Uber chief executive officer Dara Khosrowshahi recently said that Indians should shun car ownership. Khosrowshahi was promoting what is referred to as the access economy. Can Uber and other similar accessible facilities replace ownership? Mint takes a look.

What are the features of an access economy?

It is the idea of outsourcing repackaged for the current times, with a wider scope. Many things that were usually owned, whether or not by choice, are now accessed when needed and, thus, paid for when used. It is the same distinction between owning a book (asset) and borrowing it from the library (access). If earlier we borrowed or shared things that were used once or infrequently such as books, movie tapes and hotel rooms, today, this idea of a sharing economy has spread to frequent-use items such as cars, furniture, clothes and jewellery. The use of technology has made discovering and renting simpler.

What is driving the shift to access?

It is a question of capacity utilization. Whenever we buy something (for ownership), we pay upfront and, therefore, block our capital. If the asset is used adequately, we get a “return" on our investment. But take a car, for instance. It remains unused nearly 90% of the time, parked at home or at the workplace. No prudent investor would allocate capital for an asset that has 10% productivity. Even when used daily, ownership of a car could be an inefficient use of capital. The other benefit of renting an asset is the flexibility it offers anyone seeking variety in experiences or mitigation of usage risk.

Graphic: Naveen Kumar Saini/Mint
Graphic: Naveen Kumar Saini/Mint


Is there no value left in ownership then?

Ownership offers two key benefits. The first is validation. Owning a car or house is a social signal of status. For a first-time owner of such assets, the intangible value far exceeds the tangible capacity. The other is certainty. The owner can use the asset whenever, wherever and however she wants. Not having to wait or take chances could be invaluable to many.

Can access be made similar to ownership?

Network aggregators such as Uber, Airbnb and UrbanClap offer a large number of customers and providers the ability to discover and transact with each other. They are effective for frequent, low-value services or products offered by largely undifferentiated providers. Aggregators reduce the transaction cost of search. For the commute to work, we don’t mind which car or driver is available; the ease of finding a vehicle matters the most. Easier the access to an asset when needed, higher the likelihood of replacing ownership.

How can aggregators encourage sharing?

When customers choose sharing over ownership, they are making a trade-off: gaining on capacity utilization (cost), while giving up control (certainty). They agree to a sacrifice in terms of waiting time, quality or security in return for not having to drive or even buying a car. When this uncertainty crosses a threshold, it may become unacceptable. The strategic advantage for an aggregator arises from the ability to manage the risks of renting.

Srinivasa Addepalli is the CEO of a professional skills growth firm.

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