Why the ‘collaborative economy’ is our future business model

Priti Ambani discusses how Tech Futures Lab is providing New Zealand businesspeople and entrepreneurs with the tools to successfully embrace the ‘collaborative’ business model and innovate in today’s society.

Amidst large scale upheaval across almost every industry a new generation of business designed to harness and create opportunity out of disruption has emerged.

These new age businesses are operating in what has become known as the collaborative economy – a new way of doing business based on utilising the power of the Internet to connect people, enable the sharing of goods, matching needs and services, co-creation and crowdsourcing. These networks thrive via online platforms and are driven by advances in technology, resource scarcity and changing social dynamics. Pioneers of the collaborative economy are companies like Uber, Airbnb and Spotify that have singlehandedly disrupted the taxi, hotel and music industries, connecting people directly to service providers and bypassing the middleman. Closer to home companies like Zoomy (on demand taxi), CityHop (on demand- car rentals), Harmoney (crowdlending) and SharedSpaces (platform to share physical spaces) are giving Kiwis a taste of efficiency brought about by collaboration on the Internet. PwC predicts the sharing economy (another broad definition used to demonstrate networked crowds) to skyrocket over the next decade, generating upwards of $300 billion by the year 2025[1]. So what sets this new breed of business apart, and what does it mean for traditional industries and the everyday consumer?

When traditional thinking just doesn’t cut it: going back to the drawing board

The collaborative economy has created an urgent need, not only for established businesses to go back to the drawing board, but also for government to revisit age-old policies so they can better serve the needs of the digital age and create a fairer playing field for diverse and innovative new business models. The New Zealand Government has the opportunity to implement new policies to ease the process for innovative Kiwi businesses to enter the market and challenge global giants like Airbnb, diverting profits back into the local economy rather than to Silicon Valley.

Platform-based businesses: shaking up legacy industries

Innovative and lightweight businesses that have become the poster children of the sharing economy are reinventing the way people consume goods and services and cutting into the profits of traditional companies. Instead of continuing to maintain a clear distinction between the business and the consumer, platform-based businesses are built on the concepts of creating shared value, and are creating new ways to monetise under-used assets, skills and time. With a valuation of around $30 billion, Airbnb is a major disruptor to both the accommodation and rental markets and its emergence is certainly being felt by long-standing players – in 2016, an 8- year old company, Airbnb was almost worth more than that Hyatt and Hilton hotel groups combined [2]. It’s only inevitable that more of these new generation businesses will continue to shake-up legacy industries and force businesses to rethink the way they’re structured in order not to be left in the dust.

The role of the consumer: trust as a currency

Underpinning the sharing economy phenomenon is the use of trust as a social currency. You trust that a Zoomy driver will get you from A to B in their own vehicle, trust that someone’s apartment looks like the picture they posted on Airbnb, and trust that the washing machine you bought off TradeMe actually works, and the foundation of this trust is the ratings and recommendations of others. PwC finds 64% of people say that in the sharing economy peer to peer regulation is more important than government regulation [3]. Many sharing economy businesses have experienced rapid growth and don’t have the reputations of tried and true businesses to win over customers. Instead they rely on user ratings to validate their services. Endorsements like these give users a sense of comfort and the ability to form judgements using recent and personalised feedback from people like them.

What makes a successful business: understanding the new consumer

Established businesses need to respond to the environment that their consumers are now living in. Today it’s increasingly difficult to own your own home, the average employee no longer works from nine to five and people are choosing to invest in experiences over assets. In fact, almost 80% of Millennials would choose to spend money on an experience over buying something desirable [4]. People are no longer wanting to be burdened by the ownership of expensive items, but are moving towards leasing and sharing assets on an as-needed basis. This gives them the ability to use the latest and greatest products as they’re released and frees up their cash to use in other more meaningful ways. Businesses that incorporate some form of asset sharing or usage based pricing will be in a better position to withstand changing consumer dynamics.

Among these changes is a shift amongst consumers to become increasingly environmentally and socially conscious. Of people who had used sharing economy services, 78% agreed that it reduced waste and 76% agreed it was better for the environment. Businesses that look at ways in which they can recycle and share resources to minimise not only their own footprint, but that of the wider industry and supply chain, will fare better in this new age economy.

Responding to change: what you can do now

With infantile businesses punching above their weight and circumventing the need for expensive overheads including; physical premises, labour and operating costs and even tax in some cases, legacy businesses need to consider how they can turn the threat of disruption into opportunity. They need to reshuffle siloed leadership structures, create more inclusive and diverse business models and look at ways they can retrain and upskill staff. Many business leaders are already responding by enrolling in programmes like our own Tech Futures Lab Masters programme. This enables professionals, business leaders and entrepreneurs to learn innovative and agile ways of thinking in order to harness the potential of new technologies for their own means.

The sharing economy today: challenges and unprecedented opportunity

As it stands, the sharing economy has grown light years faster than our government, legacy businesses or even consumers can keep up with. There are clear benefits for both businesses and consumers, but there are also challenges. We need to be asking the questions: how can we ensure people are paid fairly for the role they play in the transaction, are there are stringent enough safety policies in place, and are global internet-based businesses cannibalising local companies that have played by the book? Access to technology has levelled the playing field and lowered the point of entry for businesses to gain a foothold. However more must be done to foster and encourage innovation so that Kiwi innovators and companies can tap into the opportunities in our own backyard and target gaps in the market before global giants beat them to it.

“Share your thoughts about the future of New Zealand and where we are headed with Tech Futures Lab’s questionnaire, New Zealand, What’s next for you?

[1] PwC The Sharing Economy – Consumer Intelligence Series
[2] Airbnb’s latest investment values it as much as Hilton and Hyatt combined
[3] PwC The Sharing Economy – Consumer Intelligence Series
[4] Millennials Fuelling The Experience Economy, Harris Group

Priti Ambani is a thought leader on the collaborative economy and a faculty leader at Tech Futures Lab, an innovative lab upskilling mid-career professionals to succeed in the new digital economy. She is also co-founder of The Next Billion, an organisation that provides women-led businesses with access to growth opportunities.

For more on the practical aspects of establishing and running a business in the collaborative (or sharing) economy, check out the cover story in the August 2017 edition of NZBusiness magazine.