Why own when you can share? Understanding the dynamics of the sharing economy
The sharing economy is a hit with millennials. Need a car? No need to buy one. Hire one from Zipcar. Vacationing in Paris and need a place to bunk out for the night? No problem. Rent someone’s extra bedroom via Airbnb. Going for a party and want to flaunt a Hermes clutch? Rent one for the evening on Bag Borrow or Steal. The sharing economy, which allows you access to things you don’t want to buy or own, is bustling with activity. It is giving rise to business models that are gradually chipping away at the revenues of more traditional companies. Airbnb, for instance, is giving traditional hotels a run for their money. With an estimated valuation of $10 billion, Airbnb is already bigger than several more established hotel chains. Uber, an extremely popular ridesharing, cab and private car rental service, is valued at $18 billion.
So how big is the sharing economy really? And why is it becoming so popular? Will it disrupt traditional industries? To understand these questions, we sat down with Russell Belk, Professor of Marketing and the Kraft Foods Canada Chair in Marketing at York University’s Schulich School of Business. Belk, whose research has examined the ideas of possessions and sharing among other things, believes that the sharing economy will grow at a scorching pace to become a $115 billion by 2016. In this interview he explains why.
Q. The idea of the ‘sharing economy’ has gained a lot of currency in recent years. Why?
A. There are several reasons. One is the development of the internet: we can share [things like music] digitally. [We can also] access other people who have tangible things that we might wish to share. General Motors automobiles, for example, have a device called OnStar that’s been built into the cars since 2010. They have a program where they facilitate getting people who want to lend their car for a fee to other people and people who want to borrow a car for a fee for a few hours. The internet is part of it. It facilitated sharing, not just digital but also non-digital, tangible things.
Another reason might be demographic in nature. In many countries, a generation of young people is moving to big cities, renting apartments and finding that they can rely on public transportation. They don’t want to have an automobile. If they can go online and book an automobile for 3-5 O’clock this afternoon, that can be more convenient. This generation is driving a lot of the sharing that takes place. The long-term question is: is this a permanent change or when they have a family, are they going to move out to the suburbs and buy an automobile and change their consumption habits?
The third reason is environmental: people are realizing that it’s wasteful to have duplicate possessions. For example, the electronic drills that you buy, how long would you guess that that product is in use over its entire lifetime for an individual? About 13 minutes. Does it make sense for us each to own an electric drill for a product that is used that seldom? Maybe it makes more sense environmentally to not buy them, but just to borrow or rent them for the short-term when you need them.
These are some of the factors that I think have caused the explosion of this so-called sharing economy which are really [about] short-term rentals. True sharing is something that happens typically within the family: we commonly pool our resources within the family.
The sharing economy takes some elements of that: one person owning something and someone else is using it, but it’s also built in the profit order. Maybe rather than ‘sharing economy’, ‘collaborative consumption’, or some other title would be more accurate.
Q. How big do you think the sharing economy really is?
A. In 2012, it was a $3.5 billion economy [globally], by some estimates. It is predicted that by 2016 it could be $115 billion, which is a tremendous growth. Some people were saying that it could be bigger than the Industrial Revolution in terms of impact. It remains to be seen whether that’s an overly optimistic forecast.
Q. From your perspective, is sharing a more efficient model than the other ones that we are used to?
Q. At a more micro level, to what extent is intellectual property an obstacle to the creation of the sharing economy?
[This article has been reproduced with permission from CKGSB Knowledge, the online research journal of the Cheung Kong Graduate School of Business (CKGSB), China's leading independent business school. For more articles on China business strategy, please visit CKGSB Knowledge.]