Sharing economy: creating opportunities in the digital era4 min read . Updated: 22 Nov 2017, 01:07 AM IST
The economic and business rationale for sharing is strong, both for start-ups and incumbents
Urban Indians have become increasingly familiar with ride-sharing applications in recent years. It’s hardly a surprise to see people of all ages hailing an Ola or an Uber to get them across town. The dramatic growth of such services coincided with the profusion of smartphones across diverse segments of age and income. The phenomenon of “sharing" assets is however, not confined to urban India. Mahindra and Mahindra Ltd (M&M), the well-known maker of transportation equipment, sensed a large untapped opportunity in India’s vast countryside. Only around 15% of India’s 120 million farmers used mechanical equipment because they either could not afford to buy it or because renting options are too difficult.
So M&M created Trringo, a sharing platform that allows farmers to rent agricultural equipment. Farmers can book equipment through smartphones or Trringo call centres, which have agents fluent in several local languages. Trringo has enabled M&M to increase its customer base, build brand awareness, and, in the worlds of Trringo CEO Arvind Kumar, “play a pivotal role in driving rural prosperity by empowering famers".
The success of M&M, founded in 1945, dispels major misconceptions about the sharing economy—that it is an arena for start-ups; or that the so-called sharing economy is merely a passing trend among millennials; or that it is only relevant to taxis and hospitality; or that it should be seen as a threat to all incumbents in industries where it takes root.
Companies around the world are developing a wide variety of platforms that permit users to gain temporary access to assets. Because most platform providers are private, it’s hard to gauge the size of the sharing economy. But in its March 2017 funding round, Airbnb was valued at around $31 billion. That’s roughly the valuation of global hotel chain Marriott International. In New York City, Uber’s fleet is nearly three times larger than the number of yellow taxis.
The rise of the sharing economy is commonly attributed to culture or ideology. It’s assumed that millennials don’t want to be trapped by houses, cars and other expensive belongings, for example, or that they believe sharing is good for the environment.
Research conducted by the BCG Henderson Institute (BHI) indicates that economics, not attitude, is driving the sharing economy. The research that spanned the US and Germany, as well as 1,500 participants in India, covered both consumers and providers to build an in-depth understanding of the dynamics driving the growth of the sharing economy. The findings showed that consumers primarily prefer sharing services because they find it provides great economic value. The two other top advantages are that consumers know what they are getting and can trust the services because of ratings and reviews. The findings were remarkably consistent across all three countries.
When consumers were asked what attracted them to sharing, they primarily cited variety, access to better products and services, and ability to have a unique experience. Concerns over reducing the carbon footprint and connecting with interesting people ranked lower.
The survey also covered consumers who don’t use sharing services. They cited three main reasons: they enjoy the convenience of ownership, they distrust the reliability of sharing platforms and they are uncomfortable with sharing payment information. These barriers are precisely why early critics believed the sharing economy would not take off.
Many other consumers, however, have been won over by the economic benefits, insurance protections and growing trust in user reviews. Among respondents who use sharing services, 40% of Germans, 57% of Americans and 67% of Indians said that well-priced, convenient offers could convince them to abandon ownership altogether.
Sharing isn’t just for start-ups
Investors are funneling money into asset-sharing services in areas beyond rides and rooms. Companies offering shared workspaces, storage, delivery and logistics platforms have received nearly $2 billion in funding since 2010. Vehicle-sharing and fashion-sharing services have also received significant backing. Aside from physical assets, investors have also poured $5.7 billion into peer-to-peer lending ventures.
Start-ups by no means have a lock on the sharing market, however. In fact, 55% of consumers in India said they would prefer dealing with established operators—the highest among the countries surveyed. This preference reflects a desire for certainty, consistency, quality and transparency. The market is therefore open to industry incumbents as well as start-ups that can offer these benefits.
Consumers have already spoken. They appreciate the convenience, variety and cost-effectiveness of sharing. The economic and business rationale for sharing is strong, both for start-ups and incumbents. If companies don’t explore options in this new world of declining transaction costs and rising consumer interest in sharing, their competitors almost certainly will.
Arindam Bhattacharya is a senior partner and director at the New Delhi office of the Boston Consulting Group (BCG). He is also director of Asia hub of BCG Henderson Institute (BHI). Rajah Augustinraj is a project leader at BCG’s Chennai office and an ambassador at BHI. Judith Wallenstein is a senior partner in BCG’s Munich, Germany office.
BHI is BCG’s strategy think tank, dedicated to explore and develop new valuable insights from business, science and technology. It engages leaders in discussion and experimentation to expand the boundaries of business theory and practice.