The Sharing Economy
Many highflying companies are pushing logistics, services, and payment options to our new “sharing economy.” We see these firms and sectors as largely driven by macroeconomic trends. The American middle class is in steep decline. This has been true for 3-4 decades but accelerated rapidly after 2008. This has created a millennial generation in fierce competition for opportunity and armed with the Internet in the search to reduce costs, find income and get ahead. Inter-generationally, there are more mice, the mice are more hungry, and there is less cheese in life’s maze. Enter the “sharing economy.”
The sharing part of the sharing economy involves using the mobile internet to offer your property or labor to people who want to substitute your efforts or your owned, rented or borrowed house, apartment, car, bike for a traditional rental offering. This is likely to subsidize or smooth the day, job, trip, ride of the buyer and offers to add a few dollars to the coffers of the sharer. Likely, the pool of folks trying to sell labor and rent their stuff will quickly exceed the demand for services. There tend to be more servants than masters in an economy with rising income inequality.
The sharing economy is part reality and part feel good gloss and nod in the direction of possible future outcomes. Folks love and use Uber, Lyft, Via, Gett, Easy Taxi…. because many folks need and want to make more money and other folks are looking to save on the costs of getting around, or have someone else do the work, pay the cost, take the risk. It is not clear that drivers are major beneficiaries in many cases. The deregulatory adventurism that defines the space is undermining traditional limits on the number of drivers offering services. Take rates in the 25% range mean that 25% of total revenue vanishes off the top and drivers are left to pay for gas, insurance, cars, taxes, tickets…. with 75% of gross revenues. There are few employees and thus, few traditional employee protections. Instead all compete against all to be small individual sellers of labor or renters of leased and financed property. Sounds like the 19th century? It does if you know some economic history.
Long term, investor excitement around these companies suggests that sharing economy models will increase profits while shifting consumption patterns to allow the newly less affluent to purchase fewer goods but, to buy, less expensive services. There is a real value created but it generally suggests selling services into the sharing economy will be under constant price pressure while consumers will save. We will see an economic evolution further toward buyers of labor and further away from sellers of labor.
AirBnB works as well as it does because professionals, particularly in global cities with crushing rents, need and want to afford to live near where they work, in exciting culture and innovation centers. Thus, the supply and demand of apartments, rides, delivery services are the simple expressions of less time, less money and frenetic mobile lives and schedules. These companies are the incorporated clearinghouses of changing global macroeconomic realities. Our interest in and understanding of these businesses comes into focus using a macroeconomic lens. Lodging, transportation and food are leading costs faced by most. Unbundling purchase and turning many underemployed or underpaid people into part time contractors/providers of goods and services makes sense as a coping mechanism for those stressed by life costs. Floods of new folks selling into these markets will pressure prices downward. Demand control from a few large corporations will allow high take rates to survive. This will contribute to yawning income and wealth differentials. The transformation of employees into independent contractors removes traditional benefit provision and worker protections from the mix.
Around the world there is an emerging middle and upper middle class that is native mobile. Global millennials are already drivers of many technologies and extensive disruption. As large as this group looms in US discussions, the world is much younger and more millennial than the US. Globally, there are over 2.3 billion people under 20 years of age. The younger emerging global middle has rising resources and wants services from the vast population with less means. Driver services, delivery services, food preparation, hospitality, being dispatched and coordinated by apps is simply the rising middle class of the developing world in the process of going mobile. The precarious new middle is accustomed to servants and service provision and also to being servants and service providers. The sharing economy may further accelerate the rise of emerging middle classes and decline of developed economy middle classes.
Markets are huge, global and fast evolving as the falling middle class of the developed world separates into consumers and producers that need to work harder, longer, more hours to make fraying ends meet. This vast tide is combining with rising developing country middle classes. Global macro is the lens through which we see these opportunities. Macro trends are fueling the sharing economy and are also contributing to the rise of developing middle classes and the declines in some developed middle classes.
Globalization of Service Arrangement
Needs and people can be matched on mobile apps as never before. Two billion global webizens, and counting, are online. Online increasingly means mobile devices such as smart phones and smart features on traditional phones. Google and Apple offer the world, through their respective app stores. Billions will soon have access to these stores and a billion already do. Freemium business models and ad-supported services have lowered costs and allowed bottom billions to consume free information, games, do some basic financial transactions and offer their labor and property as services. The rapid globalization and size of the addressable market are functions of macro trends in the price of basic smart phones, urbanization and the rise of cash wages and markets. The vast majority of people in the urbanized developing world need to sell labor services where the crowds with money are accumulating. The increasingly frail and precarious developed world middle class needs to capture any and all revenue it can to stave off poverty. The crowds are on the mobile web and app based extra money opportunities sing an irresistible siren song. Mobile e-commerce is driving labor services online. The small number of platforms and apps directing demand traffic will have huge leverage and take home serious revenue from the hordes trying to supplement or earn a living selling into perennially well supplied markets.
Also featured in this edition is our news section containing articles from TechCrunch, Wired, and Reuters.