IN LATE OCTOBER 2010, I found myself in the city of San Francisco for the first time. I was at Hub SoMa, one of the city’s exploding number of co-working spaces, and I was running an event with author Rachel Botsman for the final leg of the US and European tour for her first book, What’s Mine Is Yours: The Rise of Collaborative Consumption (HarperCollins, 2010). The start-up mad city was a global epicentre for a growing movement Rachel had defined as ‘collaborative consumption’ – now better known as the ‘sharing economy’ – and we had organised a line-up of emerging entrepreneurs to talk about their fledgling and increasingly controversial business models. These included John Zimmer, co-founder of carpooling start-up Zimride (which, two years later, evolved to become ridesharing business Lyft, Uber’s most serious competitor), and Brian Chesky, co-founder of home-sharing start-up Airbnb (then just two years old). If both these founders and their businesses have become part of global sharing-economy folklore, our event barely drew a crowd of thirty. This was in part because it was a terrible idea to schedule anything on the night of the second game of the San Francisco Giants’ World Series play-offs in a baseball-mad city – especially when they would go on to win the title after an almost sixty-year drought. But that night I nevertheless realised I had one of the earliest and most unique vantage points to a different kind of history in the making, a zeitgeist that would over the following years become a game-changing worldwide movement and business model revolution.
Six months earlier, I’d met Rachel in Sydney as she was reviewing the final drafts of What’s Mine Is Yours. Like thousands of others would soon become, I was completely enamoured by the possibilities of a world moving towards access over ownership, trust between strangers made easier through technology, and of leveraging the idling capacity of our assets so compellingly articulated by Rachel in her work. When I was offered the opportunity to work alongside her to help spread awareness of these concepts, and to connect the new generation of entrepreneurs around the world making them a reality, it was the easiest leap of faith I had ever made. The book tour in October that year was an initiation into a five-year adventure of a lifetime, as we travelled to cities across Europe, the US, Canada, South America and the Asia-Pacific to talk about the rise of this movement, and meet the companies, entrepreneurs and community leaders driving it forward at the local level. For every US-based start-up, there seemed to be international equivalents emerging simultaneously in cities as diverse as São Paulo, Paris, Seoul, London, Amsterdam and Sydney, and we knew that to build a global movement we needed local knowledge. I spent the next few years building a community of influencers and thought leaders in more than forty cities, who kept us abreast of local activity so we could highlight the truly global nature of this shift. These representatives, called our ‘global curators’, were actively raising awareness throughout the community, and often connecting with local government officials and businesses to advocate for the benefits of sharing economy platforms, especially those that found themselves operating in so-called legal ‘grey areas’.
By early 2012, the sharing economy had begun to experience some significant regulatory speedbumps in cities around the world, as well as facing its first major public-relations scandals. Luxury peer-to-peer carsharing start-up HiGear[i] was shut down after being targeted by a crime ring that boosted four cars, worth over half a million dollars, in the space of a month. In mid 2011, an incident that became known as ‘ransack-gate’[ii] had left an Airbnb host’s home completely and utterly vandalised after someone posing as a guest used a fraudulent identity to book the accommodation, then methodically destroyed its contents. This had almost critical consequences for public trust in the home-sharing start-up, but Airbnb harnessed the incident to thrust issues of trust and safety in the sharing economy well into the spotlight. They consequently overhauled their member identity technology and booking verification system in a way that set the standard for the rest of the industry. Despite the seriousness of these cases, they ultimately helped forge the legitimacy of the sharing economy, while the established industries being taken on by these peer-to-peer marketplaces began to realise their growing threat was not going away any time soon.
We spoke with industry leaders, from transportation to hospitality to finance to retail, as they started to feel the impacts of changing consumer behaviours and preferences. The audiences were always mixed in their reception towards the ideas and business models of the sharing economy. Some cried foul at the entrepreneurs who could take advantage of new technologies and societal shifts in ways their decades-old business would never be able to. Nowhere was this attitude more acutely felt than in the taxi and hotel industries, with lobby groups taking up arms against sharing economy activity to try to outlaw operations in cities around the world,[iii] mostly unsuccessfully. Others scorned the values underpinning the movement, saying that it was communism dressed up as something else, or the hippy ’60’s all over again. But most were as inspired and excited as any sharing economy advocate. We had reached a unique tipping point in society, with technology enabling new ways of living in the midst of huge global economic and environmental crises, and they could see the opportunity that existed for incumbents to disrupt themselves by leveraging sharing economy principles to make themselves relevant in this new era. Retailers like Home Depot launched tool rental services,[iv] while clothing brand Patagonia partnered with eBay on a seconds marketplace initiative.[v] Global car rental business Avis moved to acquire their competitor Zipcar, a by-the-hour carshare business, in 2013.[vi] Automotive manufacturers like General Motors explored partnerships with peer-to-peer carsharing start-ups[vii] (and have since gone on to launch their own offering in market[viii]), while Daimler and BMW launched by-the-minute carsharing platforms,[ix] taking carsharing to new levels of convenience, supporting a growing shift away from car ownership. While not all equal, these initial experiments paved the way for a number of incumbent businesses and household brands to play a fairly pivotal role in the legacy of the sharing economy movement.
BY 2015, THE hype around the sharing economy had reached something of a zenith. The concepts had gained broad appeal, globally the leading platforms had raised millions of dollars in venture capital funding, with some even earning coveted ‘unicorn’ status, the mythical name given to a company that achieves a valuation of more than $1 billion. The cadence of new ‘Uber for x’ and ‘Airbnb for y’ type marketplaces had slowed from what felt like one per week at its height to a much more intermittent pace. A rationalisation had occurred in the market, and where there had once been multiple local iterations of an idea, the dominant global player (usually US-based) had ultimately won the territory for good. In fact, it had become hard to talk about the sharing economy without the conversation shifting to focus primarily on Airbnb and Uber, or Lyft, as its star continues to rise, while public sentiment against Uber continues to fall.
With the increasing maturity of the ecosystem, its immunity to the challenges of scale had also started to wear off, regulatory loopholes began to close and the gap between incumbent and disruptor became perceptibly smaller. In particular, mounting questions around the rights and protections of the sharing-economy labour force, from the hosts to the drivers to the errand runners, opened up these business models to more scrutiny than before. The ‘gig economy’ moniker began to supersede ‘sharing economy’, as its original values of trust between strangers and access over ownership gave way to consumers’ objectives of convenience and low cost.
People began to question whether the profitability of these businesses was actually attributed to low-level exploitation of the people providing their services. Stories of ridesharing drivers underestimating the costs of maintaining their vehicle when accounting for their earnings[x] began to cast a negative shadow around prior stories of individual empowerment and access to new opportunity or secondary sources of income. In the US in particular, the lack of public healthcare infrastructure and inaccessibility of affordable, appropriate insurance for freelance contractors left hundreds of thousands of sharing economy workers exposed and vulnerable in the face of illness or without retirement savings.[xi]
At the same time, it had become abundantly clear the sharing economy’s initial promise of decentralised, local economies was far from being fulfilled. Neighbourhood sharing marketplaces had struggled to become economically viable as the volume of transactions couldn’t compensate for their ultimate low value, and the friction of borrowing from a neighbour was still outweighed by the convenience of online shopping. Local examples of ride, car and home sharing that had launched in different cities were unable to maintain their foothold against the global-scaling sprees (and sizeable bank accounts) of the likes of Uber and Airbnb. More to the point, it became clear that many of the sharing economy verticals, like hospitality and transportation, would likely be winner-takes-all markets in our globalised economy, therefore centralising power and wealth back in Silicon Valley alongside the rest of the global tech giants.
This ultimately led to what I saw as the final straw of disenchantment towards the sharing economy, with millions of dollars of venture capital poured into its leading operators through fundraising ‘mega-rounds’ in 2014 and beyond, and the subsequent expectations around growth and return of value to shareholders. While this is the legitimate economic principle of venture capital (a table at which I now enthusiastically sit), it started to feel like a stark contradiction to the original ethos of the sharing economy. This profit motive also seemed to exacerbate the lack of recognition for the huge value-creation role that everyday people – those who drove, ran errands, hosted guests, offered their assets up for rent – were playing in the building of the sharing economy, despite not being compensated fairly for it. In some ways, it felt like a house of cards in the making, with millions of dollars flowing to companies which ultimately didn’t own the assets that were generating the money.
A secondary issue of these growth expectations was also beginning to show up through the impact of sharing economy platforms on the social fabric of the neighbourhoods in which they operate. For example, the concept of ‘managed properties’ emerged quite early in Airbnb’s history, despite marketing messages focused on connection with local hosts. Airbnb guests would find themselves interacting with a third party who looked after multiple properties for different homeowners, further abstracting the idea of real connection through travel. The flipside of this issue also became evident in the world’s major cities, which have had to crack down on people renting multiple properties with the explicit intention of earning premium rental income themselves via Airbnb while they live elsewhere. This has created issues with both housing affordability and availability, and resulted in cities from New York to Paris and Sydney placing restrictions on maximum short-term rental periods for homes within their jurisdiction. While the actions of these property-magnate hosts is not necessarily aligned with Airbnb’s messaging and values around local connection and ‘belonging anywhere’, the expectation of venture capital returns ultimately disincentivises Airbnb to take action against or discourage this kind of use of the platform in a meaningful way.
Similarly, the glut of ridesharing drivers on the road looking for passengers has in fact resulted in a 160 per cent increase in traffic in the world’s busiest cities,[xii] a far cry from original aspirations to reduce single-occupancy vehicles espoused by the likes of Lyft. These services are also shown to have a knock-on effect regarding the usage of public transportation systems, [xiii]potentially impacting the investment made in maintenance and improvement, despite the potential for ridesharing to be a useful last-mile complement to existing transportation infrastructure. However well-intentioned and aspirational founders like Brian Chesky and John Zimmer had been on that night in San Francisco back in 2010, it felt like ‘sharing economy 1.0’ had fallen short.
BACK IN AUSTRALIA, despite the success of Airbnb and Uber, as well as the local task marketplace Airtasker, the sharing economy never really gained a strong foothold in either the start-up community or general population. It was apparent that Australia’s inherent challenges of small population, geographic distribution and a relatively small venture capital community were inhospitable conditions to build sharing economy marketplaces at a disruptive scale. However, early signs of a different kind of groundswell and tech trend were emerging, with similar principles to the sharing economy, such as decentralisation of power, democratisation of access and empowerment of the individual. With huge potential to disrupt one of the country’s most powerful and dominant market segments – the finance industry – the financial technology or ‘fintech’ revolution was underway.
At its core, fintech describes a new wave of technology businesses aiming to improve or completely disrupt existing financial services through better user experience, lower cost to customers and improved accessibility to financial products and services. It had something of a birthplace in the global financial crisis, and a childhood in the sharing economy’s heyday with crowdfunding, peer-to-peer lending, alternative local currencies and the like for company. By 2014, fintech had broken away as a tech trend in its own right. Investment into fintech hit $14.4 billion that year,[xiv] compared to an all-time record of $8 billion into the sharing economy in the same year.[xv]
At the forefront of fintech investment activity at the time in Australia was new venture-capital fund Reinventure Group, launching their fund with an investment into a sharing economy/fintech hybrid, the peer-to-peer lending platform SocietyOne, which, like its global predecessors Zopa, Lending Club and Ratesetter (which has since launched in Australia), enables people looking for a personal loan to bypass traditional banks and access better rates of interest through its lending platform. These loans are in turn funded by sophisticated investors looking to invest in a new asset class with better and more reliable rates of return than a term deposit or investing in the share market.
Reinventure Group, founded by Simon Cant and Danny Gilligan, has played a critical role in the establishment of Australia’s nascent fintech ecosystem by providing dedicated venture funding through its industry-specific focus, and the association with Westpac as its limited partner. By late 2015, I had joined the team as head of venture community, to manage their growing portfolio of investments. On my first day, I walked into Stone & Chalk co-working space, the newly opened dedicated hub for fintech start-ups that Danny and Simon had been instrumental in establishing. With forty resident businesses at launch from its original Sydney location, Stone & Chalk is now home to more than a hundred fintech start-ups across Sydney and Melbourne.
One of my first projects at Reinventure was working with Simon and a small group of key founders and stakeholders to help establish FinTech Australia, the country’s first industry member organisation. The organisation launched with fifty member businesses in early 2016, along with the submission of a key policy recommendations document to Treasury. Many of these recommendations have since been adopted or are under review, including the introduction of a regulatory ‘sandbox’ for financial services start-ups that allows them to test products with a small group of customers before going through the process of obtaining expensive and highly involved financial services licences, mandatory comprehensive credit reporting and the recent changes to crowd-sourced funding legislation that enable everyday ‘retail’ investors to back crowdfunding campaigns in exchange for equity in the company. FinTech Australia’s membership now totals more than 300 across the country, and I joined the board last July.
FINTECH IN AUSTRALIA has reached a scale that local sharing economy start-ups never could due to a few key differences. First of all, financial services is one of those rare markets that touches every member of the population, and usually doesn’t rely on location-based critical mass in order to build liquidity. The sharing economy, by contrast, had been restricted to capital cities and more concentrated geographic areas in order to build scale, which subsequently limits the potential size and value of these businesses, and reduces their attractiveness in terms of investment. Local success story Airtasker is a rare example thanks to the opportunity it had to build scale without the entrance of a global competitor into the Australian market.
Second, given the significant differences in banking systems globally, international expansion of fintech start-ups has been much less frenetic than the sharing economy race for dominance. Instead, ‘fast-follow’ businesses, those which leverage the success of an international model and bring it to a new market, like SocietyOne, and models unique to Australia’s financial services landscape have had a generous window to gain traction – a rare hometown advantage for local entrepreneurs. However, this gap is slowly closing as technology continues to enable a more globalised financial-services industry. In particular, with our banking system being modelled on that of the UK, we will see many more British start-ups expanding to our shores in the coming year. In particular, as Australian banks prepare for the roll-out of open banking later this year, which will give consumers the ability to share their personal banking data with third-party businesses, there are concerns around whether we should wholly adopt the same technology standards pioneered by the UK. While our local fintechs will need some lead-time to become open banking compliant under this new regime, established UK businesses looking to expand to our market will already be largely ready to operate in an open banking world,[xvi] which could increase competition quite dramatically.
Finally, in the wake of the Banking Royal Commission, the Australian population has never been more disgruntled with the oligopoly that is our banking industry. However, for fintechs looking to market their businesses to the mainstream effectively, in some cases banks and other incumbent businesses are a highly desirable partner.[xvii] Through my work at Reinventure, I have a front row seat as many of our portfolio companies negotiate working with the largest banks and corporations in the country to develop new value propositions for the Australia’s business community and its people.
These conditions have been a boon for Australian fintech, with estimates suggesting the sector will be worth $4.2 billion to the economy by 2020, $1 billion of which will be additional value.[xviii] At the same time, the definition of what constitutes fintech continues to expand to encompass revolutionary technologies such as AI, blockchain and cryptocurrencies, which are emerging in other parts of our lives outside of pure financial services. Interestingly, these technologies could also create an opportunity for a new generation of sharing economy businesses (or the evolution of existing ones) that more effectively deliver on its huge community potential.
Early experiments at sharing economy platforms based on blockchain technology, such as La’zooz, which launched in 2014 as the world’s first peer-to-peer ridesharing service built on blockchain,[xix] had the right intent, but lacked both the capacity and a broader public understanding of the technology to make them viable businesses at the time. La’zooz has been inactive for the past two years, but now as blockchain technology has become increasingly sophisticated and public sentiment has declined towards the sharing economy unicorns, new iterations of a sharing economy built on blockchain technology have become much more attractive,[xx] and can be seen in new ridesharing entrants such as Arcade City, Chasyr and DACSEE. Through distributed ledgers and smart contracts, blockchain technology inherently enables secure peer-to-peer payments, digital identity, ratings systems and dispute resolution. The need for centralised sharing economy 1.0 middleman platforms is removed, with power and wealth being effectively distributed to all participants. One example of this is Origin, an open-source Ethereum protocol to create sharing economy marketplaces across any market segment. Homesharing network Bee Token, carpooling platform SnagRide or Australian services marketplace CanYa all built on Origin protocol. As Airbnb, Lyft and Uber prepare to list their businesses on the stock exchange in 2019, blockchain-based alternatives will be on the rise to take the sharing economy back to its roots.
Similarly, questions around ownership and equity in the sharing economy are being addressed through an increasing awareness of ‘platform co-operativism’, which originally emerged in late 2014 as a way to bring the traditional co-operative business structure into the twenty-first century through technology. Similar in objective to blockchain-based examples but without the need for specialised technical knowledge, platform co-ops take the principles of a co-operative – including voluntary membership, democratic control, economic participation of members and autonomy as an organisation – and bring them online with technology tools that enable platforms like Airbnb to operate at scale, such as calendar and booking systems, payment processing and identity verification.[xxi] Perhaps most importantly, the platform co-ops take only the smallest margin fee to maintain the platform, ensuring more money goes to the members providing the services. As an example, Bendigo-based platform co-op bHive is building a range of sharing economy apps for things such as ridesharing, food swaps, equipment rental and skillshares, which help to retain money within the local economy and are ultimately owned by the local community, but which can scale seamlessly into (and be owned by) new communities.
SO WHERE DOES the original guard of passionate sharing economy entrepreneurs fit into this evolving landscape, and how are they responding? It is my belief they were well-intentioned, but found themselves running businesses with fundamentally different values within a system that wasn’t structured to enable them to reach their full potential. As larger societal shifts continue to take place, they too will evolve their models. We have already seen crowdfunding platform Kickstarter and maker marketplace Etsy subscribe to fundamentally different governance structures when they converted to become ‘public-benefit corporations’[xxii] (a structure that does not yet exist in Australia), meaning they are constitutionally required to consider the interests of their wider stakeholders – from their customers to their suppliers and the local communities in which they operate – equally if not more so than those of their investors and shareholders. And in the lead up to their likely 2019 IPO, Chesky and the team at Airbnb have petitioned the Securities and Exchange Commission to include a new category of people called ‘gig-economy workers’ in the rules of who is allowed to own shares in a company in an effort to reward the hosts who are the foundation of that company.[xxiii] If this is brought into being, it could be the most disruptive and welcome change in the sharing economy since its inception.
There is a continued convergence of trends between fintech and the sharing economy, as well as the continued evolution towards decentralisation of power, democratisation of access to opportunity and prioritisation of stakeholder values. These conditions are ripe for a second generation of sharing economy businesses to be born into a more conducive operating environment, without the original challenges of gaining public acceptance for radical ideas like sharing homes, cars and stuff with strangers. In fact, these ideas won’t even feel disruptive anymore to the ‘post-ownership’ generation who will grow up with co-working and co-living as the norm.[xxiv] As the cycle continues, and the disruptors become the disrupted once more, it’s easy to feel like both everything and nothing has changed. Perhaps the only constant is that we will continue to disrupt ourselves in the search for a better way to live in this unpredictable world.