Disrupting Retail: Sharing Economy And Collaborative Consumption

Disrupting Retail: Sharing Economy And Collaborative Consumption

Sharing economy is a system that reflects a shift towards a more sustainable consumption pattern. Collaborative consumption is a key feature of a sharing economy that involves sharing assets, enabling access over ownership

Disrupting Retail: Sharing Economy And Collaborative Consumption

By Ghous Zaman on Jul 29, 2014 at 1:09 pm EST

Since the dawn of the 21st century, a shift of trend from ownership of resources towards sharing of resources has been on the rise. The growing world population and its inevitable strain on natural resources has given a rise to more sustainable and efficient consumption patterns. Moreover, the financial crisis of the late 2000’s created income security and made people more conscious in terms of their consumption patterns as well. Those who simply cannot afford now prefer to share or rent the resource. And those who have resources lying idle again share or rent to fully utilize the resource and earn some money as well. Also, the rise of media and social networking websites further complemented this trend towards a sharing economy. It provided a platform for people to interact and get access to needed resources.

Collaborative consumption is based on three principle systems. The redistribution system helps move resources from the haves to the have not’s. Some mainstream examples are eBay Inc. (NASDAQ:EBAY) and Craigslist Inc. The product service system enables people to pay for sharing resources without having to buy it. Other not-s0-mainstream examples of such services include car services like Zipcar and RelayRides. Airbnb and TaskRabbit are also similar services that allow for collaborative consumption.

Moreover, sharing economy and collaborative consumption patterns have disrupted the traditional way of doing business. Startups operating on redistribution system have successfully captured a market which was previously not being served. Take eBay for example. It is the first of its kind in providing a centralized platform for peer-to-peer trading. Ebay has a market value of $62.7 billion and an enterprise value of $58.98billion. Its revenue is expected to grow 14.2% in the year 2015. EPS is expected to grow from $2.99 in 2014, to $3.39 in 2015. Ebay suffered a cyber-attack in the start of this year due to which the company lowered its annual sales target by $200 million. But despite the setback, eBay posted revenue of $4.37 billion in the third quarter, which was in line with the estimated range of $4.33 to $4.43 billion.

On the other hand, startups operating on the product service and lifestyle platform have caused low-end market disruptions. Startups including Uber and Airbnb have penetrated into an already established market by providing cheap and convenient services. Other major companies causing a similar form of disruption include Zipcar, RelayRides, DogVacacy, TaskRabbit, Patagonia and Verdle, etc.

Sharing startups do face quite high regulatory risk. Airbnb was fined $24,000 for violating hotel laws in Barcelona. It is now fighting a case against the state of New York for violating the housing regulations and illegally renting out rooms. Uber is also embroiled in similar litigation in Seoul, Korea. Taxi drivers claim that since no regulations apply on Uber and Lyft, they seem to enjoy an unfair advantage over them. Therefore, they are fighting for equal opportunities and a level playing field. Same is the case in Barcelona where taxi drivers are pushing the government to shut down Uber because of the unfair advantage it enjoys. The California Public Utilities Commission issued $20,000 fines against Lyft, SideCar and Uber for not having evidence of public liability and a proper insurance policy.

It would seem another major issue with sharing startups is that of trust. Although, complete user profiles with their history and ratings exist, it is still difficult for people to trust complete strangers when renting out their apartment or their car. Another major risk involved is that of cyber-attack. The situation was made worse after the attack on ebay.com. There was a massive security breach and the entire user database was at risk.

However major investors have started investing in various startups. GM Ventures invested $13 million in RelayRides in 2011. ZipCar was acquired by AVIS for $500million in 2013. In 2013, Uber raised $1.2 million through Fidelity Investments. Uber’s investors include Benchmark Capital, TPG Growth, Google Ventures, Summit Action Fund, Troy Carter, Amazon.com Inc’s (AMZN) Jeff Bezos, Menlo Ventures, Goldman Sachs Group Inc. (GS) and First Round Capital.

It is clear many investors and existing industry players agree that collaborative consumption is here to stay and. Collaborative Lab’s Strategy Officer, April Rinne says that the government now has to play a role in sharing economy to draft appropriate regulations but too much government intervention would be harmful.

University of Pittsburgh Business Professor Catherine May Lamberton says that sharing economy creates more opportunities for individuals as compared to a conventional market. Moreover, CEO of startup SideCar views sharing economy as the economy of the future. Although, there has been a lot of criticism against sharing economy startups due to the advantages they enjoy by being able to bypassing various laws, the future of sharing economy seems quite bright.

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