The Sharing Economy has attracted tremendous interest over the past few years: firms like Uber, AirBnB, TaskRabbit and Zilok offer people the ability to monetize assets that they’re not using all the time, or to find customers more easily than was the case pre-internet.
As a homeowner, I’ve become an enthusiastic user of AirBnB: the guests I’ve hosted at my farmhouse in Jersey have been charming, interesting and fun; I’ve used Uber a few times (though it doesn’t work that well on my Blackberry Passport) and I’d be happy to rent one of my three drum-kits using Zilok when I eventually get around to sorting it out. It makes sense: these are under-utilized assets (I really should practise the drums more); why not let someone else share them?
As a citizen of the world, I’d like to think that the Sharing Economy is good for the environment: if sharing car journeys using a service like RelayRides means fewer car journeys — or even fewer cars manufactured — then that’s got to be a good thing, right? On the other hand, if AirBnB makes accommodation so much more accessible that we take more trips, then perhaps not.
As an investor, I’m interested in the long-term impact this will have on our economy. So I’ve been reading & asking. The first piece I read was an excellent essay by Juliet Schor. She makes some very good points:
- If a company like Zipcar simply replaces a traditional car rental firm, there’s probably not much economic impact;
- If a site like AirBnB makes it easier to host and easier to find cheap accommodation, slippage is reduced and the economy becomes more efficient… which probably leads to more transactions occurring at a given level of GDP than would previously have been the case.
She also points to a lot of controversy over whether the Sharing Economy is basically a form of what we in financial services term “regulatory arbitrage”: AirBnB hosts are not subject to the same rules as the hotels they supplant; there’s no minimum wage on TaskRabbit. This is picked up by an article in The Economist: governments are struggling to shoe-horn decades-old legislation into working in the internet age, and it is difficult.
The part that interests me most is the bit that isn’t getting such good coverage, as far as I can tell. If durable goods like drum-kits & jet-washers are easily shared, to what extent do consumers stop buying these items, knowing they can just borrow them as required? According to the World Bank, Household Final Consumption represents close to 70% of USA’s GDP. Clearly, it makes no sense to share stuff one uses all the time (e.g. your fridge); looking at the data in a little more detail (from the Bureau of Economic Affairs) I was I admit surprised to see that fully two-thirds of the average American household’s expenditure goes on services. Of the other third (that part going on goods) two-thirds goes on non-durables. So, we’re left with ‘just’ 11% of consumption spent on durable goods. That’s a much smaller proportion than I’d have guessed and so perhaps I worry too much about the impact on GDP of everyone going out & sharing all their stuff.
I suppose the other side of the same coin is, how come there aren’t loads more internet businesses trying to help people share services, since they’re a much bigger market?
This article first appeared on LinkedIn 8 September 2015