For the most of us, the coronavirus pandemic has forced a new way of working, but for some businesses, there could be drastic consequences as societal behaviour and attitudes are shifted.
One segment which should be seriously worried is the sharing economy, a rapidly developing sub-sector of the technology industry which is currently dominated by the likes of Uber and AirBnB. Consumers are certainly less accommodating of the concept of ‘sharing’, perhaps critically undermining this ecosystem.
A big question which needs to be asked is whether the sharing economy can survive COVID-19?
What is the sharing economy?
The sharing economy is an incredibly varied ecosystem, with numerous different business models, usually involving a platform connecting buyers and sellers. Some examples include:
- Uber and Lyft: Ride-hailing services powered by an app to connect customers and taxi drivers in the local area
- AirBnB: A platform to connect holiday-goers with informal accommodation, sometimes a spare room in a family home or a flat which is vacant for the weekend
- JustPark: Residents can sell access to private parking spaces in busy urban areas
- Zipcar: Short-term car rental entirely powered through an app, with cars left in designated parking spots throughout the city
- Hubble: Flexible office space on short-term contracts, connecting businesses with landlords and commercial space providers
This is one segment of the platform economy coming to life. None of the companies mentioned above actually own the assets which define their business, but simply act as an intermediary connecting one party to another.
Most importantly, the reason these businesses survive is because of confidence. These powerful and respected brands act as collateral, inspiring trust and confidence in the service provided. Uber, AirBnB or Zipcar is a mark of trust in the service, but success also relies on the idea that people are open to sharing, a concept which will be challenged over the coming months.
What’s the problem?
The original idea of AirBnB was to make use of spare rooms in a random individual’s homes, while Uber is effectively a private taxi company and Zipcar is for short-term rentals, as little as an hour.
In today’s society, where the pandemic rules all, the idea of sharing is a toxic one.
To use Uber, customers would have to trust the driver is healthy and the vehicle had been appropriately disinfected following the exit of the previous customer. If you are to sleep in an AirBnB, some would want the room to have a hospital grade cleaning regime. Zipcar will face even bigger challenges as the underlying concept is that the car exists without the need for employees to be near it.
COVID-19 has forced a change in attitudes for the general public, one which will does not necessarily fit in with the way these companies’ function. Consumers that don’t want to share will not want to spend money with these companies.
What is the risk?
When asking Telecoms.com readers what they thought would happen to the sharing economy, 23% of respondents believed the sub-sector would collapse as people will hate the idea of sharing post-coronavirus. 30% stated it would survive but transformation would be needed and 18% said there would need to be market consolidation.
At the moment, we don’t understand the consequences because it is too early, and Governments have not introduced regulation to prevent a second wave of infections. As the lockdown continues to ease, new standards for cleanliness might make it impossible for these companies to make money, here are two examples:
- Transport for London (TfL) suggests taxi drivers should disinfect door handles, window winders, seat belts, card payment devices, the rear of the front seats and other surfaces passengers may have touched between every journey. Uber is a company which loses a lot of money already, but if its drivers become less efficient due to new cleaning standards, how much more money will it lose?
- AirBnB has introduced an ‘Enhanced Cleaning Initiative’ for its hosts, but will this be enough to restore confidence, and considering the effort required to ensure potential customers are put at ease, how many hosts will decide it is not worth the effort? Should hosts start disappearing because its not an easy way to make extra cash anymore, can AirBnB survive?
The approach to cleanliness is voluntary for the moment but considering the damage to society and the economy which a second wave of infections could inflict, we would not be surprised to see these rules make official through industry regulation or government legislation.
Is there a ripple effect?
Perhaps.
Behind every one of these industries is a push towards greater automation to improve profitability. The most obvious example is autonomous driving.
Some have said Uber will never be profitable until autonomous vehicles are present on the roads, and it does make sense for this business model. However, the less money it is making, the less it will spend on already very expensive R&D pursuit.
But dents to the ride-hailing and sharing segment go deeper than Uber and Lyft R&D budgets. General Motors, Ford and numerous other car manufacturers are also venturing into this field with a belief that self-driving vehicles and intelligence route planning could be the future of transportation within cities. Should the sharing economy become less attractive to consumers, these manufacturers would also pull back R&D spend.
The sharing economy is not simply about the money which is being made upfront, but also the technological breakthroughs of tomorrow which are being enabled by these companies. Ride-hailing and sharing is a significant usecase for the autonomous vehicles segment, therefore a decline in interest in this area poses a risk for this technology.
Money is going to be needed
Realistically, these are not bad ideas, just ones which are being undermined by a very unique trading environment. However, is highly unlikely all of these emerging businesses will survive.
The champions of this industry, the likes of Uber, AirBnB and Zipcar for example, have investors and links to financing. The industry is likely to go dry over the coming months, thanks to shifting consumer attitudes, it will take cash injections for these businesses to survive and perhaps find alternative revenues streams. This is where the challenge lies for the smaller players.
Some companies do not have the backing of venture capitalists or other financing measures, as they do not have sufficient scale or a unique enough business model. In normal trading conditions they might survive, but under such severe pressure best case scenario is being acquired, worst case is simply going out of business.
This is an industry which will survive. Consumer behaviour might well come back sooner than we think, but the sub-sector might be a lot smaller by that point.