In late October 2010, I found myself in the city of San Francisco for the first time. I was at Hub SoMa, one of the city’s exploding number of co-working spaces, and I was running an event with the author Rachel Botsman.
The start-up mad city was a global epicentre for a growing movement Rachel had defined as “collaborative consumption” – now better known as the “sharing economy” – and we had organised a line-up of emerging entrepreneurs to talk about their fledgling and increasingly controversial business models.
These included John Zimmer, co-founder of carpooling start-up Zimride (which, two years later, evolved to become ridesharing business Lyft, Uber’s most serious competitor), and Brian Chesky, co-founder of homesharing start-up Airbnb (then just two years old). Despite the fact that, today, both these founders and their businesses have become part of global sharing economy folklore, this event barely drew a crowd of thirty people.
By early 2012, the sharing economy had begun to experience some significant regulatory speedbumps in cities around the world, as well as facing its first major public-relations scandals. Luxury peer-to-peer carsharing start-up HiGear was shut down after being targeted by a crime ring that boosted four cars, worth over half a million dollars, in the space of a month.
In mid 2011, an incident that became known as "ransack-gate" had left an Airbnb host’s home completely and utterly vandalised after someone posing as a guest used a fraudulent identity to book the accommodation, then methodically destroyed its contents.
Despite the seriousness of these cases, they ultimately helped forge the legitimacy of the sharing economy, while the established industries being taken on by these peer-to-peer marketplaces began to realise their growing threat was not going away any time soon.
Some cried foul at the entrepreneurs who could take advantage of new technologies and societal shifts in ways their decades-old business would never be able to. Others scorned the values underpinning the movement, saying that it was communism dressed up as something else, or the hippy ’60s all over again.
But most were as inspired and excited as any sharing economy advocate.
By 2015, the hype around the sharing economy had reached something of a zenith. The concepts had gained broad appeal, globally the leading platforms had raised millions of dollars in venture capital funding. A rationalisation had occurred in the market, and where there had once been multiple local iterations of an idea, the dominant global player (usually US-based) had ultimately won the territory for good.
With the increasing maturity of the ecosystem, its immunity to the challenges of scale had also started to wear off, regulatory loopholes began to close and the gap between incumbent and disruptor became perceptibly smaller.
In particular, mounting questions around the rights and protections of the sharing-economy labour force, from the hosts to the drivers to the errand runners, opened up these business models to more scrutiny than before. The “gig economy” moniker began to supersede “sharing economy”, as its original values of trust between strangers and access over ownership gave way to consumers’ objectives of convenience and low cost.
People began to question whether the profitability of these businesses was actually attributed to low-level exploitation of the people providing their services.
At the same time, it had become abundantly clear the sharing economy’s initial promise of decentralised, local economies was far from being fulfilled.
In fact, many of the sharing economy verticals, like hospitality and transportation, would likely be winner-takes-all markets in our globalised economy, therefore centralising power and wealth back in Silicon Valley alongside the rest of the global tech giants.
This ultimately led to what I saw as the final straw of disenchantment towards the sharing economy, with millions of dollars of venture capital poured into its leading operators through fundraising ‘mega-rounds’ in 2014 and beyond, and the subsequent expectations around growth and return of value to shareholders. While this is the legitimate economic principle of venture capital (a table at which I now enthusiastically sit), it started to feel like a stark contradiction to the original ethos of the sharing economy.
A secondary issue of these growth expectations was also beginning to show up through the impact of sharing economy platforms on the social fabric of the neighbourhoods in which they operate.
However well-intentioned and aspirational founders like Brian Chesky and John Zimmer had been on that night in San Francisco back in 2010, it felt like “sharing economy 1.0” had fallen short.
Back in Australia, despite the success of Airbnb and Uber, as well as local task marketplace Airtasker, the sharing economy never really gained a strong foothold. However, early signs of a different kind of groundswell and tech trend were emerging and by 2014, the financial technology or “fintech” revolution was underway. Investment into fintech globally hit $14.4 billion that year, compared to an all-time record of $8bn into the sharing economy in the same year.
Fintech in Australia has reached a scale that local sharing economy start-ups never could due to a few key differences. First of all, financial services is one of those rare markets that touches every member of the population, and usually doesn’t rely on location-based critical mass in order to build liquidity.
The sharing economy, by contrast, had been restricted to capital cities and more concentrated geographic areas in order to build scale, which subsequently limits the potential size and value of these businesses, and reduces their attractiveness in terms of investment.
Second, given the significant differences in banking systems globally, international expansion of fintech start-ups has been much less frenetic than the sharing economy race for dominance. Instead, “fast-follow” businesses, those which leverage the success of an international model and bring it to a new market, like SocietyOne, and models unique to Australia’s financial services landscape have had a generous window to gain traction – a rare hometown advantage for local entrepreneurs.
So where does the original guard of passionate sharing economy entrepreneurs fit into this evolving landscape, and how are they responding?
There is a continued convergence of trends between fintech and the sharing economy, as well as the continued evolution towards decentralisation of power, democratisation of access to opportunity and prioritisation of stakeholder values.
These conditions are ripe for a second generation of sharing economy businesses to be born into a more conducive operating environment, without the original challenges of gaining public acceptance for radical ideas like sharing homes, cars and stuff with strangers.
In fact, these ideas won’t even feel disruptive anymore to the “post-ownership” generation who will grow up with co-working and co-living as the norm.
This is an edited version of an essay, ‘Rebooting the sharing economy, The new wave of the new wave’, by Lauren Capelin, republished with permission from GriffithReview 64: The New Disruptors (Text), edAshley Hay griffithreview.com
By Peter King
Acting Chief Executive Officer, Westpac