What does the Future look like in a World Moving Toward a Collaborative Economy?
Fast-paced digitalization and cultural shifts are driving the emergence of a new economic model: the collaborative economy, in which start-ups are disrupting traditional industries. The new model favors informal, networked approaches to traditional governance and decision-making. From Uber's networked drivers to Kickstarter's crowdfunding entrepreneurs, the market is undergoing a reallocation of power.
Collaborative consumption is not a niche trend, nor a response to the economic downturn. It is truly a socio-economic groundswell that will fundamentally transform the way companies think about their value propositions and the way people fulfill their needs.
Traditional companies will have to fundamentally rethink the way they run their organizations. It's time for capitalism to keep pace with society's changing needs and respond to the world's new ways of operating [The merits of long-term value creation for all stakeholders].
What is the collaborative economy?
The collaborative economy, also known as the ‘sharing economy’, ‘on-demand economy’, ‘peer-economy’ or ‘collaborative consumption’, is an economic model based on the sharing, exchanging, trading, or renting of goods and services, accessed by consumers through collaborative digital platforms.
This model is both more accessible and more efficient. It includes a wide variety of business models and covers numerous sectors, all of which have their own market specificities. A single definition is therefore not feasible. The core business idea, which is common to most business models, though, involves unlocking the value (monetary or non-monetary) of unused or underutilized assets/services.
Over the past decade, the global collaborative economy has experienced exponential growth: between 2014 and 2021, it grew by 814% and is set to reach $600 billion in 2027.
The collaborative economy: Uber is a classic example
Uber's success as a ride-sharing service is a perfect illustration of this new economy model. Its business model is based exclusively on the mutually beneficial relationship between the participants in its network (drivers and riders). With no physical infrastructure, the service relies on coordination between drivers and passengers, enabled by sophisticated software and an ingenious reputation/scoring system. Passengers rate drivers, while drivers rate passengers, building a climate of trust conducive to good behavior.
Today, that relationship of trust and partnership is under threat as Uber plans for a future of driverless cars. Earlier this year, CEO Travis Kalanick said, "Once we get rid of the dude in the car [the driver], Uber will be cheaper." These words naturally infuriated many Uber drivers, who in some cities have unionized because they perceive the company as exploitative.
Making matters worse, Uber is also clashing with its customers over its surge-pricing model (flexible pricing based on demand). Uber sees this model as rational and efficient, but some feel it constitutes a breach of trust. New competitors, such as Lyft, are using this climate of mistrust to stir up trouble. By offering a community-centric image, "your friend with a car", Lyft is asserting itself to be a more value-driven alternative.
As Uber expands, it is facing further challenges. After raising $1.2 billion from investors in 2014, it is now under considerable financial pressure to generate surpluses – which means concentrating power and sharing less value with the drivers and consumers who feed the model.
At the same time, the old economy model is firing back. Recently, in London and Paris, taxi drivers went on strike to protest against Uber's practices and the lack of government ride-sharing regulations. In France, the authorities tried to restrict Uber's activities by requiring a minimum 15-minute wait for anyone requesting a ride, giving taxi drivers a head start!
How will the new players respond to these regulatory challenges? At this juncture, the most effective response will include an astute blend of old and new models – that is, a traditional lobbying strategy coupled with the ability to mobilize network participants.
Collaborative opportunities for traditional businesses
Traditional organizations realize that integrating collaborative platforms as part of their business strategy will allow them to offer attractive new value propositions, thereby strengthening their market position.
Here are 2 examples illustrating how established businesses could participate in the collaborative economy using collaborative platforms that facilitate business-to-consumer or peer-to-peer transactions, deriving monetary or non-monetary benefits from unused or underutilized assets or services.
Example of Marriott’s ‘Workspace on-demand program’
Fang Roe, Marriott’s Director of Sales and Marketing for the Asia-Pacific region had noticed that conference rooms were under-utilized, even though she regularly saw guests looking for a quiet spot to work in the lobby or restaurants. How could Marriott facilitate guests' access to vacant conference rooms? On her initiative, in 2012, Marriott partnered with LiquidSpace, an online platform that allows customers to quickly book flexible workspaces by the hour or day. The initiative was tested at 40 Marriott hotels in Washington, DC and San Francisco, revealing that reservations originated not only from hotel guests, but also from locals, including lawyers, freelancers and consultants. Currently, 432 Marriott hotels offer meeting spaces listed on LiquidSpace. Since many bookings are not made by hotel guests, the agreement allows Marriott to reach new customers.
Example of DHL’s ‘Last-mile delivery service program’
Logistics and parcel delivery giant DHL realized that in a number of emerging markets, it didn’t offer a last-mile delivery service – and frequently, no one else did either. Customers have to collect their parcels at a designated spot, which makes for a frustrating customer experience. That’s why, in September 2013, DHL launched MyWays, a mobile app that connects customers (both senders and recipients) with people willing to transport parcels on demand. The program was piloted in Sweden, where the delivery fees ranged from 30 to 150 kronor, or about $4 to $20. According to Peter Hesslin, Managing Director of DHL Freight in Sweden, “MyWays is not just a service for those who want flexible deliveries; it is also for those who would consider delivering a package to earn a little extra money.”
Advantages and disadvantages of shifting market powers
The benefits of the collaborative economy include economic valorization – monetized and non-monetized – of unused or underutilized assets/services; more flexible and efficient allocation of assets/services; more affordable prices; and finally, the sharing of assets/services reduces the adverse impact on the environment.
Despite the efficiencies and benefits associated with the collaborative economy, the regulatory framework governing the operations of collaborative platforms has obvious shortcomings when it comes to consumer protection. For example, while hotels are regularly monitored for quality, Airbnb apartments are not. What's more, given the diversity of collaborative business models, broad across-the-board regulation is not an option. Instead, specific rules based on the key characteristics of each business model are needed.
The real appeal of the collaborative economy is that it acts as a zoom lens, offering new insights into the social, economic, and environmental benefits that can be derived from the use of a variety of assets/services, in unprecedented ways and on a scale that has never existed before.
How will on-demand access to cars, luxury goods or workspaces affect how we think about ownership? How will the Airbnb option transform our experience of traveling abroad? What role will on-demand car-sharing play in changing our perception of mobility? The transformation brings with it both threats and opportunities.
In this new world, traditional organizations that recognize the need to rethink their business model and become involved in the collaborative economy will be well placed to offer attractive new value propositions while consolidating their competitive position in the marketplace.
A major weakness of the collaborative economy, which must be addressed in short order, is the absence of adequate regulation to protect consumers and ensure safe and transparent trading.