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The sharing economy is changing the way people think about assets. Forbes defines the sharing economy as a new economic model that leverages peer-to-peer (P2P) or shared access to goods and services, facilitated by online, community-based platforms. This shift from ownership to access has created new opportunities for businesses, consumers, and communities. With companies like Airbnb and Uber leading the way, collaborative consumption has become a strong movement in recent years.
How Big is the Sharing Economy?
According to PWC, the global sharing economy market should reach $335 billion by 2025. With that said, a recent article by Quattrone, G., Kusek, N. & Capra, L., establishes a strong case that the true global size of the sharing economy is underestimated due to the tendency to limit impact studies to the Western world. So how much will the sharing economy grow over the next five years? Predictions for the industry's market size vary greatly, with one report from BCC Resarch stating it should reach $1.5 trillion by 2024 from $373.7 billion in 2019. One thing is certain, it’s not easy to quantify the size of this market.
What are the macro trends shaping the sharing economy?
Blockchain
Blockchain is a distributed ledger technology that records transactions across a network of computers. Since it was first proposed in the early 1980s, blockchain has been used to track and verify the transfer of assets like money and property. In recent years, blockchain has also been applied to other areas of business and society, including supply chain management, healthcare, crypto currency, title registry, voting and, of course, the sharing economy. In short, blockchain maintains a permanent record of all transactions. Unlike traditional databases that use centralized servers to store information, a blockchain network consists of thousands or millions of computers running the same software. This distributed, decentralized architecture makes it harder for hackers to corrupt or manipulate data. Moreover, there is no need for a third party to oversee the data because it’s stored on every single node in the network.
This makes blockchains far more secure than centralized databases, because they require two parties — buyer and seller — to sign off on each transaction before funds can be moved between them. As long as these parties trust each other, they can safely agree on terms and conditions without anyone having access to their personal information. Blockchain thus represents an exciting alternative model for the sharing economy and society at large to help usher in a new era of trust and connection in which everyone has greater control over their own data and property rights. With that said, it has the potential to dramatically alter how sharing economy platforms operate. So it’s essential for anyone operating in the industry to be up-to-speed on blockchain. So much so that The Economist called it “one of the most important innovations since the dawn of the internet.”
New Collaborative Consumption Models
Many sharing economy platforms that connect users today have collaborative consumption baked into the design. For example, if you want to travel but don’t have the funds for airfare, car rental, and a hotel, you can partner with someone who has these things and is looking for someone to share their costs. You can expect this level of sharing to increase as more people become aware of the benefits of the shared economy and the tools to help facilitate it. Many sectors have seen the emergence of new business models due to the popularity of collaborative consumption, including travel, transportation, and fashion. And experts predict this trend will accelerate as more consumers seek to spend wisely and better leverage their assets.
Increased Regulation
According to a recent article by Deloitte, as businesses’ digital transformation programs accelerate, the risks they face and compliance obligations they need to meet amplify, too: issues like data protection and cybersecurity come to the fore. Noncompliance with best practices and regulations leaves companies wide open to data and security breaches. Since most business models in the sharing economy straddle the online and offline worlds, they must navigate a myriad of potential regulatory compliance and legal pitfalls. Issues ranging from labor laws to consumer rights all come into play depending on the type of platform. In particular, startups should be prepared to deal with potential backlash from providers and end customers. There is always the risk that users will feel short changed or misrepresented, which can lead to lawsuits and bad publicity. And if service providers take issue with working conditions or wages, they can file lawsuits against the company with local authorities. Ultimately, it's crucial for businesses to work closely with legal counsel throughout the process. When done right, this approach can help businesses minimize risk and maximize opportunity.
Bottom Line
The sharing economy is expected to grow significantly in the next decade, as the global population becomes increasingly connected. Collaborative consumption and asset sharing will become the norm and will continue to transform industries such as travel and tourism, transportation, real estate, and many more. Consumers will also be able to access a wider variety of goods and services through the shared economy, and can even share personal goods for extra income. Looking for guidance in navigating risk in the shared economy? Register for the Sharing Economy Global Summit (Oct. 11-13, London), and stay ahead of the curve by joining a community of founders, operators, and legal experts committed to driving innovation and growth in the industry.