Shared Economy Versus Ownership: A New Era Emerges'
“India’s automobile industry continued to languish, with passenger vehicle(PV)sales falling the most in nearly two decades in the June quarter”screamed the headline of a news daily. In the mean while, Uber and Lyft, both technology enabled mobility companies, were the two most anticipated IPOs this year.
Welcome to the shared economy, where everything from two-wheelers to furniture; consumer durables to gaming consoles; even mobile phones and water purifiers can be rented. Asset Sharing is not new cooperatives are a key example of how communities have traditionally come together to pool resources and work collaboratively. But as an increasingly important element of new business models, asset sharing connects spare capacity and demand, allowing consumers access, rather than forcing ownership, of a product or asset. Clubbed with the evolution of plug and play mindset among people, access over ownership has taken deep roots into our society today leading to the mushrooming of platforms where you can share almost any tangible asset you can think of.
There are four key drivers leading to this shift from asset ownership to an experience driven lifestyle.
●Economic: At a very base level, sharing platforms provide an opportunity to save or earn some extra money, besides trying out different peer-to-peer service experience. But there are several more underlying forces at play here.
○The 2009 crisis is still fresh in the minds of people. Along with stagnated income, rise in student debt and mortgage as well as reduction in welfare services, the crisis has brought to the fore the importance of savings instead of a credit fueled lifestyle.
○Cities, the engines of economic growth, have become costlier to live in. The average annual household income in Mumbai falls well below what is needed to qualify for a bank loan for a 1,000 - square foot apartment. According to a report by ArthaYantra, even someone with an annual income of INR 25 lakhs cannot afford to buy a residential property. Unsurprisingly, home ownership fell to a seven year low in 2018 in India.
●Technology: Technology has been at the core of the acceleration in
○Internet penetration has increased across the world, especially across emerging countries. The number of internet users in India has seen an annual growth of 18 % and is estimated at 566 million as of December 2018, a 40 percent overall internet penetration. Penetration in rural India has risen from 9% in 2015 to 25% in 2018
○Digital and mobile technologies make it ever easier to access goods and services on demand at the tap of a button, adding to convenience, price and transactional efficiency of consumers.
○Technology has allowed for the democratization of trust and the volume of what was already being done at a smaller scale. AirBnB has been able to compete with the largest and most established hotel chains because it has been able to earn the trust of its customers through transparency, reputation management and faster grievance redressal at a huge scale.
●Social Media: Social media has created the training ground where we learnt to develop our ability to connect and trust people we don’t personally know. It helped us the skills to acknowledge and transact with others digitally, which has been an important factor in making sharing acceptable at a massive scale
●Demography: There has been a perceptible shift how people live their lives in the past few decades.
○According to a survey by Indeed, 56 per cent of respondents having job-hopped in the last 16 months at least once and three times in the last 3-10 years. Such a lifestyle, very rare in the earlier decades, has led to assets being viewed as “liabilities” - something to be lugged around during switching cities.
○Many reports confirm that millennials are more socially aware than past generations, thus making sustainable consumption an important part of their lives. Sharing platform have been able to directly put into this need.
With shared services becoming a norm despite its shortcomings, regulators have started leaning in and companies have become more conscious about their need to collaborate at a local level to keep their growth juggernaut on track
These factors led to the disruption of industries such as media, financial lending and mobility, with the sharing economy estimated to rise to $335 billion by 2025.
Purchasing assets require significant capital and may have very low utilization rates. Moreover, only appreciation of assets can lead to an increased net worth among owners which may serve as collateral for borrowing in some cases. The car you own may provide you flexibility to travel and have lower running costs if used optimally, but you also have to bear the hassle of regular maintenance and deal with breakdowns.
However, when compared to owning assets, the shared economy has to overcome some significant issues. While most of the sharing platforms are based on trust, safety concerns still linger as evident from the Uber rape incident in Delhi. In many cases there is a lack of regulation to oversee the products and services exchanged during these transactions. Last but not the least, strikes by Uber/Lyft/Ola drivers across the world have exposed the dark underside of such platforms. While these economies offer much ﬂexibility in terms of working hours, travelling, and freedom, jobs can be very unstable and may not even provide living wages, leave aside employment benefits and social security.
With shared services becoming a norm despite its shortcomings, regulators have started leaning in and companies have become more conscious about their need to collaborate at a local level to keep their growth juggernaut on track.