Service Sector Leaders Cannot Afford to Ignore Rise of Sharing-Economy Companies

The sharing economy has wreaked havoc on taxis and hotels, but tech industry analysts seem reluctant to predict the next industry to be disrupted because they believe the entire service sector is vulnerable.

Whether you’re hoping to lead a startup in this burgeoning area or leading a traditional business fending off new competition, you will need to reckon with new styles of mobile-enabled businesses that bring services directly to customers without much need for company infrastructure.

Sharing economy companies and their mobile apps pose challenges across the service sector“Search on ‘the Uber of’ and you can get lists and lists of things,” said Rob Enderle, principal analyst at the Enderle Group. “You’ve got folks looking at that model for everything from food delivery to eldercare.”

Mobile technology shaking up the service world

Termed the sharing economy, the collaborative economy and the on-demand economy, the new paradigm uses mobile apps to directly connect people needing services, often in nontraditional ways. Most notably, Uber connects people needing rides with drivers, and AirBnB connects those seeking vacation lodging with those who have apartments or rooms available. The difference is that it’s ordinary citizens, not licensed drivers, who are giving the rides, and homeowners and renters who are offering the vacation lodging rather than hoteliers and innkeepers.

“In one sense, it could be applied to any service,” said Tim Bajarin, president of Creative Strategies Research.

Four of the top five (and six of the top 10) trending startups on AngelList, a site connecting startups with investors, are sharing-economy companies. Up-and-coming businesses in the space include Progyny (fertility treatment), InternMatch (student employment), JetSmarter (private jets), TaskRabbit (odd jobs), Luxe (parking), DoorDash (restaurant delivery), LiquidSpace (work and office space), Experfy (big data analytics), StyleSeat (beauty and wellness) and Munchery (cooked meals), to name only a few.

Low overhead creates economical options

The sharing economy tends to cut prices by reducing or eliminating the overhead needed to provide a given service.

“It works for anybody who has a skill set that could be applied directly,” Enderle explained. “This idea of you having to go into an office, into a shop is no more. All you have to do is have tools and skills, and you can move directly to the customer. All you need is a scheduling service.”

Bajarin described the applications as logistics apps because they not only schedule the delivery of a service, but also track the locations and the availability of assets. For example, AirBnB tracks the number of rooms and beds a property has, as well as its amenities, and prices the rental based on both the availability and the demand.

Rapid disruptions trigger backlashes

The sharing economy isn’t causing the normal disruption in which an industry slowly disappears as a new market takes its place — as when film photography, video rentals, and CD shops went away. Instead, the impact has come quickly, and the reaction has been sharp.

  • French taxi drivers blocked highways in protest of Uber and a class-action suit on behalf of 160,000 Uber drivers threatened to upend the company’s business model.
  • New York Mayor Bill De Blasio tried unsuccessfully to limit the number of new Uber drivers in his city.
  • San Franciscans in November will vote on a ballot measure to restrict the number of nights per year that a private residence can be rented, and to force those who rent their private apartments to pay hotel tax.

While regulation and the courts may keep some sharing-economy companies at bay, ultimately businesses will need to adapt.

How to compete in this new era

To stay afloat in the inevitable onslaught, traditional businesses must both compete on quality and imitate the efficiencies of their new rivals. For example, Bajarin said his son could save $40 in parking fees by using the Luxe application and having a member park his car at a remote lot, but Bajarin could get his car back from his hotel’s valet lot 15 minutes sooner.

Companies will need to use mobile apps to offer a similar level of convenience that sharing economy-companies do, much as New York’s taxi service is doing belatedly by introducing Arro, a hailing service.

On the other side, companies using the sharing economy model will need to guarantee customers a minimum level of service, in a similar way as eBay offered its e-commerce customers a reputation system, and later included dispute resolution and money-back guarantees. However, he added that due to the nature of the transactions, additional protections will needed.

“The difference in the service industry is that somebody is going to be in your house and could steal all your money, or drive you somewhere and leave you in the middle of nowhere. Getting your money back is not going to do you much good,” he said.