Our way of living stems from a non-tech world, and is still a long way from being optimised for new technical solutions. With new technology, it’s time to question fundamental pillars of how our society is designed, as there are now possibilities that have never been viable before.
Whether it is in fact dying or prospering depends on from which angle you look at it. For proponents it is easy to point to the fact that the space has created a large number of game-changing companies including Airbnb, TransferWise and one of the most recent European startups to reach unicorn status – ride-sharing service BlaBlaCar.
Those arguing that the sharing economy is dying make the claim that the original thought – being able to share anything, anywhere, anytime – simply has not happened and that the services face tremendous regulatory pressure. The truth is of course somewhere in between, which means that a platform will not succeed or fail simply because it is part of the sharing economy. Therefore, this post will focus more on platform characteristics rather than listing pros and cons for the whole space based on a macro perspective.
Addressing the intangibles
When analysing sharing economy startups, and trying to figure out why some services work and some not, it is imperative to understand the importance of transaction costs – both for the supply side and the demand side. Transaction costs can be both tangible and intangible, with most services aggressively going after the former. But the latter cannot be ignored, as the intangibles often trigger emotional responses such as whether we perceive a service as being safe or whether that extra click made it too much of a hassle. The perceived hassle relates to our intrinsic laziness, which is a reason why people often stay with an existing inferior service rather than switching to something better.
While sharing everything sounds great in theory, it is more complicated in practice. Changing people’s behaviour is a challenge for all innovative companies, but arguably even more so for many sharing economy startups. As the founders of now-defunct platforms like Ecomodo, Share Some Sugar, Thingloop and CrowdRent found out the hard way, most people are simply too lazy to use a service which requires some kind of personal effort and changed behaviour – even if there is a potential financial upside.
Take a sharing economy service specialising in creating a platform for sharing paintbrushes for instance. The value proposition is clear, instead of having to buy a new paintbrush each time you want to paint you can just look at a map, see who has a paintbrush at home, request and pick up the paintbrush, pay a small fee, use the paintbrush and then return it afterwards.
But does it make sense? For most people, the answer is no. The upside (cheaper than buying) simply does not offset the downside, which is the sum of the total cost, including tangible and intangible transaction costs. Going to the store or ordering a paintbrush online requires an effort which people are used to and find reasonable. Using a new platform which requires a new type of engagement is a much bigger psychological step, regardless of the actual effort required.
To build up and maintain a critical mass, it is crucial to map and decrease not only tangible transaction costs, such as shipping, but also intangible costs that shape the overall perception. What’s more, it is necessary to understand how the perception changes across target groups and markets. A seemingly small feature, such as using a payment method which is not standard in the market or having poorly translated local versions of the site, can be enough to make users feel insecure and therefore refrain from trying it out. It is therefore more important to understand how users perceive the service rather than automatically focus only on savings.
But by doing this – streamlining the process, cutting away annoyances, eliminating unnecessary interaction – can you still claim that it is a sharing economy? It is indeed far from what many saw as being the future a few years ago, with people connecting through a platform and sharing items in a friendly manner. But the actual concept still holds true. Whether called access economy, on-demand economy or sharing economy, it enables moving from individual ownership to increased utility through sharing. From that perspective, ultimately it does not really matter whether an item is owned by your neighbour or a corporation as long as it is utilised in a more effective way and to a cheaper unit price than before.
Professionalisation paves the way for B2B
Decreasing intangible transaction costs often implies providing a more professional service. Operating more like a company rather than a platform means that people and organisations can benefit from the upside of sharing while avoiding most of the downside. This is a key requirement for services trying to take the sharing economy concept to B2B. As it often is, the B2C market moves way faster than B2B when it comes to adoption. However, once consumers start using these services in their everyday life it is easier for B2B services to gain momentum, as the decision-makers at corporations are already familiar with the concept. But this requires that the platforms are professionalised in a way which makes the purchasing process indiscernible from traditional service providers, in terms of smooth invoicing, one-point-of-contact, shipping etc. Following this, it is no surprise that sharing economy giant Airbnb rolled out a dedicated global Business Travel concept this summer, in order to get a piece of the booming $300 billion business travel market.
The Nordic perspective – nailing the unique characteristics
So how does all of this apply to the Nordics? While the Nordic countries are yet to produce a sharing economy unicorn, adoption of these services is strong. But as always there are unique characteristics which need to be addressed, including industry and market-specific cost structures, infrastructure and societal norms and preferences. For example, the tax structure in the Nordic countries is vastly different compared to many other countries and regions. If a business model heavily relies on an asset or feature which is heavily taxed or regulated, chances are that that business model will struggle. Differences in labour tax, VAT and so on means that a service that can greatly reduce cost overseas may not be as effective here, if the tax rate effectively stops it from reducing prices down to a level which makes switching worthwhile. The same holds true for the softer characteristics of the Nordic countries, which also must be accounted for when designing a service.
While new B2C services are started at a steady pace in the Nordics, B2B is just getting out of the blocks. To become a successful company, B2B typically does not require the same critical mass as a B2C service. That also often results in a slower growth pace, which means greater opportunities for local players.
One such B2B example is in the office sharing space, where companies can list excess desks and conference rooms (supply side), and freelancers and startups can pick and choose from a variety of office spaces (demand side). There are now a number of Nordic startups looking to break into the space, following the successes of American office sharing startup WeWork (founded in 2010, now valued at $10B) and peers like LiquidSpace and ShareDesk.
Only time can tell which companies and verticals that will make it, but the one thing we can be sure about is that there will always be an opportunity where there is a market inefficiency – and there are plenty of inefficiencies yet to be addressed.