3 questions to re-evaluate your business model in the midst of the sharing economy

CitiBikes in New York. Photo credit: viewapart / 123RF Stock Photo.

The sharing economy has been hailed as a recent social and cultural revolution and is picking up speed as a tried and tested business model.

Traditional companies can no longer rely on regulation to stem the advance of sharing economy businesses. The ease of setup and lower costs in the digital startup age have led new entrants to test markets faster than traditional businesses, allowing them to latch onto promising leads much quicker.

Some cities like Seoul have even funded sharing economy platforms because they view these as a public good. Considering this, you might find that your business model has to be re-evaluated. Below are three questions you might find helpful when re-visiting your company processes in the light of the sharing economy.

Does the sharing economy affect my value proposition?

Players in the sharing economy have disrupted the industry. Some taxi companies and hotels have discovered this, working with Uber and Airbnb, while others choose to acquire similar marketplace platforms. (In recent news, Grab is in talks with Singapore’s SMRT to acquire its taxi business.)

Businesses need to understand the problems or inconveniences faced by users and build their value proposition around these pain points. It is crucial to look at your current or proposed business model and determine if your customer would prefer to leverage shorter-term rentals rather than purchasing the product.

An example of a company that made the switch from just selling its products to both selling and renting them is Komatsu, which began renting out its mining equipment in Australia in 2015. This came in response to the lower capital available to the major projects industry and the fact that clients only needed the equipment for a limited period of time.

New value propositions have also formed in response to the sharing economy. An example: businesses built to establish trust within the sharing economy. These businesses, such as user rating system Deemly and Seafax, a third-party rating system for the Seafood industry in North America, have bridged the gap left by detached transactions on multi-vendor platforms.

Could the sharing economy affect my profit formula?

Revenue can be generated with new models of the sharing economy. In contrast to conventional online shops, online marketplaces allow users to directly share or sell products or services. A common way marketplaces generate revenue is by charging commission fees.

Making money from an online marketplace platform can take other forms as well: fixed transaction fees, one-time membership fees, monthly subscription fees, or even co-leasing capital that the company currently utilizes. KPMG Australia saw the unique value in offering their idle employees on a marketplace to serve the short-term staffing needs of their clients. This means the company leveraged the sharing economy to create profits from an existing headcount, keeping costs the same while increasing revenue.

From a retail perspective, the advent of online marketplace technology has given niche resellers the ability to create branded marketplaces, changing their profit formula from resellers with a lot of inventory risk to middlemen that amalgamate offerings online. They might earn less on the markup, but the decrease in storage costs also helps bring up the net profit margin.

Does the sharing economy affect my key resources and processes?

Reassess the need for internal resources in your business by considering newly-accessible external resources brought about by the sharing economy. The idea that resources can be more fluid, enabling companies to rent or buy resources only when there is a demand, has become a reality with online marketplace platforms offering equipment rental and excess inventory from other companies.

Businesses that cannot afford full-time personnel can hire people through on-demand online marketplaces without investing significant administrative resources. Platforms such as Workfast have emerged in Australia to fill the demand for temp staff.

Outsourcing entire systems have also become possible with the sharing economy. Delivery services are already available to small restaurants through on-demand delivery platforms like UberEats and Deliveroo. Differentiated offerings such as Drive Yello, an Australian delivery app built specifically for restaurants and fast-food businesses to outsource their deliveries, gives business owners control over the ordering flow and the customer relationship.

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