Don’t get me wrong. As most of the people that are going to read this post, I am a regular user of both Uber and Deliveroo.
The points raised concern most investors and startups that focus on sharing economy. I will highlight the differences between two industry trends throughout 2016.
The first trend is the sharing economy tapping into unexploited value. The second, the sharing economy changing the structure of the workforce. The former is Dr. Jekyll, the latter, Mr. Hyde. Let me explain why.
- Exploring reservoirs of unexploited value: the good side of the sharing economy
Let’s start by what has been the key driver of the sharing economy in the early 2000’s. A deep diving into unexploited reservoirs of value!
The typical example is Airbnb a few years back, and the French car sharing unicorn Blablacar. The basic is always the same. It’s creating value out of relationships that are untouched from any monetization attempts. It could be your car you aren’t using or the two back seats of the same car when you are driving from London to Bristol. Or new ventures trying to use the produced heat of your shower to warm your neighbors’ apartment and reduce both of your bills.
These use cases are not creating or destroying any jobs. They are just making the most of something (and not someone) that is already out there.
If you look at these types of startups, you won’t see as many famous names or unicorns as on Mr. Hyde’s side because:
- The sharing micro-economies are usually operating with a social mindset. High revenue generation is not their main goal. It implies that the price points are low and the commissions for the platform even lower. Moreover, with today’s online user acquisition costs, it is becoming hard to make the numbers stack up.
2. Changing the structure of the workforce: perfection coming at a cost
Practitioners of the second sharing economy trend live by the motto The client is king. The best example is Uber. What do you expect from a perfect cab? Nicer drivers, more affordable fares, and shorter waiting time. In these aspects, Uber gave us a nearly perfect transportation service. Likewise, Deliveroo is another example of an almost perfect food delivery service.
What we do see in these two examples, and other we have in mind, is the magic duo:
New work structure (most of the time based on freelance)
Strong technology to allow scalability
But do these companies partake in the sharing economy? Let’s challenge that.
- First, we are not talking about Tom, Dick or Harry as individuals interacting on a website anymore. We are talking about a client, a provider, and a platform. The likes of Uber, Deliveroo, and others are professional systems. Uber drivers buy cars together and share them to run them 24/24. Most Airbnb locations in Soho today are operated by professional renting agencies. These agencies buy buildings and run them as hostels.
- Second, there’s no need to find that balance between supply and demand. Why? Because Supply is a paid provider and Demand is a paying client. As the Uber and co. represent a large number of potential clients, the suppliers have no other choice. They have to opt-in to Uber and accept all the conditions.
I am not bashing Uber and Deliveroo. Although I believe that they are not new or innovative ideas, they are good increment innovations. The old-school cabs or hotel systems were not good enough so they got topped by platforms working better. But let’s go beyond the illusion that startups claiming to operate in sharing economy, well “share”. Or let’s change the definition altogether.
If you look at the pool of startups using the magic duo formula, you will see more famous names than on Dr. Jekyll’s side. It’s because:
- There is more money involved, and thus more room for monetization.
- The markets were already mature. It’s always easier to attack an existing market than to create a brand new one. There is no need to educate consumers further. If the market is not addressed well by competitors, it’s even better.
As consumers, we want these new services to keep running and to provide us with affordable quality services. But lately, we have been aware of some key challenges. And they are not tiny tech issues.
Take shared costs/revenues for instance. As the sharing economy mass force grows, many modern countries implement new rules. They created employment rules, payroll taxes, and other administrative regulations. These regulations complicated the life of the likes of Uber. Say your revenue as a company equals £3 per ride, and your acquisition cost equals £2.8. That traditional £1 billed by HMRC for your activities matters, as it may well turn your profit upside down.
And this is just one out of the few clouds that are in the sky!
So, yes, all these services are great and almost perfect. But no one would be brave enough to declare them 100% sustainable or that there is much sharing involved!
Early Metrics help entrepreneurs gain visibility and credibility with investors and business partners. They provide transparent feedback to entrepreneurs creating a startup.
The Article Dr. Jekyll and Mr. Hyde: The Two Faces of the Sharing Economy was written by Antoine Baschiera, CEO & co-founder at Early Metrics.
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