Is the Sharing Economy an Opportunity or a Threat to Existing Businesses?

Manufacturers use the term “excess capacity” to refer to an underutilized asset that is not being fully exploited to create value, be it an idle assembly line or a factory running only one shift when it could potentially be running two or three.

When viewed from this perspective, the non-commercial sector of our society can clearly be seen as overflowing with excess capacity. It could take the form of anything from an extra bedroom sitting empty, to an underutilized piece of garden equipment, to your car sitting idle while you work at home.

Given the massive degree of interconnectedness we now enjoy, the opportunity has emerged to very efficiently match up that excess capacity with those who have a need for it.

Thus we have the basis for the sharing economy; a newly emergent business trend that might just revolutionize the way business is done.

Of course, no sooner does such a trend emerge than the question arises; is this a threat to existing businesses, or an opportunity? The answer, of course, has to be both.

Reshuffling is not the same as harming, though, of course, every time there is reshuffling there will be winners and losers.

If I were to decide to chip in with a neighbor or two to buy a snowblower to share (I could have used one this week), that could be seen as a potential loss of sales if compared to the scenario where each of us bought our own. On the other hand, given the cost involved, none of us might have bought one. Furthermore, since it will be getting extra use, we might decide to buy a more expensive model than any of us might have purchased individually.

Looking at the experience of Airbnb, one of the pioneering enterprises in this space, a San Francisco-based company that matches available rooms with would-be travelers, bears this out. Fourteen percent of visitors using the service said that they would not have come at all without the availability of these affordable rooms. In addition, the average Airbnb stay was two nights longer than the average hotel room stay. All told, the service generated some $56 million for San Francisco's local economy.

Another advantage of an operation like Airbnb is the fact that not only does the money remain in the local economy, but it also ends up where it is really needed (60 percent of hosts had incomes below the city’s median).

Of course, some of that business came at the expense of existing hotels. Though there is nothing preventing them from following a similar model, which, to some extent they already do through services like Hotwire  and Priceline, which sell off excess capacity at discounted rates. Some other big companies are starting to dip a toe in as well. Look at U-Haul’s entry into the car-sharing business, for example. U Car Share is presently focusing on college towns, where it operates in some 38 localities.

Halfway between buying and sharing would be renting. Companies like Getable, which traces its lineage back to Netflix, have wrapped their heads around what that might look like online.

There is a fundamental difference between these ventures and the kind of collaborative consumption that characterizes the sharing economy. Sharing economy transactions are inherently peer-to-peer in nature.

Of course, that term, peer-to-peer, immediately brings to mind the music industry which has become the front line in the battle between an emerging sharing model and a long-established business model based on sales of recorded media.

From the industry perspective, those who share are demonized as pirates whose sharing is characterized as stealing. These accusations have resulted in new legislative actions known as SOPA/PIPA, sponsored by the industry in an attempt to stem the tide of unauthorized sharing, which are still being debated in Congress. But according to Julian Sanchez, cited in Forbes, online file-sharing has actually not harmed the music industry.

The argument is far from settled and it will probably continue for some time. The fact is, the possibilities unleashed by our newly hyper-connected society are just beginning to be exploited. Things are going to continue changing and evolving and it is going to take some time for attitudes and regulations to catch up.

Tim O’Reilly says that a big part of the problem lies in our ability to track value capture (which we’re good at), and value creation (which we’re not). He gives the example of drying clothes on a clothesline, whose value is not counted as an application of solar energy.  (Video). There are millions of these tiny value creation actions occurring daily, most of which occur below the radar.

But the radar seems to be getting lower and we are beginning to recognize value wherever it occurs as opposed to those places we’ve been accustomed to look.

Of course, when you buy a snowblower, or a chain saw, there is no implicit agreement accompanying your purchase (.i.e. copyright) that forbids you from letting your neighbor borrow it. Though I would not be surprised, as the sharing economy keeps growing, to see some indignant manufacturer lobbying for a new law that will do exactly that.

A better strategy, I think, would be to try and find a way to participate. Retailers or manufacturers, for example, could provide a gateway service by creating a database of customers who have purchased certain items by location which could be utilized for peer-to-peer sharing with appropriate fees attached.

The sharing economy, like any other major business transformation, represents economic impact to incumbent providers while representing freedom and value to those who have adapted their lifestyles to take advantage of the opportunity presented.

Of course, there is no reason that businesses, who also have lots of excess capacity, couldn't share with each other, too. Even competitors could also join forces when it comes to reducing the overall impact on the planet.

When the dust settles and the new landscape emerges, it will be organized and prioritized along the lines of the value created and made readily available to consumers in tomorrow’s world.

Image credit: “Cowboy” Ben Alman: Flickr creative commons; Pixabay