OVER the past decade, the sharing economy has grown from dealings between friends and family to a pool of global businesses that are increasingly being valued in the billions. They use digital platforms to offer consumers access rather than ownership to cars and rooms and music, movies and skills.
This year there has been a growing sense that the sharing (or collaborative) economy has gone mainstream. A recent study by Nesta, working with Collaborative Lab, suggested that about 25% of UK adults had engaged in internet-based sharing of some kind over the previous 12 months. On the corporate side, Airbnb has grown to a global accommodation platform with more than 17 million guests in 34,000 cities. It was valued at $10bn (£6.2bn) in a recent funding round, the same as the Marriott hotel group.
Uber was founded in 2009, but it has recently been valued at about $15bn by funders and has the coverage to deliver a ride to half of all Americans in less than five minutes. Avis invested $500m in Zipcar, while BMW and Mercedes-Benz also have car-sharing initiatives.
In the media sector, Netflix has made its mark at the Emmys with original programming like House of Cards, while Spotify now has more than 40 million users. In finance, Lending Club has made over $4bn peer-to-peer (P2P) loans in the US with an annual growth rate in 2012 of 180%.
Of course, anyone who remembers the dotcom boom and bust should be a little wary of some of these billion-dollar valuations if they are not backed up by proven ability to generate cash. PwC analysis shows that the global revenues of five leading sharing sectors – P2P accommodation, car sharing, video and music streaming, online staffing and P2P finance – were only $15bn in 2013, with the UK’s share of this estimated at only about £0.5bn. That is less than 0.1% of GDP.
But we see enormous growth potential in these areas. We have modelled possible future revenues using an ‘S-curve approach’ that has worked well with past innovative sectors as they move from niche to breakthrough and maturity to decline.
Applying this model suggests that global revenues from our five sharing sectors could grow to more than $300bn by 2025, with the UK share of this at £9bn. These estimates are subject to many uncertainties, and rely on current legal, regulatory and fiscal challenges being managed. But they do not seem implausible as they assume a progressive deceleration in revenue growth from the actual rates seen in recent years.
But our analysis only covers five of the sectors where sharing is most advanced. We also see signs of emerging activity in areas like retailing and of business-to-business sharing starting to take off: retailers are renting out their shop space in the evenings; office space is being shared between start-ups; GE is giving smaller firms like Quirky access to its patents and in-house technologies to spur new innovations.
At present, the sharing economy remains highly fragmented, but we would expect to see a few large digital platforms emerging over the next decade that offer a broader range of goods and services, just as Amazon has expanded from selling books. Network economies of scale and scope make this a logical development, though niche platforms may remain where people want to belong to specialised communities.
The providers (and consumers) of sharing services will probably continue to be mostly individuals and small businesses, with the digital mega-platforms offering an arena in which these more nimble players can run rings around the heavyweights. The key criterion for success in this new world will be maintaining a high trust rating – something that some major companies that have lost public trust may find challenging.
So, yes, there is some hype of sharing now, but there is also a heavy dose of reality that today’s big businesses would be foolish to ignore. ?
John Hawksworth is chief economist at PwC
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