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Established Companies, Get Ready for the Collaborative Economy

Established Companies, Get Ready for the Collaborative Economy

by Alexandra Samuel  |   11:47 AM March 4, 2014

As more and more startups like Airbnb, Etsy and Kickstarter crowd into the space of the collaborative economy, big brands are starting to get in on the action, too.  Staples sells products developed on Quirky; Avis has acquired Zipcar; Walgreens has partnered with TaskRabbit for delivery.

And those ventures are likely to be just the beginning, given how many people are already participating in the collaborative economy, and how much that’s likely to grow over the next year. There are now 113 million sharers in the US, the UK and Canada: 40% of the adult population. Those figures come from a survey of 90,112 people that we conducted for Sharing is the New Buying, a just-released report that I co-authored with Jeremiah Owyang of Crowd Companies and my Vision Critical colleague Andrew Grenville.

While the most established and widespread form of sharing consists of buying and selling pre-owned goods on sites like eBay and Craigslist, our survey revealed that a quarter of the population is now using the most recent generation of sharing services. These include peer-to-peer transportation and housing services like Uber and Airbnb, crowdfunding services like Kickstarter, product rental services like Rent the Runway, custom craft shops like Etsy, and task sites such as elance and Taskrabbit. Participation in every one of these emergent categories is poised to double within the next year.

No wonder big brands want in on the action: the growth of the collaborative economy promises to disrupt the conventional marketplace, as customers buy from one another — instead of from them.

But for those companies, engaging with this nascent market must go beyond latching onto a few hot collaborative startups by buying them or partnering with them. Established companies must grasp the core drivers behind this new economy, and understand how those drivers fit into their already established models. These core drivers are:

Less buying, more sharing. Big brands need to stop measuring success in terms of units sold, and think in terms of units used. The collaborative economy is shifting us from a consumerist economy to one in which people buy less because they’re sharing more. Instead of five families buying five cars, five families can share the equivalent of one car (using a combination of loaner vehicles and transportation-on-demand), reducing the overall number of products purchased. (Not incidentally, this also reduces the environmental footprint of all that car manufacturing.)

Companies that have traditionally relied on selling goods need to think about offering those goods on an access model, too – for example, as Daimler AG has done by providing by-the-minute car sharing through Car2Go. And those that offer services need to think about further offering their customers access to products well outside their traditional spheres, as with Westin’s partnership with New Balance to offer fitness gear rental for their guests.

Less consuming, more producing. The emergence of the collaborative economy is closely tied to the growth of the maker movement, in which individuals can become producers and sellers thanks to technologies that support small-scale production (like 3D printing) as well as those that facilitate peer-to-peer distribution (like online marketplaces).  As we found in our survey, on some kinds of sharing sites, such as those that share professional services or pre-owned goods, more than half of participants have been sellers or providers (and not just buyers and consumers) at some point in the past year.

To succeed in the collaborative economy, companies will need to integrate crowd-produced goods into their supply chain, as West Elm has done with Etsy. In fact, our data suggests that attracting small-scale producers and sellers is one area where any player could still find a competitive edge: while 79% of buyers are “very” or “extremely” satisfied with the value they got from their latest sharing transaction, only 60% of sellers were as satisfied with their earnings.

Less working, more freelancing. As a number of observers have pointed out, one effect of the collaborative economy may be to increase self-employment in place of full-time employment.  This means that companies will have new ways to source labor, but at a social cost: some argue that the ability to outsource via elance and TaskRabbit gives companies a (lower-wage) alternative to creating full-time positions. Meanwhile businesses that depend on skilled labor means that they’re not only competing with other employers to hire the best workers — they’re competing with the increasingly viable option of web-enabled self-employment.

Rather than engaging in a race to the bottom (on wages) or a fight to the top (competing for skilled labor), these companies would do well to focus on offering new value-added services enabled by the collaborative economy, as Home Depot did by partnering with Uber for Christmas Tree delivery.

Less regulation, more risk. One challenge that has bedeviled sharing startups is the emergence of regulatory efforts aimed at limiting sharing activity — or tapping it for tax revenue. Partly in response to pleas from established players like taxi and hotel companies, municipal governments have tried to corral the Wild West of sharing.

Yet the involvement of bigger companies in the sharing economy itself could instead strengthen the hand of those who would preserve currently low levels of regulation. Either way, unless big companies want to see their breakfast eaten by collaborative startups that profit by flying under the regulatory radar, they will need to tune into their customers with co-innovation initiatives that help them understand how they can play in this space, too.

The competitive pressures of the collaborative economy – and the ever-growing list of companies rising to meet them — attest to the urgency and inevitability of the entrance of big brands into this space.  It’s a disruption that big companies must not only address, but accelerate, unless they want to stand by and watch while their own business models and revenue streams are disrupted instead.

 

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About bambooinnovator
KB Kee is the Managing Editor of the Moat Report Asia (www.moatreport.com), a research service focused exclusively on highlighting undervalued wide-moat businesses in Asia; subscribers from North America, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities, some of the world’s biggest secretive global hedge fund giants, and savvy private individual investors who are lifelong learners in the art of value investing. KB has been rooted in the principles of value investing for over a decade as an analyst in Asian capital markets. He was head of research and fund manager at a Singapore-based value investment firm. As a member of the investment committee, he helped the firm’s Asia-focused equity funds significantly outperform the benchmark index. He was previously the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. KB has trained CEOs, entrepreneurs, CFOs, management executives in business strategy, value investing, macroeconomic and industry trends, and detecting accounting frauds in Singapore, HK and China. KB was a faculty (accounting) at SMU teaching accounting courses. KB is currently the Chief Investment Officer at an ASX-listed investment holdings company since September 2015, helping to manage the listed Asian equities investments in the Hidden Champions Fund. Disclaimer: This article is for discussion purposes only and does not constitute an offer, recommendation or solicitation to buy or sell any investments, securities, futures or options. All articles in the website reflect the personal opinions of the writer.

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