“Slowdown will accelerate the rise of sharing economy”
New York University’s Prof. Arun Sundararajan, author of the book ‘The Sharing Economy’, tells TPCI how the penetration of smartphones has been instrumental to the germination of sharing economy and how economic slowdown could actually be a blessing in disguise for the growth of this business model in India. He identifies some of the bottlenecks to the success of this model in India and why the government should think of sharing economy platforms as regulatory partners to monitor service providers instead of entities that need to be scrutinized.
TPCI: What according to you are the factors for the rise of sharing economy models (eg. Uber & Airbnb) in India? What are the possible benefits of the sharing economy?
Prof. Arun Sundararajan (AS): The factors are the same globally. More people have smartphones & this facilitates the operations of companies like Uber & Ola, which would have been a lot harder without the presence of smartphones. I think that the change that has been caused by the fact that digital technology is now progressively extending into physical world activities as more people have access to affordable technology. So, mass market has computer power through their smartphones & it has started to encompass a host of services like transportation, retail, accommodation, healthcare & so on. It is part of a larger trend of physical world services shifting to being accessed through a digital interface. I think that the rapid rise in the fraction of the population in India that has access to these technologies is one of the reasons why sharing economy has become popular.
Another reason is that in India, there has not been a strong culture of car ownership. Transportation is fundamentally more likely to be shared; public transportation usage is very high. This is in contrast with say a country like the USA or Canada or even Japan, where everybody owns their own car & the value of a service that offers access to shared facilities is less.
TPCI: What are the consumer trends you see vis-a-vis shared economy services? What interesting business models do you see emerging in the coming years?
AS: One of the consumer trends that supports the rise of the sharing economy is that of a young population; young not necessarily from an age point of view, but from the point of view of consumer experience. The earlier a country is in the circle of consumerization, the more likely the sharing economy models will take off, because they are new ways of providing services. So, if the people are used to receiving their consumer services in a particular way, they will be slower to switch. In other words, if the consumer culture is more mature, like in Japan, you will see a much slower shift to consumer economy; while the consumer culture is young in China and there has been a much more rapid adoption of sharing economy.
The second factor is the growing expectation of people of immediacy. By this, I mean that we were used to waiting for the newspapers to be delivered each morning; but now we don’t have to wait for the next day to get our news updates. So, this on-demand mentality offers services, wherein you can open your phone and all these services are available. This expectation supports the belief that sharing economy will become even more popular.
The emerging business model where there can be a lot of change in the coming years is in the provision of healthcare services and energy. In the context of healthcare, I don’t mean some random person being the doctor but I mean connecting with skilled healthcare professionals in your neighbourhood more easily. In the case of energy, I think for many emerging markets, the existing centralised power infrastructure is not that reliable; you will see platform- based services emerging where people with solar panels will sell power that they are generating for themselves and their neighbours too.
TPCI: Will India’s economic slowdown act as a detriment to the popularity of sharing economy in the future? Are there any other challenges that these models could face?
AS: Well, I actually think that the economic slowdown will accelerate the pace of adoption of sharing economy. If you think of when the sharing economy really took off in the USA, it was immediately following the financial crisis (2008-09). The economy was hit by recession and a lot of people started looking for alternative ways to either save money or to supplement their income. The sharing economy services are fundamentally more cost-effective and provide labour opportunities for people who might be facing a difficult economic environment. So, the slowdown could in fact catalyse the rise of new sharing economy services as people look for alternative saving methods or sources of income.
The challenge that this model faces in India in the context of transportation would be road infrastructure. You can have as much Ola/Uber drivers as you want; but there’s only so much capacity that these roads have. There will probably be a limit as to how far Ola & Uber can go in India. So, the road infrastructure needs to be enhanced to carry more people.
Another challenge that these business models face is that they rely on the strength of these government institutions. So, if you are in a country where if something goes wrong, the police are reliable, there is a group criminal system, there are certain small claims courts and I don’t have to rely on a corporate brand for my service.
Globally there was a lot of confusion about how do we put regulations in place for these services a few years ago, because they look like technology services, but they’re also familiar services like transportation, accommodation, etc. So, there were a lot of challenges due to regulatory barriers or lack of regulations. But the trend that I see around the world is that most governments are understanding that there is value for the consumers & providers and are working to create sound regulatory barriers around these services. Now, in some places, the regulation will slow down the growth of these businesses; while in other places, these regulations might be more beneficial for the growth of these businesses. But I don’t think that these policies will be existential barriers to the sharing economy.
TPCI: Can India lead the evolution curve in this arena, given its history of frugal innovation? How can this be facilitated?
AS: I think that the government could have an important role to play here in encouraging entrepreneurship that is targeted at certain resource like sharing economy models. Yes. India has a history of creating frugal innovations like mass-market products that are very small fraction of the cost that they are in the USA/Western Europe.
A lot of progress in the sharing economy over the last 5 years has been driven by venture capital (VC). VC is looking for businesses with large (multi-billion) return. So, I think the barrier to India leading in creating alternate sharing models that are into frugal innovation is the lack of adequate funding support from the government. There has been more sharing economy entrepreneurship in China than in India & that is because of more smartphone penetration and system adoption. But I think a large part of it is because the Chinese government is pumping in a lot of money as an investor into sharing economy entrepreneurs and that has brought in a lot of innovation that otherwise wouldn’t have occurred. I think there is great opportunity for the Indian government to follow the same path.
TPCI: What suggestions do you have for the Indian government to make sure that businesses like yours run smoothly?
AS: Historically, we have thought of the role of a company as providing a service and that of the government as formulating the rules & ensuring that these are followed properly. With the sharing economy, responsibilities are also shared. Airbnb itself is not providing accommodation or OYO is not by itself providing accommodation; there is a network of small accommodation providers operating through the platform. So, the role of the platform here is just not as a channel for the service, but it also plays a part in setting & enforcing the rules. Airbnb provides trust systems, reputation systems, they have standards based on what do you need on their platform. What I’m getting to is that any smart government should think of these platforms as a regulatory partner where they come up with rules and systems not unilaterally (not by themselves), but where there is a collaboration between the government and these platforms to create the right set of rules and to use the platform as part of the enforcement mechanism. I’ve seen a lot of governments making the mistake of thinking that they should regulate these platforms; but what they should be thinking instead is not about regulating these platforms but rather regulating these service providers. They should think of platforms as a regulatory partner rather than as entities to be regulated. That is the most important takeaway for any government that wants to encourage the growth of such businesses in its country.
Professor Arun Sundararajan is the NEC Faculty Fellow, Professor of Information, Operations & Management Sciences & a Doctoral Coordinator at the Stern School of Business, New York University. He is the Distinguished Academic Fellow at the Center for IT & Networked Economy, Indian School of Business for 2010-12. He is known for his book The Sharing Economy: The End of Employment & the Rise of Crowd-Based Capitalism. He has over 50 papers to his credit.