Nov 12 2020
Rapid technology innovation has enabled the rise of the sharing economy, which comprises new business models that exploit disruptive technologies, such as cloud-based collaborative apps, enabling consumer-to-consumer transactions and providing temporary access to goods and services with no transfer of ownership. In September 2014, the then Business and Enterprise Minister Matthew Hancock announced the government’s intention to ‘make the UK the global centre for the sharing economy’. Over recent years, the United Kingdom has positioned itself as a hub for the sharing economy, and its dramatic growth has been beyond even the most optimistic predictions of industry analysts. There are now countless sharing economy platforms operating in almost every sector, creating new business and societal opportunities while also disrupting tax, regulation and legal codes.
In terms of revenue, car sharing is one of the largest sectors in the UK’s sharing economy. A rise in public concern over environmental issues and sustainability, alongside government efforts to reduce CO2 emissions, has led to a surge in demand for greener mobility models. As local authorities scramble to reduce congestion and free up parking space, the car sharing model has provided an effective solution. As a result, the Car Sharing Activities industry has recorded double-digit growth over most of the past five-year period, with revenue expected to have exceeded £200 million in 2019-20, prior to the COVID-19 (coronavirus) outbreak.
As private and commercial customers seek alternative and cost-efficient mobility options, membership numbers for car sharing firms such as Zipcar and DriveNow have exhibited significant growth. In October 2017, DriveNow registrations reached the one million mark. Additionally, over the year through February 2019, Zipcar membership increased by 33% to 250,000. Although the coronavirus pandemic is expected to inflict a heavy toll on car-sharing platforms as people stay home and are actively discouraged from unnecessary journeys, by providing a safer alternative to public transport, this model of mobility is expected to remain a popular option as public health restrictions are gradually eased and confidence in travel returns.
Peer-to-peer (P2P) car sharing services, whereby existing car owners make their vehicles available for others to rent via a platform for short periods of time, have also boomed over recent years. Tech-based firms in this industry are still fairly new, yet the P2P car-sharing model has expanded rapidly, with companies such as Turo and Getaround achieving resounding success. Dubbed the ‘Airbnb of cars’, US car hire app service Turo launched in the United Kingdom in September 2018 to immediate success. By January 2019, it had more than 1,000 cars listed on its platform by private owners and over 75,000 users. In the same month, it acquired easyCar Club, adding 80,000 new customers to its books. The rise of these disruptive digital models of transportation is cause for concern for traditional car rental and leasing firms.
While Airbnb is the obvious example of a major disruptor in the context of the shared private space, WeWork has emerged as its equivalent in the shared corporate space. The company has acquired 3.5 million square feet of office space in London alone since 2013. As remote and online working becomes increasingly prevalent, Workspace as a Service and co-working have quickly emerged as successful models of flexible working.
Technological advancement has changed working habits and shifted demand from larger traditional offices to spaces such as hot desks, serviced offices or virtual offices. As a result, the Serviced Offices industry was growing strongly prior to the pandemic, with revenue reaching £2.5 billion in 2019-20, according to IBISWorld estimates, though it is projected to plunge in the current year. As co-working has quickly been replaced by smart working, occupancy rates have plummeted since March, with WeWork reporting that occupancy rates across the group fell from 79% in September 2019 to 64% at the start of April 2020. As localised lockdowns and social distancing measures are expected to remain commonplace in the short term, it is highly unlikely that this decline reflects the full scale of the economic fallout attributable to the pandemic.
Office broking service Instant Offices states that there were 6,075 flexible working space centres across the United Kingdom as of September 2019. Initially popular with small start-ups, these facilities are increasingly used by larger entities looking for flexible serviced office rental options. A further strong motivation is the sustainable nature of this model. This sector’s rapid growth is anticipated to majorly disrupt conventional commercial real estate agents as downstream markets choose to improve space utilisation and overall efficiency by using flexible, and often cheaper, working space centres.
While forecasting remains difficult in the current climate, it is likely that significant numbers of people will continue to work from home at least a few days a week. According to a survey of 2,500 people by consultancy Redfield and Wilton Strategies, nearly 60% of people working from home in September 2020 believed they would still be doing so at least until 2021, while 12% expected to work from home indefinitely. Another survey by the Chartered Institute of Personnel and Development found that 44% of UK employers surveyed in July 2020 were putting in place measures or making funds available to support home working, while 33% of employers planned to introduce new forms of flexible working or to try and increase the uptake of existing flexible working arrangements. These figures suggest that a permanent shift in working patterns is taking place, which will likely cause businesses to seek increasingly flexible working solutions for their employees and firms to move away from traditional offices.
The sharing economy has expanded into the sphere of alternative finance, where the United Kingdom is the uncontested leader in Europe. Innovative fintech firms have introduced peer-to-peer (P2P) and other forms of internet-based lending. These platforms provide an intermediation service between borrowers and lenders by connecting them through an online platform. In the context of the current low interest rate environment, a growing number of investors have been enticed to P2P lending, which typically offers more attractive returns than traditional financial products.
An overall deterioration of consumer trust in banking institutions since the global financial crisis has also contributed to P2P lending platforms’ increased popularity. Revenue in the Peer-to-Peer Lending Platforms industry has grown massively over the past five years and is estimated to exceed £370 million in 2020-21. Funding Circle, a platform that allows investors to lend to SMEs, has established itself as the industry’s largest player. According to its website, the platform has enabled 57,000 UK businesses to access finance to the tune of £6.2 billion.
P2P lending platforms have proven to be ideal channels for SMEs to access funding, disrupting traditional financial intermediaries such as banks and building societies. As the P2P industry grows, banks already short on capital due to changing regulations and liquidity squeezes are expected to take notice of the growth potential of these new models in their sector. Barclays recognised this opportunity early on and in 2018 began using MarketFinance, a fintech firm providing business finance solutions, to fund its SME business clients.
The coronavirus outbreak has presented further opportunities for P2P lenders, with platforms helping borrowers affected by the pandemic. For instance, Funding Circle and Assetz Capital have been accredited by the British Business Bank to provide loans under the government’s Coronavirus Business Interruption Loan Scheme (CBILS), meaning that P2P lenders will play a role in the economic recovery.
Sustainability has become the primary focus of the quickly emerging sharing economy. From co-working spaces to food and clothing sharing, these new, greener modes of consumption enable people to share more and consume less, helping to reduce waste. Businesses, too, have a lot to gain, by making better use of otherwise underutilised capital, such as computers that in many instances sit idle.
As the proportion of millennials in the UK working population increases, sharing-economy platforms are forecast to continue gaining popularity. Government figures suggest that the sharing economy will account for 50% of market share in key sectors such as holiday accommodation and car-sharing and rental by 2025. According to PwC, total transactions in the UK sharing economy will reach £140 billion in the same year, up from just £13 billion in 2016.
While the coronavirus pandemic has had a negative impact on the sharing economy, it would be premature to suggest that it will result in this model’s decline, as current uncertainty makes it difficult to foresee which changes to our behaviour will become permanent. Rather, it is more appropriate to say that the effect of the pandemic on the sharing economy has not been uniform across all sectors. In fact, while big names such as Airbnb and Uber have been obvious victims of the pandemic, suffering huge revenue losses since the outbreak, the challenges faced by these two companies are not necessarily intrinsic to the sharing economy but instead the result of the current crisis in the hospitality and travel industries.
Huge opportunities remain for companies in other sectors hoping to take advantage of the sharing economy. In the short term, this may be companies providing services that are in greater demand while people stay home and isolate, such as those enabling customers to limit the time they spend outside and their interactions with others. However, post-pandemic, start-ups are anticipated to seek new opportunities created by the pandemic and by the seismic changes it is having on society.