Analysis

The sharing economy is not immune to controversy, but it seemed to be going from strength to strength – until the pandemic struck. Now, as markets look to the future, what are the prospects for businesses in the sector?
Will they regain their old verve, or have they been permanently undermined? 

Walking the floor of his family’s manufacturing plant in Mumbai, Rigved Raut was struck with a realisation: the machines spent most of their time idle. The company was Raut Electro-Mech Industries, a maker of train components, but Raut deduced that many businesses around the world would be in a similar position to his. 

 

Raut’s lightbulb moment spawned McPond.com, a marketplace that turns any plant into a contract manufacturer by renting out machines during their downtime. To get it off the ground, Raut, 35, relocated to California to take part in Y Combinator, the start-up boot camp behind the launch of tech giants that include Airbnb, Dropbox and DoorDash.  

 

Change in fortune

Towards the end of 2019, Raut moved to Chicago to set up shop in the middle of America’s manufacturing heartland, but just months after launching his machine marketplace, the pandemic struck. Like countless businesses around the world, McPond was hit hard. “Many factories simply shut down or went bankrupt,” he explains. 

 

Over last summer, however, McPond’s fortunes took a surprising turn. As the economy yo-yoed from dramatic stoppage to roaring recovery to renewed slowdown, plant owners started to make contact, even though McPond had yet to begin any formal marketing. Cash-strapped companies were intrigued by the idea of squeezing more revenue out of machines that were otherwise sitting silent.The marketplace now has a growing catalogue of millingmachines, 3D printers, label makers and such like. “This is going to be the future,” he says. “The more assets we share, the better it is for the business community and the more sustainable it is.”

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As Airbnb chief executive Brian Chesky said last year: “It felt like everything was breaking at once

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Go forth and multiply

The rise of the sharing economy was a dominant theme in the decade before the pandemic. Airbnb is valued at around $110 billion on Nasdaq, which is more than Marriott, Hilton, Hyatt and InterContinental Hotels combined, yet it doesn’t own a single hotel room. 

 

Similarly, Uber has a market capitalisation of more than $100 billion – but it doesn’t own any cars. 

 

It is perhaps not surprising, then, that these tech pioneers, founded less than 15 years ago, have been followed by thousands of wannabes, each determined to revolutionise certain markets or industries.  

 

There were basketball rental machines in Beijing and scooter-hire fledglings the world over. At one point, 11 mobile phone charging-bank start-ups were fighting for supremacy, according to Arun Sundararajan, a professor at New York University and author of The Sharing Economy: The End of Employment and the Rise of Crowd-Based Capitalism

 

Reasons to be cheerful

The question now, of course, is how will sharing economy companies navigate a world where a deadly pandemic has undercut their core proposition? What is the future of a sharing business when sharing something with a stranger, be it an enclosed space or a basketball, can lay you low with a potentially fatal disease? Sundararajan is optimistic. He believes that, despite the huge hit from the pandemic, the sector will not only rebound, but thrive. And he points to three factors behind his conviction: technology, trust and economics. 

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Cash-strapped companies were intrigued by the idea of squeezing more revenue out of machines that were otherwise sitting silent

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Technology is the most obvious. More than 4 billion people are walking the earth with a GPS-enabled smartphone, a device without which much of the sector would simply not exist. Lockdowns have thrust them even more to the centre of modern life, and this leads to the second, arguably more important factor: trust. 

 

Secret fuel

Our faith in digital services has been building since the mid-1990s, when eBay and Amazon introduced the star-rating system for buyers and sellers. As Sundararajan explains: “Getting into a stranger’s car, sleeping in a stranger’s spare bedroom, having someone handle a food order – these are things that require a little more trust. But as we have read more Yelp and TripAdvisor reviews, as we have spent more time on Facebook and LinkedIn, the population has tacitly become more confident using a digital interface to make consumption decisions.”

 

Trust was the secret fuel that powered the rise of the sharing economy – but it almost evaporated as Covid-19 spread and lingered. 

 

Passenger journeys at Uber fell by 80 per cent, forcing boss Dara Khosrowshahi to lay off a quarter of the workforce. BlaBlaCar, the French carpooling service that offers rides in 22 European countries, put half of its staff on part-time work and suspended its bus service amid France’s second lockdown in November. Airbnb was forced into a multibillion-dollar emergency fundraising and laid off workers as bookings disappeared. As chief executive Brian Chesky said last year: “It felt like everything was breaking at once.”

 

Ambika Singh, the founder of Armoire, had a similar experience. Armoire, a subscription clothing rental business for professional women in Seattle, had been growing at a rate of knots. The five-year-old start-up had its best-ever month in February 2020, but, when the lockdowns started, everything stopped. New subscriptions dried up and cancellations rocketed.

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Side hustles will become more important, whether it’s a factory renting out a ziplock bag maker for $45 an hour or an out-of-work dog lover signing up on Rover.com, a marketplace for overnight dog boarding

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True believers

“It was extremely traumatic,” says Singh. “It’s not an exaggeration to call this Armageddon for a business like ours, which targets the working woman and is dressing her for the workplace. We weren’t sure whether that customer would continue to be relevant.”

 

What saw the company through, however, was a core group of customers who had used the service for at least nine months – Armoire’s true believers. “Without them, we would have been dead,” Singh says. They kept paying, but instead of pencil skirts and trouser suits, they started renting tracksuits and high-end loungewear. 

 

Discerning customers

Armoire has not recovered to pre-pandemic sales, but Singh is confident that it will emerge stronger as the world returns to normal, not least because when offices do reopen, people will want to look their best, and spending $50 a month on a designer clothes subscription is cheaper than going on a shopping spree, at least for her target market.

 

Crucially, too, trust is coming back. As public knowledge of the virus and how it spreads has grown, customers have become more discerning. They are more willing to take dry-cleaned clothes from a rental business because they are probably cleaner than, say, a frock in a high-end boutique that has been handled and breathed on by countless patrons. BlaBlaCar, which instituted stringent hygiene guidelines and an “only one in the back” feature on its app, has seen a surge in rides as people have begun to opt for sharing a car with a single stranger, rather than a train carriage full of them. 

 

Side hustles

The final piece in the sharing jigsaw is economics. Jared Isaacman, founder of Shift4 Payments, a payment processor used by more than 200,000 businesses, says: “We don’t have a single customer that’s at 100 per cent. Every one of them has been set back.”

 

Indeed, for many businesses, the road back from the pandemic will not be a straight line. Business will be different. Side hustles will become more important, whether it’s a factory renting out a ziplock bag maker for $45 an hour or an out-of-work dog lover signing up on Rover.com, a marketplace for overnight dog boarding. The US-based company intends to float this summer with a $1.6 billion valuation, via a merger with a special purpose acquisition vehicle.  

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Crucially, trust is coming back. As public knowledge of the virus and how it spreads has grown, customers have become more discerning

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Restaurants rejigged

The restaurant industry might also be changed for ever. “I don’t think a lot of restaurants are going to come back in their pre-pandemic form; we’ll see a lot more delivery-only businesses,” Sundararajan suggests. 

 

That bodes well for the likes of Uber, which has refashioned itself into a delivery business by snapping up DoorDash, a food delivery app, and alcohol delivery service Drizly. 

 

This is a trend that a number of “dark kitchen” start-ups are betting on across Britain and the US, with companies offering space for delivery-only operations on monthly or even daily contracts that cost from about $30 an hour. 

 

Cultivating trust

The sharing economy still has obstacles to overcome, however. The UK Supreme Court ruled in February that Uber drivers were in fact “workers” entitled to paid holiday and the minimum wage, not independent contractors, as the ride-hailing giant has long argued. The ruling could inspire other sharing economy contractors to file similar suits in an effort to rebalance benefits that campaigners claim are skewed toward the companies.  

 

The industry must also regain the faith of customers and suppliers alike. Back in 2011, an Airbnb host’s home was trashed by renters. The incident was splashed across the media within days. “Will criminals kill the Airbnb model?” asked one headline. Chesky responded by offering a $50,000 liability guarantee to hosts – and added his personal email address. He said that the decision, a risky one for a young start-up, “changed the company for ever”. 

 

That decade-old episode is telling. Airbnb has spent years cultivating a deep level of trust with its customers because it is elemental to the business. The same goes, with varying degrees of success, for Uber, Armoire and countless other sharing companies. 

 

Invisible infrastructure

Trust is the sector’s currency, so it is perhaps better primed than traditional businesses, which aren’t so laser-focused on getting customers comfortable enough to try something different – like, say, handing your dog to a stranger for the weekend. 

 

And technology advances  apace, exposing more industries to disruption. The collapse of solar panel prices and improvements to battery technology mean that local energy exchanges can be set up in developing countries such as India, where the electricity grid is not reliable. 

 

And better webcams enable people to verify their identity by holding up their driving licence, which has been critical for say, alcohol delivery, as well as the rise of digital notaries. At the heart of it all is what Sundararajan calls the “invisible infrastructure” of sharing economy companies: trust. For many industries, Covid-19 destroyed it. Those that can regain it are likely to reap the spoils as the pandemic recedes n