Can traditional businesses cope with the rise of the sharing economy?
2014 saw huge growth for several business working in what has come to be known as the ‘sharing economy’, as Kickstarter, AirBnB, Zipcar and Uber all made huge strides towards becoming household brands by taking existing services and democratising them via the internet and mobile technology.
Their impact is only likely to grow further. Uber and AirBnB are widely tipped for IPOs in 2015, which would bring further fame and legitimacy to both businesses. Kickstarter, unsurprisingly, prefers not to go down the route of traditional financing, but with three of the top 15 crowdfunded projects ever (by money raised) coming in the first months of 2015, the industry shows no signs of slowing. Zipcar is approaching the one million members mark, and has plans for an aggressive global expansion.
To say that the past 12 months has seen the birth of the sharing economy would be overstating the fact: Uber and Kickstarter have been around for six years, AirBnB seven and Zipcar 15. It is only recently, though, that major businesses have really had to sit up and take notice.
Uber’s – and to an extent its US rival Lyft’s – impact on the taxi industry has probably been the most marked, with mass protests in several cities and a swathe of regulatory battles that have in part been fuelled by anger amongst taxi drivers and other transport companies. In some countries, taxi companies have even managed to make Uber illegal.
And as the company takes on more and more of the transport industry, expect its list of enemies to only grow. Soon, that may even include Google, with the two firms looking close to a clash over driverless cars.
If the regulatory issues surrounding independent cab drivers are problematic, then those for implementing a suite of driverless taxies present a severe challenge. But as Uber and Google make strides in the transport sector, more and more companies will find their bottom lines under pressure. Buses, trains and car makers could all find themselves under threat.
While AirBnB has undoubtedly made great strides in the travel sector, identifying the companies that it has challenged is tougher. Certainly, several major players in the industry have struggled recently: Expedia has missed profit expectations, InterContinental Group (the largest hotel company by rooms and owner of Holiday Inn) has reported falling revenues. But is any of that to do with AirBnB? The impact of a strong dollar and weak oil prices (illustrated below, data from IG’s commodity trading platform) on undermining and supporting their business cannot be overestimated.
What is clear is that AirBnB is set to become a major player in the hotels market. Currently estimated to be worth around $13 billion, an IPO would most probably see its market cap exceed that of Expedia, InterContinental, or a host of other hotel chains.
Like Uber, AirBnB’s growth may yet be halted by the regulatory battles it faces in many cities. And, like Uber, AirBnB has designs on doing far more than just challenging hotels. The company is trying to set itself up as a lifestyle brand: moving into new areas and capturing customers on more grounds than just cheap accommodation.
Zipcar and Kickstarter, on the other hand, have seen their impact on major traditional players lessened. Avis Budget, one of the world’s leading car hire companies, bought out Zipcar in 2013 and is ready for the move from over the counter rentals to mobile sharing. Whether its major rival, Hertz, can also find a way to compete remains to be seen.
Kickstarter has not had a major impact on the traditional IPO market, unsurprisingly, given that it is primarily about supporting products more than companies. It also still raises far less cash than more traditional options, with the $529 million raised through the platform in 2014 paling in comparison to the $25 billion raised by Alibaba in a single IPO.
That is not to say that companies should ignore the rise of crowdfunding. Democratising the creation of new products makes it far harder for a company to monopolise on innovation: the Pebble watch was an early success that launched far earlier than most of the current range of smartwatches, for example. Video games, movies and much more are also seeing traction on the site. If that trend continues, studios and publishers may well start feeling the heat.
This article was written by freelance writer Sophie Davidson, Sophie is passionate about providing engaging content and has featured in a number of online publications.