How the Sharing Economy is Changing Business

October 22, 2015

 

Enabled by technology and fueled by a generational shift, consumption is changing. Smartphone apps connect owners and customers to foster instant rental of rooms, vehicles and other goods. Uber, Airbnb — the names are already familiar. According to a professor at Duke University's Fuqua School of Business, this trend could fundamentally change the consumer economy as large firms get involved.

"It's not a new model but it's starting to show up everywhere," Professor Debu Purohit said. "The internet provides the platform to easily connect the owners of durable goods with people who want to use them without making a purchase or long-term commitment. They're not really owning them for long periods; they're owning them in these short snippets of time. And that is going to have a fundamental effect on how we consume."

Purohit points out that most homes are stacked with durable goods — things not entirely consumed at one moment. Houses, cars, bicycles, appliances and other machinery all have rental and second-hand markets.

"The point here is that we're putting assets that we have to productive use," he said. "We can earn rent and at the same time meet the needs of somebody else. That, in essence, is what's going on with the sharing economy."

Purohit said he has used Uber to get a ride to work, then leased an electric car on campus from Enterprise for two hours to meet with a startup in a downtown conference room rented only for as long as the meeting lasted.

"Just think about how the market has changed," he said. "It's no longer a one-day rental, it's now a micro-rental, or a micro-lease for one hour at a time."

Car rental companies like Enterprise are seeing the opportunity in these hour-long leases, and even manufacturers are getting involved. BMW is offering 30-minute rentals of its electric cars in San Francisco for $12. Purohit said data show that brief experiences can lead customers to make purchases.

"Firms need to look at this as an opportunity, rather than a threat," he said. "They have to adapt to this."

The change is being driven by the emergence of millennials, Purohit said.

"They're growing up in a world in which ownership is not an issue," he said. "To them it's not a big deal at all."

Purohit points to the music industry as an area in which ownership has become less important to consumers. Sales of physical product — compact discs — have plummeted in the last 15 years. The first shift was toward downloads of digital files, but now the market is moving toward subscription services that stream music to phones and other devices for a monthly fee.

"Think of this as a lease in perpetuity," Purohit said. "You're paying $5 a month for the rest of your life to stream all the music that you want."

The same could ultimately be true of other durable goods, Purohit said, in ways not yet imagined.

"Once we can change the way we can consume, or the units in which we can consume," he said, "we will see a very different world."

Fuqua Faculty Conversations take place every other month, highlighting the latest Fuqua research and insights and enabling alumni and others to engage with faculty directly. Check out the program of speakers for 2015.

Contact Info

Gregory Phillips
Duke University
The Fuqua School of Business
100 Fuqua Drive
P.O. Box 90120
Durham, NC 27708-0125

Tel: 1.919.660.7801
Email: gregory.phillips@duke.edu

Erin Medlyn
Duke University
The Fuqua School of Business
100 Fuqua Drive
P.O. Box 90120
Durham, NC 27708-0125

Tel: 1.919.660.8090
Email: erin.medlyn@duke.edu