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LEARNING to LOVE (OR LIVE WITH) the SHARING ECONOMY by Judith Wallenstein and Urvesh Shelat

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LEARNING to LOVE (OR LIVE WITH) the SHARING ECONOMY by Judith Wallenstein and Urvesh Shelat LEARNING TO LOVE (OR LIVE WITH) THE SHARING ECONOMY By Judith Wallenstein and Urvesh Shelat This is the second of three articles on the shar- als or their desire to consume less for the ing economy. The first article focused on op- sake of sustainability. Sharing platforms portunities created by the sharing economy can provide access to new markets and cus- and provided a preview of industries (besides tomer segments by lowering costs for con- mobility and hospitality) likely to be affected, sumers who want to use an asset but can- as well as insights into consumer attitudes to- not afford to own it or who want to use it ward sharing drawn from a survey conducted for only a short period of time. Sharing in Germany, India, and the US. This article ex- platforms can also increase the purchase amines the strategic options that sharing of- price of shareable assets, since buyers are fers for emerging and established companies often willing to pay a premium for items and how both can create competitive advan- that can generate revenue by being shared. tage. In the third article, we will peer into the future of sharing in the global economy and To be sure, the sharing economy poses analyze promising business models. threats to companies with business models based on ownership. But in those threats he sharing economy, exemplified lie the seeds of opportunity. Tby the rise of Uber and Airbnb, has been one of the most notable economic forces of this decade. Traditional patterns The Advantages of Sharing of ownership and consumer behavior have The sharing economy has reached far be- seemingly been turned upside down by yond rides and room rentals to include startups, leaving incumbents to ponder a high-end cameras (ShareGrid), boats (Boat- fundamental threat to their businesses. bound), clothing (Rent the Runway), and agricultural machinery (Trringo and Ravgo). The forces that underlie sharing are eco- These examples just hint at the potential nomics and business logic, not the aversion for sharing to ripple through the economy. to ownership often attributed to millenni- Sharing is gaining in popularity precisely because it makes economic sense. Consum- In terms of supply, not all assets are equal- ers who use sharing services are looking for ly capable of being shared. The best assets value, according to BCG’s research. for sharing are interchangeable: the user does not need to reconfigure them for each The German truck manufacturer MAN, for use, and their usage patterns facilitate shar- example, established its LoadFox sharing ing. That is, they are used for relatively platform in 2016 to help smaller German short periods of time, and those uses can logistics providers and carriers supplement be stacked sequentially to build a recurring the cargo of trucks with less than a full revenue stream. Finally, transfer and trans- load. (BCG Digital Ventures is a partner in action costs need to be low. Otherwise, the LoadFox.) Traditionally, an inefficient mix time, effort, and expense of arranging a of telephone calls, emails, and even faxes sharing transaction will swamp the need. has been used to match carriers that have spare capacity with those that have excess In terms of demand, customers gravitate to- loads. LoadFox does this far more efficient- ward certain assets according to frequency ly with its online platform. of use, cost of ownership, and other factors. The price per use needs to make economic LoadFox extends MAN’s business beyond sense. For example, a customer might be manufacturing while providing a platform willing to rent a tool once at one-tenth of for additional services and visibility into the purchase price, but he or she would not usage patterns that can potentially influ- take frequent trips using Uber or Lyft at ence product design. Moreover, it helps one-tenth the cost of a car. small carriers not just increase profitability but also improve utilization and balance Shareable assets must be easy to use in the uneven demand. As a result, they are able sense that they allow consumers to avoid to compete more effectively against larger the direct and indirect costs of ownership. carriers that can solve those same challeng- For many, renting a Zipcar is simply easier es through scale. than maintaining and insuring an automo- bile, and renting camping equipment is easier than storing it in a small apartment The Risks and Rewards of the for an annual wilderness expedition. Sharing Economy Similar to e-commerce, the sharing econo- Finally, shareable assets often appeal to my is built on a foundation of radically the desire for product variety and special- lower transaction costs. In the physical ization. A consumer can own multiple jack- world, lending is time-consuming and inef- ets and trousers that he rarely wears—or ficient. The lessee often has far less infor- rent a designer suit for special occasions; mation than the lessor, but digital plat- she can buy a minivan—or own a sports forms flatten out the bumps and straighten car and rent a van for trips to the neighbor- the curves that prevent both from reaching hood recycling center. a deal.1 Value Chain. Companies need to under- In other words, a radically different eco- stand the vulnerabilities of their value nomic environment is driving the growth chain to the sharing phenomenon. For of sharing, rather than a change in consum- example, sharing can introduce an interme- er preferences on the part of millennials diate step, as when an Uber driver buys a and others. By viewing sharing through an car in order to transport passengers. If the economic lens, companies can understand intermediary—the ride-sharing platform— how to address it. negotiates or makes the purchase on behalf of the driver, what was formerly a Supply and Demand. The economics of B2C transaction in essence morphs into a supply and demand can help companies B2B transaction. The car maker loses some assess how vulnerable their industry might control of the customer relationship and, be to the threat posed by sharing. potentially, of its pricing power. The Boston Consulting Group | Learning to Love (or Live with) the Sharing Economy 2 Sharing can also replace a link in the value Fédérale de Lausanne, have theorized that chain, as ride-sharing platforms are doing sharing markets create incentives for by taking business away from taxi and consumers to spend more on products and black-car fleets, and as room-sharing ser- to seek out durability. Indeed, in our vices are doing by reducing overall demand consumer survey, 80% of respondents in for hotel rooms. India and the US reported that they are willing to pay a premium for products While both intermediation and replacement whose durability or other features make are disruptive, their impacts are vastly differ- them amenable to sharing. For example, ent. Thus, while car manufacturers and taxi Local Motion, a US company acquired by fleets both face challenges to their business Zipcar, is developing keyless entry and models in the age of sharing, the former are online fleet management tools that will in much better shape than the latter. facilitate sharing. Create shareable business lines. Taking Harnessing the Sharing shareable products to the next level, compa- Economy nies can design new product lines, possibly Most businesses that are vulnerable to the in partnership with platforms, that are effects of sharing can still control their des- suitable for sharing. Mahindra, for example, tiny. But how can they turn sharing into a has announced a partnership with Ola Cabs, source of competitive advantage? Here are the leading ride-sharing platform in India, several options that will allow companies which it will supply with 450,000 vehicles. to flourish in the sharing economy. (For a set of practical suggestions to ensure suc- Be a buyer, not just a seller. Businesses can cess, see the sidebar “How to Enter the buy sharing services to improve their costs, Sharing Economy.”) efficiency, and flexibility. This option can help smaller outfits and startups improve Embrace the sharing model. Creating a their level of service and lower their sharing platform is a viable option for operating costs, as small carriers and companies that wish to expand into logistics providers in Germany are doing markets that were closed when ownership with LoadFox. was the primary option, or to diversify their product offering or compete with sharing startups. AccorHotels’ acquisition Buying Time by Playing Defense of onefinestay and Squarebreak, and its Companies that are more vulnerable to the proposed acquisition of Travel Keys, will sharing economy may want to offer creative expand its portfolio to include 8,500 alternatives as a way to buy time while they private rental properties, enabling the develop their own sharing strategy. hotel chain to compete against Airbnb and other sharing companies. As we mentioned Encourage product stickiness. Owners of in our first article, Mahindra & Mahindra, exclusive brands may have legitimate the equipment and vehicle arm of India’s concerns about maintaining the aura Mahindra Group conglomerate, has created surrounding their products, while other a standalone sharing subsidiary, Trringo, brand owners may simply want to retain which rents out tractors and other farming control of the overall user experience. equipment. (See the sidebar “Mahindra’s Measures such as access codes and double Sharing Strategy.”) authentication can tie products such as consumer electronics to their owner. Build durable products to be shared. In the Luxury brands may shift toward highly same way that beach houses often sell customized or bespoke products that meet above their intrinsic value because of their niche needs, making them less exchange- rental potential, shareable products com- able.
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