Business Standard

Book Extract: The rise of sharing economy

The shift from an ownership-based consumer economy to a sharing economy is propelling the growth of a peer-to-peer economic model based on frugality, says a new book

Navi Radjou & Jaideep Prabhu 

Author: Navi Radjou and Jaideep Prabhu
Publisher: Hachette India

Price: Rs 599
ISBN: 9789350099858

In a circular economy, a product undergoes multiple incarnations - with its materials being recycled and reused again and again - thus, sustaining its value over multiple lifetimes. During any particular lifetime, however, the product is most likely to be owned and used by just one customer. But what if, during even a single lifetime or incarnation, the same product could be consumed by many users? Then the same inputs could be made to create greater value for more and more users. That is the underlying premise of the sharing economy - also' known as collaborative consumption - in which participants aspire to share access to goods and services rather than to have individual ownership.

Sharing economy firms include Airbnb (sharing homes), RelayRides, BlaBlaCar and easyCar (sharing cars), ParkatmyHouse (sharing parking spaces), BringBee (sharing trips to the grocery store), Wishi or Wear It Share It (choosing clothes), Eatwith (sharing your dinner), (sharing household equipment with neighbours), Skillshare (sharing skills and knowledge) and TaskRabbit (outsourcing small jobs and errands). These services typically take advantage of the web and social media to enable ordinary people to monetise their time, space, knowledge or skills.

The sharing economy contributes to environmental sustainability because it reduces individual consumption by allowing, for instance, four people to share the same car rather than having to buy four different cars. The sharing economy also reduces waste by making excess capacity and unused resources available to those who need them most. By enabling products and assets to be fully utilised, the sharing economy increases their value.

Although sharing in the UK accounts for only 1.3% of GDP, and an even smaller proportion of the US economy, it is expected to grow exponentially in coming years, especially given the preference of young consumers to share everything from flats to cars to books. Nearly 50 per cent of Europeans believe that, within a decade, cars will be consumed as a "shared" good rather than being individually owned, and 73% of them predict rapid growth of car-sharing services. Even in car-crazy Germany, Europe's biggest market, new car purchases by people aged under 30 fell from 6% in 1999 to 2.7% in 2013. Sharing-economy pioneers are also profiting from this growing trend. In March 2014, Airbnb was valued at $10 billion, making its founders the first sharing-economy billionaires.

Sensing an opportunity, and fearful of losing out to these start-ups, traditional companies are adapting their business models accordingly. BMW once just made and sold cars; it now thinks about "how to engage users through our cars and services". Its DriveNow car-sharing programme serves city dwellers who do not own a car but sometimes need one, offering customers an opportunity to share cars in a systematic way. BMW owns all the cars in its DriveNow fleet. Customers register on the DriveNow website and use a smartphone app to reserve, use and park cars within a certain area for the next customer to use. Customers pay per minute of use. Describing the service, Erich Ebner von Eschenbach, head of BMW Group's Financial Services Segment, said: "In addition to helping us engage with new business models, DriveNow also gives us access to a new, younger and more cost and environmentally conscious customer group - one that is different from the core BMW buyer."

After a successful launch in Germany, BMW plans to roll out the service in Europe and North America. It also plans to add the i3, a purpose-built electric car with a carbon-fibre body, to the DriveNow fleet. "Shared electric cars offer a compelling, convenient and environmentally friendly proposition to city dwellers of the future," says von Eschenbach.

Kingfisher, Europe's largest home-improvement retailer and a founding member of the Circular Economy 100, has long been concerned about its dependence on natural resources such as timber (Kingfisher's annual wood consumption is equivalent to a forest the size of Switzerland). Its Net Positive plan aims to achieve net forest restoration to secure long-term raw-material supplies. As part of this plan, Kingfisher is pioneering closed-loop innovation, which cuts out waste. Closed-loop products are made mostly from recycled or renewable materials and consume only renewable energy during their manufacture and use. When they break or get old, materials and parts from these products can be collected to make new products. Starting with 1,000 products in 2020, Kingfisher wants its entire 40,000 products portfolio to reach closed-loop status.

The company is also piloting numerous product-sharing initiatives. One, titled Project Box, allows customers to rent rather than buy the DIY tools they need for home-improvement projects. Tools such as power drills are typically used for less than 30 minutes over their entire lifetime, making them particularly suited to a rental model. As James Walker, former head of innovation at Kingfisher, explains: "Instead of spending £300 on buying the wrong tools, that they may use only once anyway, customers can rent the right tools from us for less."

Focus groups suggest that women like the concept more than men. Women typically complain that their husbands never have the right tools and end up doing a terrible job, or returning to the store to buy more tools; and men respond positively, because they do not have to work it all out themselves. So everyone is happy and less stressed, and there are fewer fights, Walker says.

A product that gets recycled, however, may not necessarily become a better product. Similarly, someone who picks up a shared car will not get more value from this car than the previous customer. But what if a product, service or asset gains in value as it is transformed, reused and shared across multiple users? Then its value circle would become a value spiral and the circular and sharing economy would become a "spiral economy".

From the circular to the spiral economy
Pioneering companies can use several techniques to create value spirals around their products. The digital age promises to make us more productive and connected, but it is also prone to pollution. Indeed, electronic waste (or e-waste) is growing three times faster than any other type of waste. In the US, it accounts for 70% of heavy metals in landfills. In their book Resource Revolution, McKinsey consultants Stefan Heck and Matt Rogers predict the rise of what they call "global recovery of waste (GROW)" companies. These use eco-friendly, energy-efficient processes to recover high-value materials from e-waste. Heck and Rogers cite the case of ATMI, a company that literally turns waste into gold. ATMI has developed a proprietary, water-based, non-toxic solution that extracts tiny bits of gold encrusted in electronic circuits. The extraction process is undertaken by a machine the size of a shipping container that can be sent to any location where e-waste needs to be treated. The machine can recycle an entire city's e-waste and churn out a bar of gold every 'two days. And because ATMI's water-based process does not damage the chips in the circuits, the chips can be reused in other electronic products, thus extending their life and value. While ATMI uses sophisticated science and technology, other companies are leveraging the power of design to transform non-precious waste into high-ticket items. These design-savvy modern-day alchemists can transmute waste into aspirational products.

Re-printed with permission of the publisher. All rights reserved.

  • Navi Radjou is an innovation and leadership strategist based in Silicon Valley. He is also a Fellow at Judge Business School, University of Cambridge. He has served as a member of the World Economic Forum's Global Agenda Council on design innovation
  • In 2013, Radjou received the prestigious Thinkers 50 Innovation Award - given to a thinker who is reshaping the way we think about and practice innovation
  • Jaideep Prabhu is Jawaharlal Nehru Professor of Indian Business and Enterprise and Director of the Centre for India & Global Business at Judge Business School, University of Cambridge. He has held positions at Imperial College London, Tilburg University (the Netherlands) and UCLA. He has a BTech degree from IIT Delhi

First Published: Mon, April 06 2015. 00:14 IST