A double-edged sword: The Future of the sharing economy in a post Covid-19 economy. An opportunity for mainstream businesses?
By KyoungHee Choi
Until the pandemic hit, the sharing economy was disrupting many business models and was a trending topic of discussion in business circles. Renting out assets to other people as a business model has been around for decades. However, modern technology allowed for new ways to connect owners with buyers with greater ease and convenience.
This mega trend impacted nearly all business sectors such as transportation (i.e. Uber, Lift), hotel (i.e. Airbnb), consumer goods (i.e. Ebay, Etsy, Rent the runaway), professional/personal services (i.e. Fiverr, Upwork) and health care (i.e. American well, Doctor on demand).
Many factors helped accelerate this key trend including new access to technology and lifestyle tendencies that were predominantly embraced by millennials that favored sharing to owning assets. It suddenly became easier, safer, less expensive and simpler to share assets as urbanization picked up.
The following were some of the key headlines on this new trend:
- In 2016, 44.8 million U.S. adults used the sharing economy, and it’s expected to grow to 86.5 million U.S. users by 2021.
- Uber ($68 billion) is the most valuable U.S. sharing economy, with Airbnb ($31 billion) and Wework ($21.06 billion) following – Data as of Aug 2017.
- In just New York City alone, there are roughly 4.5 times more Uber drivers than yellow cabs. This has caused the price of owning a taxicab in New York City to drop from $1 million in 2015 to less than $200,000 today.
- PWC research suggests that 86 percent of U.S. adults familiar with the sharing economy say that it makes life more affordable and 83 percent also agree that the sharing economy is more convenient and efficient than traditional methods.
- The healthcare industry is expected to generate annual revenues of $8.7 trillion by 2020. That likely explains why venture funding for digital health start-ups increased by 10.2 percent in Q1 of 2018 compared to Q1 of 2017.
So, what is the sharing economy?
The sharing economy is simply the exchange of value through an online/collaborative platform. This is also referred to as peer-to-peer (P2P) renting. The main feature of a sharing economy business model is access instead of ownership and the business/platform itself does not possess any of the assets on offer. (i.e Airbnb does not own a single room, Uber and Lyft does not own a single car).
Then the pandemic hit. While all business sectors were impacted, the impact on the sharing economy is different and potentially more significant. It provides new opportunities for legacy business models that act swiftly.
The impact for legacy business models presents new opportunities while being fraught with risk
Traditional industries have generally been hit hard by the sharing economy revolution and many traditional brands struggled to adapt or shift to the changing trends. Generally older business models become complacent and, in many cases, they took too long to adapt their business models to the new customer expectations. This had massive impact on their market share and profitability which in many cases has impacted their balance sheet entering the recent recession.
However, for these businesses that can adapt quickly this time, a huge opportunity exists to reestablish trust with their client base by reinventing their customer experience delivery – something that the sharing economy will struggle to do.
What is the impact of COVID-19 on the sharing economy?
The sharing economy has been hit hard by the COVID-19 black swan event mainly because of the lack of accountability. Customer expectations have changed radically. What brought them historical success and enabled very rapid growth is their ultimate Achilles heel.
While some of their challenges stem from the increase in flex/remote work and the lack of socializing which has significantly reduced demand, the biggest longer-term impact is the lack of trust and accountability in their business model.
As people are scared and worried, they are increasingly searching for certainty. Some hotel chains have recently tapped into this opportunity by creating clean protocols with commitments, seals, checklists and third-party audits and training. This can easily and consistently be rolled out for large hotel chains but is impossible to manage when you don’t control the assets.
While all the key players in the sharing economy continuously send emails on what they are doing to increase safety, there is no way to trust each owner/provider in ensuring that they follow safety protocols or that they even care about such factors.
How can anyone trust that each Uber driver is following sanitization protocols in their vehicles or wear masks (most have been observed with no masks). How can we ensure that each Airbnb host is fully sanitizing their place using the right cleaning products to the degree that large hotel chains are particularly when there is a shortage of cleaning products and tighter margins?
There are simply too many uncontrolled variables and points of failure which get to the very fabric of trust which is needed for the sharing economy to work.
The Double-edged sword: Turning crisis into opportunity.
No one expected this pandemic to hit our global business market. While we can’t change the cards that we have been dealt with, we can seek to turn this crisis into a new opportunity. I often say that “Opportunity is like a coin: there are always two sides.” Now it’s time to flip your coin!
Here are few examples of business sectors that present new opportunities if they can adjust and adapt quickly. To capitalize on these opportunities, leaders will need to reimagine their business models and can’t just make minor changes.
1. Car Dealerships
As people worry about their safety, they are less likely to use shared car services (i.e. Zipcar), shared rides (i.e. Uber or Lyft) or even traditional rental cars and public transit. They can control the condition and cleanliness of their cars which should cause a rise in demand for car ownership. Yet, the process of purchasing a car is still stuck in the byzantine ages. You typically need to visit a dealership, test drive a car and sign a contract in person. To capitalize, car dealerships that want to capture this market share will need to rapidly digitize and instill trust. Toyota has begun to roll out such ad campaigns but doesn’t truly control the dealerships so the step change needs to be driven by each dealership.
Traditional hotel businesses were challenged by Airbnb. If hotel chains rethink their customer experience and focus on instilling trust through certification and cleanliness standards that are backed by independent audits and cleanliness seals (i.e. Hilton), they could rapidly regain a significant advantage. Hyatt and Hilton have been particularly good at instilling such trust with Marriott also doing a good job. At the end of the day, hotel chains became successful initially because of their ability to roll out standards – in the 1950’s Holiday Inn set the standard that displaced most independent operators based on consistency and cleanliness.
All the airlines rolled out great standards on cleanliness but didn’t go as far as the hotel chains. The challenge has been the consistency of the use of their standards. For airlines, now is the best time to nail on consistency while addressing their brand awareness and safety culture. Employees need to understand why these measures are so important – it’s not just about health, it’s also about brand and survivability. While Delta is by most measures one of the best airlines in North America and was one of the most proactive at rolling out new standards, the consistency of their application was brought into question in a recent post on Delta’s lacking “Carestandard”. Safety and safety culture are the most critical expectations in the airline industry. However, if they don’t consistently follow safety guidelines, customers will rapidly lose trust in the brand. Worse yet, this could extend to a broader perception of lacking safety standards.
The concept of brands and chains had a profound impact on marketing. Many of these brands originally disrupted their category nearly 50-60 years ago by leveraging the power of a brand to instill trust. As I had previously mentioned, Holiday Inn in the 50s disrupted the industry of small motel and hotel operators by demonstrating the value of standards. If you have the advantage of such a strong and consistent brand, now is the time to invest in wedging that point of differentiation.
Your focus on safety culture and customer experience is more critical than ever. It’s time to think about how you can differentiate your brand around trust and rapidly and consistently operationalize that point of difference. Just as one would sail through an intense storm, leaders cannot control the wind, but leaders can control the course and direction of the ship. This is the time for leaders to take firm control of the direction, seek a path with less turbulence and guide the ship across for the future business success.