Innovative enterprises now let us rent what we once bought. From the latest MINI convertible to Jimmy Choo heels to Californian yurts, we’re finding access can be better than ownership.
Even by the ambitious standards of digital start-ups, the rise of Uber has been startling. From a standing start in San Francisco in 2010 to a US$40 billion company in 2014, Uber has revolutionised the taxi industry across 55 countries, sparking strikes, protests, lawsuits – and winning over millions of customers.
Yet Uber is only one of hundreds of businesses around the globe seeking to change the way we shop for everything from personal services to power drills, workspaces to wedding dresses. By harnessing a growing consumer preference for access over ownership, these agile digital newcomers are reshaping industries and overturning long-established business models.
Now analysts warn that time is running out for traditional market leaders to respond, or they risk being overtaken by the rental future.
Big and getting bigger
John Riccio is the digital change leader for PwC Australia. He says Uber is typical of the businesses tapping into a new collaborative economy of socially connected consumers. By using technology to link consumers directly to owners, businesses like Uber can unlock idle assets and scale up rapidly.“Take Airbnb for example. It’s only about five years old, but it has more rooms available than the Hilton Group, which has taken nearly 100 years to get to the same point,” he says.
“One owns hotels, with lots of investment in infrastructure and a very asset-heavy business. The other has used technology to build a decentralised offering and provide it to the end consumer. It hasn’t actually invested in any rooms. All of those rooms existed but were idle. Now the technology has allowed individuals to connect and exchange value.”
Similarly, ride-sharing service BlaBlaCar now carries more passengers each month than the high-speed Eurostar train between Paris and London. But unlike Eurostar, BlaBlaCar doesn’t need to invest in rolling stock or maintenance.
"As the generations change, ownership is becoming less important to people." John Ricco
According to PwC, peer-to-peer and collaborative businesses across five key industry sectors (accommodation, car sharing, music and video streaming, crowdfunding and peer-to-peer lending, and online staffing) are now on track to grow their collective market share from 5 per cent to 50 per cent by 2025. That would see their revenue jump from around US$15 billion in 2013 to US$335 billion in just over 10 years.
Little wonder that investors have been flocking to take advantage of these new opportunities. Jeremiah Owyang, founder of Silicon Valley’s Crowd Companies, calculates that venture capital investments in collaborative businesses rose almost tenfold between 2011 and 2014, from US$613 million to US$6 billion – including Uber’s US$1.2 billion capital raising last year.
The connected consumer
The growth of these new business models has been underpinned by changing consumer preferences, most clearly reflected in the increasing dominance of music streaming services such as Pandora and Spotify.“Access is the new ownership,” says Riccio. “As the generations change, ownership is becoming less important to people, as long as they have access to what they want, when they want it and where they want it.”
The forces driving this shift may vary from region to region. Where consumers in developed economies might want to simplify their already cluttered lives, the growing Asian middle class is more likely to seek affordable access to what were previously unavailable luxuries. Then there’s the sheer exoticism of experiences like sleeping in a yurt, anywhere from California to Andalusia – Airbnb even declared 2014 “The Year of the Yurt”.
But the common thread is a willingness to share in a community of individuals, rather than a marketplace of companies. By creating a social platform for shared experiences, many of the new generation of rental businesses have made social interaction a key part of their appeal.
That appeal may be particularly strong for Asia-Pacific consumers. According to a 2014 Nielsen survey, consumers in the Asia-Pacific region are more receptive to the idea of shared consumption than shoppers in any other part of the globe. A massive 81 per cent of those surveyed said they would be happy to share goods belonging to others, including 94 per cent of Chinese and 87 per cent of Indonesians. That’s more than double the 43 per cent of North Americans who are inclined to share.
The competitive response
As the competitive threat intensifies, established businesses are beginning to sit up and take notice. Some have made strategic investments in up-and-coming competitors – such as Avis buying car-sharing service Zipcar for US$500 million. Others have created innovative businesses of their own – like DriveNow, a joint venture between BMW and Sixt.
DriveNow allows users in Germany, London, Vienna and San Francisco to find, unlock and start a nearby DriveNow BMW or MINI using a mobile app, then simply drive it to their destination, park and walk away.
But another all too frequent response is to harness government regulations in an attempt to shut new entrants down. Stephen King, a professor of economics at Monash University, says existing regulations are often biased towards incumbents, if only because they have been built around traditional business models.
“When, for example, [perpetual] taxi licences in Victoria sell for A$250,000 each, or in New York for a million dollars each, it’s pretty clear these restrictions have little or nothing to do with consumers. It’s all about protecting the incumbent.”
"Consume in the Asia-Pacific region are more receptive to the idea of consumption."
The challenge for regulators is to keep pace with a rapidly evolving marketplace while protecting consumers and, increasingly, their own tax base. But King cautions that there is no guarantee regulators will accommodate new entrants simply because they are popular with consumers.
“That’s obviously a risk for companies like Uber. If the incumbents win … and in some parts of the world they seem to be winning … companies like Uber can be sued to death and customers ultimately lose,” says King.
Nonetheless, Riccio believes the momentum for change has become close to unstoppable. “When customers experience the efficiency and the value in some of these new platforms and business models, it’s pretty hard to go back,” he says. “It’s like the internet in the ’90s. We’re just seeing the tip of the iceberg.”
Luxury to let for China’s fashionistas
Bobo Rok was inspired to start Luxury Tonight, better known as LuxTNT, when her friends repeatedly asked to borrow her clothes for weddings and other special occasions.
“I realised that there is so much demand for occasion dresses, we could have a timeshare system,” she says.
“Also, personally, I really dislike fast fashion – the high street brands that copy designers’ work and quickly produce really low-quality garments that people wear a couple of times then throw away. I think it’s such a waste and a burden for the environment.”
So she decided to start a business that would give everyone access to affordable luxury, without the price tag.
That was in late 2013. Today, Rok and her co-founders Rosemary Vandenbroucke and Tim Kau lead a flourishing online business with 40 staff. They rent a thousand high-fashion items a month to customers around Hong Kong, including handbags, jewellery, dresses, accessories and more.
Recently, LuxTNT opened two branches in mainland China, offering customers in Shanghai and Beijing rapid access to a constantly updated wardrobe of high-fashion items on a monthly subscription model.
“The [Chinese] middle class is obviously growing rapidly, but people are hesitant to spend a lot on luxury goods … We give them an affordable alternative to buying expensive designer items or cheap copies, and one that is environmentally friendly,” Rok explains. “We’ve had an extremely good response – people love the idea.”
That initiative alone is forecast to more than triple the business’s revenues, but Rok and her partners have bigger plans in mind. They are currently seeking a new round of funding, allowing them to broaden their product offering and expand into other locations.
Rok says negotiations to date have valued the business at around US$54 million – an impressive achievement for a business founded just 18 months ago.
This article is from the May 2015 issue of INTHEBLACK.
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