20 April 2018
Shares and investment
The 'Share economy': a megatrend to watch
Observing a toddler in action will remind you that sharing doesn't come easy to the human psyche. But the rise of 'sharing economy' is turning that truth on its head.
The term 'sharing economy' refers to the phenomenon of collaborative consumption, which is facilitated by technology. Services which began as niche digital offerings are now making a pervasive impact on the world around us, so much so that RMB Private Bank now regards the sharing economy as one of the major disruptions - or megatrends - to watch over the next decade and beyond.
Elaborating on what collaborative consumption means for the way we live, invest and establish businesses, Chantal Marx, Head of Research at RMB Private Bank, explains that technology, usually apps or websites, facilitate the sharing of underused assets of services for a fee. "The sharing economy is concerned with the better utilisation of resources. A car, for example, is an underutilised asset as it lives in a garage at home and a parking lot at the office for the majority of its life. So ask yourself: what are you paying per second for the time you drive your vehicle? Then consider how the likes of ride-sharing app, Uber, has revolutionised how we use these assets. It's about eliminating waste from the system."
In the process of creating a new form of resource sharing, this collective mentality is fundamentally changing the way established businesses operate. "One does not have to look far to see the impact of disruptive technology, even in South Africa," says Marx. "Just think of the arrival of Uber, which had rendered the meter taxi almost obsolete and resulted in the significant disruption of old, outdated business models."
Furthermore, as the sharing economy grows so will the list of companies unsettled by a new way of doing things. And, rest assured, this type of peer-to-peer consumption is going nowhere. It holds huge appeal to the millennial market (those born between 1982 and 1999), which is five times more likely to share than the Baby Boomer generation (mid - 1940s to mid-1960s), says Marx, referencing Bank of America Merrill Lynch research. As for the centennials (born between 2000 and 2017) this is their 'normal'.
While millennials and centennials make up a staggering 70% of the South African population and 49% of the world population, they are not the only drivers. "Interestingly, boomers are the fastest-growing demographic of Airbnb (the app-based short term rental giant) hosts in the United States," says Marx. "After all, they have the assets while 75% of millennials prefer to spend money on an experience rather than a material possession."
In South Africa, baby boomers are also getting in on the act, says Marx, who recently encountered her first boomer Uber driver. "If the boomers are already involved, then the shared economy has gone mainstream," she declares. "So mass adoption is imminent."
Given this insight it is telling that the world's leaders and well-connected, gathered at Davos in Switzerland in January 2018 to discuss 'creating a shared future in a fractured world', the conversation remained predictably around growth, tackling inequality, global instability, the rise of populism and climate change. The focus on technology, which continues to evolve at a rapid pace, offered few new insights into a disruption which is expected to collectively have a US$14 trillion to US$33 trillion direct global economic impact by 2025, according to consulting firm McKinsey. But it is the likes of Uber, Airbnb, Cohealo (which allows hospitals to share equipment), BlaBlaCar (for sharing long distance road trips) and RelayRides (where people can borrow cars from their neighbours) that will change the way the world consumes. This, in turn, will ultimately affect turnovers and disrupt business strategies.
"Platforms like Airbnb have disrupted several industries," says Marx, who points out that many Airbnb rentals are running at 60% occupancy, which is on par with established hotels. This should send out a warning to investors about how and where they funnel their funds in the future. Right now you can't invest directly in the Airbnb platform or the Uber platform, but "these apps are coming to market eventually", says Marx. "The other way, rather than waiting for the inevitable IPO, is to invest in the underlying assets, like a second property which you can put on Airbnb."
There are, of course, challenges and risks which are already evident with some of these disruptive sharing platforms, not least of which is social resistance to some of the innovations. Uber, for instance, has encountered heavy push back from meter taxis and that, says Marx, "is a big problem". So, for investors looking at these new businesses with interest there should be a healthy appreciation of the current lack of regulation and also the potential risks involved.
"As an investor you might not want to invest in these platforms right now, but what you should be doing is looking to avoid investing in industries that are likely to be disrupted," says Marx. And that raises questions around hospitality and logistics, education, media, travel, insurance, banking and even healthcare equipment. That said, forward-thinking companies in these sectors that are investing in technology and learning from the agility of app-based platforms, still have merit. Locally banks are still holding their own in the heavily-impacted financial sector and, despite the rise of ride-hailing apps, "there is still value in car rentals", says Marx, in part thanks to South Africa's strong tourism numbers.
The term 'sharing economy' refers to the phenomenon of collaborative consumption, which is facilitated by technology. Services which began as niche digital offerings are now making a pervasive impact on the world around us, so much so that RMB Private Bank now regards the sharing economy as one of the major disruptions - or megatrends - to watch over the next decade and beyond.
Elaborating on what collaborative consumption means for the way we live, invest and establish businesses, Chantal Marx, Head of Research at RMB Private Bank, explains that technology, usually apps or websites, facilitate the sharing of underused assets of services for a fee. "The sharing economy is concerned with the better utilisation of resources. A car, for example, is an underutilised asset as it lives in a garage at home and a parking lot at the office for the majority of its life. So ask yourself: what are you paying per second for the time you drive your vehicle? Then consider how the likes of ride-sharing app, Uber, has revolutionised how we use these assets. It's about eliminating waste from the system."
In the process of creating a new form of resource sharing, this collective mentality is fundamentally changing the way established businesses operate. "One does not have to look far to see the impact of disruptive technology, even in South Africa," says Marx. "Just think of the arrival of Uber, which had rendered the meter taxi almost obsolete and resulted in the significant disruption of old, outdated business models."
Furthermore, as the sharing economy grows so will the list of companies unsettled by a new way of doing things. And, rest assured, this type of peer-to-peer consumption is going nowhere. It holds huge appeal to the millennial market (those born between 1982 and 1999), which is five times more likely to share than the Baby Boomer generation (mid - 1940s to mid-1960s), says Marx, referencing Bank of America Merrill Lynch research. As for the centennials (born between 2000 and 2017) this is their 'normal'.
While millennials and centennials make up a staggering 70% of the South African population and 49% of the world population, they are not the only drivers. "Interestingly, boomers are the fastest-growing demographic of Airbnb (the app-based short term rental giant) hosts in the United States," says Marx. "After all, they have the assets while 75% of millennials prefer to spend money on an experience rather than a material possession."
In South Africa, baby boomers are also getting in on the act, says Marx, who recently encountered her first boomer Uber driver. "If the boomers are already involved, then the shared economy has gone mainstream," she declares. "So mass adoption is imminent."
Given this insight it is telling that the world's leaders and well-connected, gathered at Davos in Switzerland in January 2018 to discuss 'creating a shared future in a fractured world', the conversation remained predictably around growth, tackling inequality, global instability, the rise of populism and climate change. The focus on technology, which continues to evolve at a rapid pace, offered few new insights into a disruption which is expected to collectively have a US$14 trillion to US$33 trillion direct global economic impact by 2025, according to consulting firm McKinsey. But it is the likes of Uber, Airbnb, Cohealo (which allows hospitals to share equipment), BlaBlaCar (for sharing long distance road trips) and RelayRides (where people can borrow cars from their neighbours) that will change the way the world consumes. This, in turn, will ultimately affect turnovers and disrupt business strategies.
"Platforms like Airbnb have disrupted several industries," says Marx, who points out that many Airbnb rentals are running at 60% occupancy, which is on par with established hotels. This should send out a warning to investors about how and where they funnel their funds in the future. Right now you can't invest directly in the Airbnb platform or the Uber platform, but "these apps are coming to market eventually", says Marx. "The other way, rather than waiting for the inevitable IPO, is to invest in the underlying assets, like a second property which you can put on Airbnb."
There are, of course, challenges and risks which are already evident with some of these disruptive sharing platforms, not least of which is social resistance to some of the innovations. Uber, for instance, has encountered heavy push back from meter taxis and that, says Marx, "is a big problem". So, for investors looking at these new businesses with interest there should be a healthy appreciation of the current lack of regulation and also the potential risks involved.
"As an investor you might not want to invest in these platforms right now, but what you should be doing is looking to avoid investing in industries that are likely to be disrupted," says Marx. And that raises questions around hospitality and logistics, education, media, travel, insurance, banking and even healthcare equipment. That said, forward-thinking companies in these sectors that are investing in technology and learning from the agility of app-based platforms, still have merit. Locally banks are still holding their own in the heavily-impacted financial sector and, despite the rise of ride-hailing apps, "there is still value in car rentals", says Marx, in part thanks to South Africa's strong tourism numbers.