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Shared Economy Models Are the Future

Shared Economy Models Are the Future

The sharing economy is empowering a new class of micro-entrepreneurs who are financially rewarded for their services and are improving income levels across the socio-economic segments.

By Ankur Pahwa & Nishant Bansal
Opinion Jan 28th 2016

The concept of sharing economy involves one of the four activities—recirculation of goods, increased utilization of durable assets, exchange of services or sharing of productive assets. During the last 5 years, this concept has taken off around the globe, driven by the advancement in technology, proliferation of smart phones and the need to use assets more efficiently and effectively. Billie Howard, a marketing strategist, coined the phrase “we – economy” which best describes how the sharing economy is about encouraging trust and direct communication.

This economic exchange has found widespread use in areas such as transportation, restaurants, accommodation, household goods and is now spreading into areas such as household services, education, healthcare, financial services, etc. A recent report by EY, ‘Rise of the sharing economy: The Indian landscape’ highlights that the sharing economy is slated to grow from US$3.5 billion market in 2012 to a US$115 billion* in 2016, implying a CAGR of 139.4%. This kind of growth is unprecedented and highlights the demand for effective sharing platforms.

An interesting fact in the Indian market is that the asset ownership is very low compared to the developed countries, and that is what is expected to drive the use of shared resources. For example, Indians own 72 cars per 1,000 of population, whereas Americans own 930 per 1,000.

Win-win for Consumers and Suppliers

Sharing economy is a win-win proposition for both suppliers and consumers. For the suppliers, it means better resource utilization, expanded reach to the consumers and for the consumers it brings convenience as most of these are on-demand services, offering choice and lower prices.

Technology has ensured that transaction cost of such sharing is minimal and the reduced transaction cost of exchange of services has led to mass adoption of sharing platforms.

Dynamic pricing has also helped maximizing the returns to the aggregators and asset owners as aggregators are better able to analyze the demand and supply at a particular time and place. Price variations under the dynamic pricing model are determined by an algorithm, which analyzes multiple factors to equalize demand and supply to arrive at a rate that incentivizes the service provider to provide services at a time where no other service provider is willing to do so.

The sharing economy has significant benefits for the entire ecosystem. Not only does it help in much better utilization of existing resources, it also helps in reducing the need for addition of   new resources. For e.g. the ease of use of platform of transport aggregators have reduced the need to own a car thereby cutting back on addition of a new resource in the ecosystem. A peer- to-peer global accommodation aggregator has over 1.5 million in listings with over 500K stays per night, which is higher than even some of the leading global hotel chains. And interestingly, the occupancy rates of properties listed on the portal is more than 70%, which again beats some of the leading hotel chains.

 Shared economy has provided an impetus to employment as well. A number of jobs from delivery associates to car drivers to sales agents to data collectors get created. Since sharing economy relies on a technology platform, there is a need to digitally skill the employees of the aggregated entities and the consumers alike. Most of the aggregators provide smartphones to cab drivers, delivery agents etc. which they could use not only for their work but also for citizen services, online banking, e-commerce etc.

The sharing economy has helped immensely in social mobility. It is empowering a new class of micro-entrepreneurs who are financially rewarded for their services and improving income levels across the socio-economic segment of the society.

The unorganized services sector has witnessed greater transparency and accountability in the business. For instance, most of the cab aggregators allow to rate the cab driver and the   customer in a two-way rating process which brings more transparency and accountability. The sharing economy also helps in bringing transparency in the charge rates for a service or a resource and also helps improve transparency for tax authorities. For consumers; trust, security, timeless of service and consistency in quality of service are the ongoing concerns since the aggregator is just connecting providers to users through the platform with limited control over     the services provided. Aggregators need to address customer grievances on a real-time basis to build greater user experience and confidence.

For aggregators, the biggest challenge is managing the unconventional workforce, working on their skill development and ensuring a consistent experience for the customers since they are the ones who are customer facing. Clear regulations for the industry and clarity around tax incidence are critical growth drivers.

Outlook

India is at the brink of explosive growth in adoption of the sharing economy. Increase in internet, smartphone and credit card penetration in India will provide impetus to the sharing   economy.

Clear and more specific regulations for this sector and steps by the aggregators to ensure consistency, safety and trust will help in building consumer confidence in using these services and also enable service providers an incentive to collaborate more effectively in the sharing economy

Sharing of assets like cabs, household goods and accommodation are rapidly growing in India and the next wave of growth is expected to be in services like domestic help, household chores and delivery of services. Once the ecosystem develops further in India, areas like education, healthcare and online staffing for specialized skilled services will also gain traction.

Ankur Pahwa is Partner, Technology, Media, Telecom (TMT) at Ernst &Young (EY). Nishant Bansal is Assistant Director, Knowledge Services at EY.

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