Sharing economy

Will the sharing economy grow increasingly important?

The potential benefits of the sharing economy are substantial if realised. The economic system, which allows individuals to share possessions and services, has the potential to reduce consumption, improve efficiency and create new markets. Indeed, the sharing economy has already delivered blockbuster returns for early backers of Airbnb, the marketplace that allows property owners to rent out their homes online. The firm raised $3.4 billion during its December 2020 IPO.

But aside from the hospitality industry, the sharing economy also has the potential to cut costs, create opportunities and bolster (triple) bottom lines. Barriers to entry are typically removed or reduced: Uber taxi drivers need not own a car to work as drivers, for example.

Which areas of the sharing economy will become increasingly important?

The sharing economy is the overarching description for a range of related sectors, and together it already represents a significant and fast-growing section of the economy. The global everything-as-a-service (XaaS) market is projected to grow from $419 billion in 2021 to $2.3 trillion by 2028, growing at an average annual growth rate of more than 28 percent.

Related sectors include equipment-as-a-service, which is the name given to the business model in which machines or production systems are offered on a subscription model (as opposed to being purchased and owned). The global equipment-as-a-service market is projected to be worth $131 billion by 2025. And according to some estimates, may help some companies slash their costs by up to 25 percent. The software as a service (SaaS) sector, a software licensing and delivery model where software is centrally hosted and licensed on a subscription basis, is also expected to soar from 130.69 billion in 2021 to 716.52 billion by 2028. While the global energy-as-a-service market is projected to grow at an average compound annual growth rate of nearly 10% until the end of the decade.

What are the characteristics of a sharing economy?

Flexibility and efficiency are key characteristics of the sharing economy. In a sector where consumers pay for access or temporary ownership, the goal is to make gaining access as cost and time efficient as possible. This characteristic is common across sharing economy sectors, whether it be renting Airbnb properties, or hiring a piece of equipment.

What are the pros and cons of sharing economies?

The benefits of the sharing economy model include lower entry barriers, which has the potential to make assets more accessible and promote upward mobility. There are cons, however, which include the management challenges of adjusting to a model where speed and access are paramount. Difficulties can also arise from damages. If customers never own the asset, then disputes can arise over who is responsible for repairs. Other challenges of the sharing economy model include monitoring and identifying fraud and theft.

What are the opportunities in the sharing economy?

Consumers, established companies and new players can all benefit from the opportunities afforded by the sharing economy. Companies can enter new markets and unlock hidden value, and consumers can benefit from greater choice and lower costs. For example, utility companies wanting greater grid flexibility can pay consumers to power down their energy requirements during periods of peak demand. Furthermore, there are also opportunities to offer services to shared economy firms grappling with new challenges posed by the business model and ownership structure of the sharing economy.

Business model examples of the sharing economy

Business model examples in the sharing economy are typically paying for the time the service was used. For aircraft engines, for example, aeroplane manufacturers pay engine manufacturers for every operational hour. This ensures engine manufacturers are incentivised to build engines that rarely break and require little maintenance. For software, you might pay for every “success”, in other words, every new client or customer you recruit using the software.

Rolls Royce has successfully capalised on this strategy offering engines-as-a-service, power-by-the-hour services and other usage-based services, helping generate more than half of its $13 billion revenues.