How can investors make money from the sharing economy?

  • Sharing economy could be worth £230 billion in 10 years
  • Airbnb, Uber success sign of rapid growth in sweating assets
  • P2P and crowdfunding could become biggest growth areas

One of the most life-changing lessons I learned was in my first real job collecting glasses in a pub in Ottawa.

The senior barman told me to never go from the kitchen up to the bar or back empty-handed.

'There are stairs to climb and if you're going up, bring some food or glasses. If you're going down, bring some dirty dishes. It saves a lot of effort and means you never make a wasted trip,' he said.

GAINING TRACTION

The sharing economy, a new movement in micro-moneymaking, takes that philosophy and applies it in ways that generate revenue from untapped assets you might never have realised you had: the boot of your car; your spare bedroom; basically anything that lies unused most of the time.

JustPark, for example, allows people to rent out their unused driveways and parking spaces to other members. If you've ever looked at parking costs in London, you can appreciate how tantalising a proposition this could be.

Other well-known examples include Airbnb, which enables people to rent out spare rooms, flats or houses to travellers; Uber, the fast-growing alternative taxi service that lets anyone be a driver; and EatWith, which allows members to be the host or paying guest at a private dinner party.

There will be some unquantifiable costs - additional wear and tear, time spent preparing a room, more petrol, or the energy it takes to fulfil some small task. But if you're willing to convert that energy into money, then the sharing economy might be an interesting place to look.

This isn't just a way to relive the hippie days of couch-surfing and hitchhiking.

Companies such as Airbnb and Uber seem to have gained a genuine commercial foothold, disrupting the status quo - witness recent headlines about cab drivers calling for a clampdown on Uber in France - and even some of the world's largest companies appear ready to get into the game: Amazon for example is rumoured to be working on an app codenamed On My Way, which would allow members to deliver Amazon parcels for a fee. The proposed set-up is a good typical example of the sharing economy model.

According to Roger Sumner-Rivers, founder of international courier ParcelHero, it would work like this: Amazon would partner with local high street shops to hold packages. Then members - maybe existing Amazon users - could use the app to pick up parcels and deliver them to addresses along their planned journey, for a small fee.

What's interesting about this from a bigger-picture point of view is that it looks like a genuine free lunch - Amazon cuts the costs of its delivery network on its balance sheet, while the shops that participate get more people in the door and the couriers get more money in their pockets.

But like many great ideas in principle, the difficulties arise in the nitty-gritty of implementation. 'What happens if items are lost or damaged by the amateur couriers, or are even potentially stolen?' asks Sumner-Rivers. 'Who is liable in such cases, Amazon or its non-professional courier?'

But then again, it is surprising how some of these new models have managed to weed out the bad apples using rating systems - just as you might not buy something from an Amazon seller who has only a 50 per cent positive rating, you might not accept an Uber driver or host an Airbnb guest who had blotted their online record.

WEAK SPOT

Intriguingly, the thing that makes the sharing economy such an enticing idea - that it's driven by regular people working in their spare time - is also one of its major potential weak spots.

Remember when Facebook was taking off 10 years ago and rival social media networks were popping up like mushrooms, only to quietly disappear after failing to attract enough people? Sharing economy businesses need the same kind of critical mass of users in order to become effective.

In the case of the Amazon initiative, what happens if there aren't enough people nearby to ensure timely delivery of packages? With Uber, what happens when a shortage of drivers leads to a lack of competition or availability?

One Uber user told Money Observer he had had rides cancelled by drivers after being booked - doubtless an incredibly frustrating experience. 'Some people say that if a driver gets a better offer or doesn't fancy the traffic they can just cancel the job,' he adds.

What's nice about the sharing economy philosophy is that it appeals to the good elements of human nature - people like helping and meeting other people, as well as making money. But this element of whimsy also exposes it to the flipside of unreliability.

Moreover, when you judge your service-provider, be aware that you yourself are also being judged - many of these new-model businesses rate all parties involved. With Uber, for example, you will rate your driver to help them get more business in the future, but did you realise the drivers also rate clients? The same goes for Airbnb.

Unless you are comfortable being assigned a star rating, you might be put off by that kind of public appraisal. How would you feel, for example, if an Airbnb user commented on the smell of your house, or said something critical about how tidy you kept it, or the shoddiness of your bathroom fixtures?

Another big, as yet unanswered question is how revenues from these businesses should be taxed. If you earn £1.50 for dropping off a parcel, but do that several times a week, will you have to tally all your receipts every April, or might the tax be taken off automatically at app level?

BIG BUSINESS

According to a report by Pricewaterhouse Coopers (PwC), the global sharing economy will increase in value from £9 billion to £230 billion in the next 10 years.

And in the UK, revenues from five key sharing economy sectors - peer-to-peer lending, online staffing (where employers and employees find each other directly, perhaps via an app), peer-to-peer accommodation such as Airbnb, car sharing and music/video streaming - are expected to rise from half a billion pounds to £9 billion over the coming decade.

This is all well and good, but you're reading Money Observer because you want to make money. So how can you personally benefit from the growth in this sector? Well, it isn't easy. There are not many examples of publicly listed sharing economy businesses that are growing.

Amazon's On My Way may become one of the few, if the rumours are true, but that's hardly a start-up. You could also look at car hire giant Avis, which bought out the successful car-sharing service Zipcar.

Keep in mind though that large, listed companies are more likely to buy safer, already-successful businesses than untried start-ups, meaning they might have less growth potential.

Nonetheless, you can access this somewhat bohemian sector at the ground floor via other, less conventional means - equity crowdfunding, peer-to-peer lending or VCTs.

Of course, the fact that these tend to focus on smaller start-ups means they are generally riskier propositions than listed equities; for every Airbnb there are going to be multiple failures-to-launch. But one successful example is JustPark, which has been doing well after an oversubscribed round of crowdfunding.

According to Adam Memon, chief economist at PwC, another area of great potential growth in the sharing economy is its use by the public sector. The government spends £20 billion of taxpayers' money every year on public sector running costs, but it could become more efficient by applying the principles of the sharing economy: for example, renting out unused office space or using direct online staffing platforms

to employ carers. Public sector workers could also be allowed to use car-sharing programmes and claim the costs as expenses.

In terms of the sharing economy sectors with the greatest potential for growth, PwC believes the P2P lending and crowdfunding spaces themselves will be the biggest successes, growing an anticipated 63 per cent by 2025.

Other up and coming sectors in the sharing economy include online staffing (37 per cent), P2P accommodation (31 per cent growth by 2025), car sharing (23 per cent) and music and video streaming (17 per cent).

The sharing economy is still in its infancy, but once you start thinking about the potential, you see the possibilities everywhere - what about those little-used tools in your shed? Bicycles? Clothes you never wear? The spare room? If enough people get involved in sharing networks, then the opportunities to sweat your assets and bolster income could be endless.

Subscribe to Money Observer Magazine

Be the first to receive expert investment news and analysis of shares, funds, regions and strategies we expect to deliver top returns, plus free access to the digital issues on your desktop or via the Money Observer App.

Subscribe now

Add new comment