as owners pursue further asset acquisition. As assets bring new supply onto the market, it affects pricing while also again diversifying the inventory available for rent by the P2P user.
This is a virtuous cycle that is virtually indestructible, except by government regulation — and even that is growing increasingly unpopular as both users and owners are more vocal about their love for the new economics (see #4).
#3: SoLoMo has won and is now fundamental to the digital world
SoLoMo was an over-hyped buzzword for several years, peaking around 2012-2013 with its promise of "social, local, mobile." We don't hear about it anymore because it's no longer a trend but a fact. It's actually now at the core of everything the digital world does and requires a deep understanding of how the mobile-shift has affected world economics.
The mobile now allows direct access to local inventory wherever you are and this inventory is now tied to a social schema that offers reviews and ratings from friends, family, and "trusted" social networks made up generally of strangers. And as the ratings and reviews system has become the backbone of the Internet, it has allowed the sharing economy to thrive in an atmosphere of trust unparalleled by even the most beloved brands.
SoLoMo also allows users and asset owners to scale use as required by their own lives — a quick tap on the phone can book a room or remove a room from public inventory. This flexibility due to the mobile phone, coupled with trust-enhancing reviews and a deep inventory of options, make the sharing economy unassailable as far as consumer behavior.
Piper Jaffray calls these trends the "sharing economy enablers," and these deep-seated behaviors are here for good. This permanence makes the sharing economy that much more rock-solid and unchallengeable by those Big Business brands that were disrupted and who might pursue wholesale destruction of this economic phenomenon.
The report authors are astute in pointing out that these sharing economy trends are not new; travelers have been renting rooms above the pub since the day the first pub was opened. The Internet has been the massive overall enabler, speeding connections amongst previously disparate and unconnected cohorts.
It is worth noting that the sharing economy is not a phenomenon created by the internet, bur rather its velocity has been increased by it. Consumers began renting out second homes, leasing boat motors, and carpooling long before the internet became widely available.Like many things on the internet, it is not an internet-original, but the trail to broader adoption was blazed by the internet. The sharing economy, in many respects, is democratized and well-dressed greed, bringing those who have assets and skillsets together with those who want a cost-effective solution.
Mobile has arguably been the best enabler, as explored earlier, as it provides the on-the-go mechanism that is the truest form of real-time flexibility and access to a constantly evolving global cauldron of supply and demand.
#4: Government regulators are late to the party
As per usual, the government is bringing up the rear of this shift in consumer behavior. The slow-moving regulatory powers-that-be have already let this go on so long that any aggressive changes are met with vociferous resistance. After all, there's a lot of money exchanging hands with actual citizens than even the corporate lobby can fight back against.
If the government had acted swiftly at the start of this trend — either in support or aggressive measures against — there might have been a chance to craft an alternative. Once these companies caught the eye of VC capital, however, all bets were off. The companies rapidly raised immense war chests to fight the battles one city at a time, which the sharing economy darlings are now doing.
The battle was lost the moment the government ignored a massive shift in its consituentcy's habits. Of course, the Great Recession offered the perfect cloak for the sharing economy innovators to jump in and offer an economic alternative to the status quo while the government was working to prevent calamity and fighting public mistrust.
It's also important to note that, as regulators fight this growing segment, there's a feeling of disconnect that can further galvanize both sides of the issue. As that happens, it simply creates wider awareness of the sharing economy — which has already proven to be popular within the mainstream. These regulatory battles further bolster the sharing economy's own inevitability.
#5: This revolution will not be televised...
...but it will take place in the homes and private worlds of people all around the world. As technology infuses itself further into our hardware, such as our homes and cars, the sharing economy will be further boosted by seamless access.
For example, take the Internet of Things. Still in its infancy, the global grid of connected devices will further reduce the friction to share (and thus increase supply). Airbnb owners will, and already do, text message keys to guests so that the owner isn't required to be on site to manage their own asset. Cars could very well become driverless, changing the core meaning of "sharing" and simply ushering in the next era of technology-driven economics.
Ultimately worldwide consumption could be directed at new projects and investments, liberating capital from consumption into new realms. Of course, this would upend a global economy reliant on consumption, which has its own downsides but could continue to redefine consumption in an increasingly overpopulated world.
Beyond the profit motive, providing more space for more people to live well is a challenge that, at its idealistic core, the sharing economy is attempting to solve. There's still a long runway ahead before the zenith of an IoT-connected reality would further shift the way the global economy functions, but the sharing economy is certainly here to stay.
NB: Cash house image courtesy Shutterstock.