The Deals Lens: The sharing economy – if you can’t beat them, partner with them or buy them
August 19, 2016
Blog snapshot:
- The sharing economy will account for $300bn of revenue by 2025
- It’s a disruptive threat to many sectors’ traditional business models.
- 3 strategic options for incumbents to consider
The sharing economy is the cool new term for connecting spare capacity or spare assets to demand for that unused resource. This trend has emerged as entrepreneurs have spotted opportunities emanating from shifts in demographics, global economic power, urbanisation rates, climate and resource availability, and technology. Putting a deals lens on it, businesses that were once seen as solid and bankable now find themselves going ex-growth or even facing existential threats – Addison Lee being an oft quoted example.
The projected size of the sharing economy is vast. PwC research suggests over $300bn of revenue by 2025, less than 10 years from now. We see this coming from five key ‘sharing economy’ sectors (peer-to-peer accommodation, car sharing, peer-to-peer finance, music, TV and video streaming, and online staffing). Some of that revenue will be incremental, but some of it will be substitutionary. When making a decision around mergers and acquisitions (M&A) where future growth rates are critical this shift matters, a lot.
Read more about the sharing economy here.
Disruption from the sharing economy
Whilst some companies that obviously operate within the sharing economy are creating new markets, inevitably the majority are taking market share from incumbents and disrupting companies across a variety of sectors.
Our research showed that nearly three quarters of respondents saw the sharing economy as likely to be a significant feature of the business landscape in the future, leaving just over a quarter who saw it more as a passing fad. That quarter is wrong.
Strategic options?
Whether the sharing economy is a passing fad or here to stay, broadly speaking there are three possible strategies that incumbent organisations could adopt:
1. Organically build your own sharing concept or differentiate your products/services
Some companies have adopted a DIY approach. For example Daimler launched Car2Go in 2009, a car sharing service that was rolled out across European and North American cities. BMW and Sixt soon followed suit by teaming up to create DriveNow, another car sharing service offered across European cities.
This approach takes time, money and other resources. You would need to find the right people with the right skill sets which will either need current employees to be retrained or new skills to be hired in. Infrastructure would also need to be put in place. Both of these approaches are resource-heavy so they wouldn’t be a particularly quick response to disruption. Also, trying to change the direction of travel and mind set of a corporate behemoth with an internal start-up is fraught with difficulty and, in our experience, often doomed to failure.
2. Partner with sharing platforms
Thinking outside the box a little more, some companies are stepping outside of their traditional market and exploring corporate partnering with established disrupters. Toyota and Uber have entered into a memorandum of understanding to collaborate on a rideshare service. Funding Circle has entered into a partnership with Santander UK, where Santander proactively refers small business customers to Funding Circle, giving them greater access to finance. And Caterpillar has entered into an agreement with Yard Club, a start-up company that has developed an online peer-to-peer equipment rental platform, to help customers maximise the use and productivity of their owned equipment. An even greater degree of creativity and entrepreneurialism is seen in Tesla’s partnership with Airbnb - bringing charging stations to select homes across the globe, starting with California. By collaborating like this, partnering companies give themselves access to new clients and markets that might not normally be accessible to them.
This strategy, as demonstrated by the Toyota-Uber tie up, appears to be more of a longer term play where ideas in which the partners share a common interest need to be researched and explored before launch. And, when launched, are often on a limited scale such as Tesla-Airbnb in California.
We see this as a more robust approach than the DIY approach; the partners have already proven their element of the business model and market acceptance, de-risking the market entry to some extent. It’s a way of dipping your toe into the water without committing too much capital.
But it’s worth remembering that no alliances last forever. Just as the formation of an alliance needs to be planned up front, so should the break up. Read more about making a success of alliances here.
3. Acquire and integrate with an existing sharing platform
This is the ultimate big splash - if you’ve got access to capital there’s the option of acquiring an existing sharing platform. We’ve seen this with AccorHotels acquiring Onefinestay, a London-based startup for £117 million. Onefinestay provides a home share option for high-end homes combined with a hotel-like service for hosts and travellers. Another example is PayPal’s acquisition of payments gateway Braintree, which powers and automates online payments for merchants and companies online, in a deal worth $800 million in late 2013. And global car hire firm Avis Budget bought Zipcar, the world's biggest car-sharing firm, for £307m in 2013.
Our recent study for the European Commission (where we assessed the size and presence of the collaborative economy in Europe) shows that the UK’s sharing economy is the fastest growing in Europe, with transactions doubling to £7.4bn in 2015. Arguably acquisition, if you have the resources and inclination to do so, is the quickest way to respond to disruption from the sharing economy. The UK is also home to a number of sharing economy success stories who are rapidly expanding abroad, such as Lovehomeswap, Justpark and Hassle.
The risks here centre around effective integration, culture clash as old meets new and ultimately getting the value from what will need to be a high priced acquisition.
Be prepared for disruption
Many of the examples I’ve used here are from a few select industry sectors – automotive, hospitality and financial services. There are undoubtedly a plethora of examples from other sectors. But one thing is for sure: there will continue to be disruption whether it be from a teenage tech-preneur in their suburban bedroom or a venture capital backed entrepreneur.
The question is how prepared is your organisation to survive and thrive in the sharing economy?
Do get in touch if you’d like to discuss any of the issues and themes I’ve raised here.
