Where to now – predictions for the Sharing Economy in 2017
The Sharing Economy, now valued at close to $1b in NSW alone is one of the hottest sectors globally. At a time of skyrocketing valuations and mushrooming verticals, we have outlined some of the trends that we foresee taking place in the sector over the next 12 months.
Power of Sharing will continue to grow but there will be more natural selection
2016 was the year that the sharing economy truly gained mainstream acceptance in Australia. Uber was legalised in all states and territories (except Queensland); WeWork opened a number of co-working share offices (including one in the heart of Sydney in Martin Place); Sydney maintained its status as a global top 10 city for Airbnb rentals and Airtasker hit our TV screens with a catchy advertising campaign aptly titled “Like a Boss”.
Recent research in the US suggests that 72 per cent of Americans had used a ‘shared or on-demand online service’ in 2016. Assuming similar penetration rates for Australians, it is fair to say that ‘catching an Uber’ is now common vernacular in water cooler conversations. This has blazed a trail for other businesses to establish similar models in different verticals, describing themselves (simplistically but effectively) as the Airbnb of “[insert market here]”.
But how many of these look-alikes can actually succeed? Whilst the capital costs of setting up an online platform are relatively small, the marketing costs to gain traction are hefty. As a marketplace, you facilitate a transaction and claim a % clip of the ticket. Without patient (and meaningful) startup funding to market and build out a marketplace, no true scale can be achieved. Without scale and liquidity, early adopters receive a suboptimal first customer experience at a time when you need their evangelism to leverage off network effects. The early Airbnb story is a great lesson in persistence and luck: its marketplace grew because the early adopters took the story home to their family, friends and colleagues, but not before an incubation period of 5-6 years during which the business was on the brink of bankruptcy many times.
Because scale and liquidity defines success, the sharing economy lends itself to a winner takes all (or at least most) phenomena. Few oligopolies survive in the world of sharing marketplaces. This will lead to the natural selection of sub-scale competitors and increasing M&A activity as these businesses are absorbed into the dominant player. A recent example of this is the acquisition of Foodora by Delivery Hero in Germany. 2017 will bring further consolidation and elimination of weaker lions as industry winners and losers emerge.
Investment will continue to flow but from non-traditional sources
With Uber reported to be valued at $80b, Airbnb at $25b and WeWork at $17b there is no shortage of investment funds flowing into the major global share economy players. Locally we have seen the likes of Airtasker, Redbubble (ASX), HiPages, SocietyOne, Spacer, CarNextDoor and Madpaws raise significant amounts of private, public and venture capital in 2016.
Interestingly, a number of the investments have been sourced from strategic partners, prepared to inject cash and contra equity in the form of marketing promotions through their own distribution channels. This reflects a growing maturity of our local sharing economy platforms. In the US many of the car sharing platforms are partially owned by big auto players and we are starting to witness the same phenomenon here with publicly announced deals by listed giants Seven Holdings (in Airtasker) and Caltex (in CarsNextDoor). I believe 2017 will increasingly see equity and strategic partnerships between corporates and sharing platforms, enabling corporates to control, mitigate or protect their own relevance in a changing consumer future
Traditional business will embrace sharing marketplaces as an affinity channel
There are very few pure peer to peer sharing platforms in market today. Uber supplements its p2p offer with taxi and limousine supply; a large proportion of Airbnb supply is now provided by hotels and business services, and tradies and small business are using Airtasker as a cheap affinity channel to locate and service demand.
Sharing platforms often fill the technology gap that small and medium size businesses have – offering a digital and SEO presence capable of being located and transacted online. As trust in the model has increased, traditional business has recognised the value of marketplace platforms as a primary or alternate online affinity channel, rounding out the overall liquidity of the offer for consumers. 2017 will see a continuation of this trend as peer to peer models become a subset of marketplace platforms and consumers move more confidently to buying products and services online.
Riding the sharing wave – the service industry supporting the sector
As the sharing economy grows, so too does the requirement for professional services and products to support the sector. Increasingly we are seeing services firms establish independent departments and pitch themselves as legal, accounting, SAAS, or specialist brokers for the sharing economy. Ancillary providers servicing the winners will continue to grow with the likes of Splend (car hire for Uber) or Kayla (host services for Airbnb) enabling individuals to participate in the sharing economy, even where they do not have the assets themselves. Sharing economy accelerators such as the Sharing Hub, will support new entrants in the sector.
Allocation of consumer risk is an interesting by-product of the exponential growth. The lines of legal liability are being tested as platforms grapple with coverage questions – where does 3rd party liability rest for a marketplace sitting in the middle of a private transaction? What are the industrial relations implications for contractors operating professional trades? When does business cover cease and private insurance begin?
The sharing economy will continue to go from strength to strength in 2017, albeit with the maturation of dominant players at the expense of sub-scale operators. Regulators and insurers will try to catch up with the wave of general consumer acceptance and provide protections rather than handbrakes on sector growth. Ancillary providers servicing the industry will be the big benefactors of growth as corporates embrace sharing models more broadly as part of their strategic visions.