A Primer On The "Global Sharing Economy" In 20 Charts

This morning, BofA has released a humongous, nearly 200-page "primer" on the global sharing economy which in the eyes of Wall Street and Silicon Valley is the biggest disruptor behind virtually all 21st century business models. Since it is impossible to summarize the report, which will be largely ignored by most of BofA's clients who will instead focus on the hundreds of charts scattered throughout, we will simply summarize the basics as laid out by BofA, and then present some of the more interesting charts, with the remainder to be published in subsequent thematic posts.

This is how BofA recaps the basis of the "Sharing Economy"

  • The Sharing Economy is an umbrella term which describes a range of market activity transacted over online platforms. Its history is rooted in cooperatives, kibbutz, and jitneys; online classifieds and marketplaces; and peer-to-peer (P2P) platforms. The term encompasses everything from peer-to-peer, democratized-based sharing of access to goods and services to sales transactions via online marketplaces including business-to-business (B2B). We include on-demand (e.g. Uber), gig (e.g. TaskRabbit), access (e.g. Spotify), collaboration (e.g. WeWork), platforms (e.g. Amazon), rentals (e.g. Airbnb) and peer-to-peer (e.g. Lufax) business models under our Sharing Economy umbrella.
  • Key concepts behind the Sharing Economy include unlocking the value of unused or underused assets ("idling capacity"), and a shift from "asset-heavy" to "asset-light" business models. Technology matches buyers/demand and sellers/supply to reduce market inefficiencies (source: Botsman 2011). We are also seeing a major shift away from the overarching idea of owning the means of capital/production. That model dominated economic thinking from the industrial revolution through the 20th century, but is now often viewed as old-fashioned, slow-moving and inflexible. In contrast, Sharing Economy leaders are asset-light, with Uber not owning any cars, Airbnb not owning any hotels, Amazon having only a handful of brick-and-mortar stores, and eBay not managing a supply chain (source: HBR 2016).
  • Converging disruptive technological factors have facilitated the development of the Sharing Economy. This includes the global take-up of smartphones (2bn+ users), mobile internet (3.6bn users), GPS location-based services (9/10 users), payments (c.375mn users) and review/rating systems (9/10 consumers trust online reviews) (source ITU, eMarketer, Gartner, Pew Research). Smartphones and apps provide the gateway, mobile internet fuels ever-faster growth, location-based services mean whenever/wherever service provision, digital payments kill cash, while recommendations and reviews are digitizing trust. Together, these developments have enabled an evolution from online classifieds/marketplaces and eCommerce to dedicated Sharing Economy "platform" networks which efficiently and effectively match supply and demand (source: Evans & Schmalensee, Arun Sundararajan).
  • The Sharing Economy is being driven by consumers' growing adoption of the ideas of "peak stuff", "shift to thrift" and "experience economy". Access over ownership is gaining increasing traction with £3.5/US$4.5tn worth of assets idle globally, 80% of belongings used just once a month, and 75% of Millennials (Gen Y) preferring to spend money on an experience rather than a material possession (source: The People Who Share, Peerby, Eventbrite). In an ongoing era of austerity for many, areas that have a high share of consumer wallet such as housing, transport and food - which account for 65% of the average US household consumer spend of US$32k (source: BLS) - are ripe for disruption, in our view. Sharing Economy disruptors are leveraging technology to make more efficient and cost-effective use of assets (capital, labour, knowledge) for demanding, cost-conscious and service-culture-oriented consumers.
  • 72% of Americans have used 1+ Sharing Economy service, while globally, 2 in 3 consumers are willing to share and/or rent their personal assets (source: Pew Research, Nielsen). 15% of Americans have used ride-hailing and 11% home-sharing services (source: Pew Research 2016). Across the pond, 1/3 Europeans have used the services of a sharing platform (source: EU 2016). 7/10 US consumers share because they see it as convenient (#1 reason), while 6/10 share because it is cheaper and 4/10 share because of service quality and/or unique product/s (source: Crowd Companies). However, in certain markets, like Japan, many remain unaware of the Sharing Economy, with 81% saying they have never heard of home-sharing services like Airbnb before and 40% never having used ride-hailing services like Uber (source: eMarketer).
  • Millennials (Gen Y) and Centennials (Gen Z) are undisputedly the #1 sharing cohorts but all demographics are increasingly driving the Sharing Economy. Millennials are 5x more likely to share than Boomers and they account for almost half (49%) of all on-demand consumers, but 30% of consumers are Gen X (35-54) and 22% are Baby Boomers (55+) (source: NTRS). Moreover, Boomers are growing in significance as they are now the fastest-growing demographic of Airbnb hosts in the US. We also note that sharing isn't just for the wealthy, with 46% of US on-demand consumers having an annual household income of <US$50,000, and only 22% having an annual household income of US$100,000+. Sharing isn't just an urban phenomenon either with 39% of on-demand consumers living in rural areas or small towns, 30% in outer suburbs, and just 31% in urban areas such as close-in suburbs and cities (source: NTRS).
  • 600mn are involved in the Chinese Sharing Economy, and EMs particularly in Asia, will be the biggest long-term global growth drivers, in our view. South East Asia ranks the Sharing Economy as the #1 disruptive tech trend impacting the region (4 out of a scale of 1-5) with India (3.5) and Latin America (4) also ranking highly (source: Nielsen, 2017). The Chinese consumer is #1 globally (94%) in terms of being most likely to share followed by Indonesia, Slovenia, the Philippines, Thailand and Mexico (source: Nielsen 2015). China is a leader and pioneer in a wide array of spaces such as: P2P lending (Lufax), bike sharing (OfO), umbrella-sharing (Molisan), battery-pack sharing (Shenzhen Laidian) and basketball sharing (GanPai). The Chinese Sharing Economy is expected to grow at an average annual rate of 40% over the next few years to account for more than 10% of the country's GDP by 2020E (US$1.7tn) and 20% by 2025E (US$4.4tn) (source: Sharing Economy Research Center, Chinese State Information Center, OECD). We also expect EM Sharing Economies to develop unique approaches based on local circumstances (e.g. Uber for motorbikes and rickshaw models).

According to BofA, the market opportunity currently is about $2 trillion, and is expected to grow drastically:

  • The potential addressable Sharing Economy market is US$2 trillion globally, while we estimate the current market at US$250bn. The addressable market in the US is US$785bn, US$645bn (€572bn) in Europe and US$500bn in China - (source: BIA/Kelsey, SIC). PwC forecast that the Sharing Economy market opportunity could grow to US$335bn by 2025E with transport, home sharing, staffing, streaming and staffing expected to be the fastest-growing verticals, with 2013-25E CAGRs of 17-63% (source: PwC). Take-up of the Sharing Economy at the B2B level could be another positive game-changer with some experts seeing the B2B Sharing Economy as "bigger than the Internet" in terms of transforming how commerce gets done.
  • The top 10 Sharing Economy start-up actors by estimated 2017 YTD valuation are: Uber (US$68bn, #1 global ride-sharing); Ant Financial (US$60bn, crowdfunding, QR code payments, P2P Wealth Management); Didi Chuxing (US$50bn, #1 China ride-sharing); Airbnb (US$31bn, #1 global homesharing); Lufax.com (US$18.5bn, #1 global and China P2P lender); Meituan-Dianping (US$18bn, #1 global and China on-demand delivery platform); WeWork (US$17bn, #1 office sharing); Spotify (US$13bn, #1 music streaming); Pinterest (US$11bn, visual sharing social network) and Dropbox (US$10bn, cloud/file sharing) (source: CB Insights 2017, BofA Merrill Lynch Global Research).
  • We believe that many Sharing Economy companies could eventually address trillion+ rather than billion+ dollar markets in the most bullish scenario. Leading Sharing Economy companies are growing at a much faster rate than incumbent tech companies and eCommerce. For instance, on-demand services like Uber, Lyft reached 5.1% penetration of the US addressable market in 2016 less than a decade after launching. By comparison, eCommerce has only reached ~9% of total US retail sales at the end of 2016 more than 20 years after its introduction (source: BIA/Kelsey). Furthermore, it took Uber 4Y to reach a market cap of US$1bn compared with Google at 8Y (source: Pitchbook, Fleximize). Sharing Economy companies are also expanding into an ever-broader array of fields with Uber, for example, getting involved in food delivery (UberEATS), courier logistics (UberRUSH), freight/trucking (UberOTTO), among other areas. This has led some experts to believe that Uber's potential total addressable market (TAM) is anywhere between US$150bn and US$1.35tn vs. Uber's current valuation of US$68bn (source: NYU's Stern Aswath Damodaran, VC investor Bill Gurley, GAFAnomics Research). Leading actors such as Airbnb and Uber are seen by some as the next eBay/Amazon (source: Crowd Companies)

Of course, much of that assume virtually unlimited access to cheap VC funding for the foreseeable future, a rather generous assumption if indeed central banks are hoping to tighten financial conditions in the coming months, let alone years.

Whatever the final outcome of the "sharing economy" paradigm, here are some of the more interesting charts we picked from the presentation:

The sharing economy in a nutshell

The total addressable universe of users

The premise: the transaction of underused assets among people via online platforms

Main players in the sharing economy: from Peer-to-Peer, to Second Hand, to On Demand, to Rental, to Access.

The draw: transformations from products to platforms, from incumbents to disruptors.

Consumer use of the Sharing Economy is already strong with 72% of Americans having used at least one of 11 digital commerce platforms in the space. Overall, 21% of Americans have used 4+ services which grows to 1 in 3 among those aged <45. The most popular sharing platforms are eBay/Craigslist (50%), which sell used or second-hand goods online, and Amazon Prime/Google Express (41%), which offer same day or expedited delivery of online purchases, according to Pew Research (2016).

Meanwhile, consumer interest in the Sharing Economy and the companies involved has been skyrocketing, as shown in the two charts below. Uber by far leads the pack on Google Trends web searches, while GrubHub (Seamless) and Lyft have also seen strong growth in the past five years. There have been 200+ mentions of the "sharing economy" in company presentations / earnings transcripts globally between 2013-2017 YTD. Notable companies with mentions include: eBay (8), GM (5), Ford (2), Expedia (2), Hilton (1) among others (source: BofA Merrill Lynch Global Research, Bloomberg

The value propostion: shifting from "asset heavy" to "asset light" business models. In the 1970s, large asset builders like GM employed c.600,000 workers. Today in 2017, network orchestrators like Facebook and Google employ c.18,000 and c.57,000 respectively.

The Sharing Economy is not a wholly new phenomenon but rather represents an evolution of historical precedents. On the web, peer-to-peer (P2P) models started with eBay in 1995. The company remains an important internet standard and it has influenced many of the P2P models used today. Then came Craigslist, which started in the late 1990s, followed by Zipcar, whose fleet entered the market in 2000, Couchsurfing in 2004, the first instance of the gift economy, and Airbnb in 2007. Collaborative consumption was championed in 2011 with the release of Rachel Botsman's book What's Mine is Yours: The Rise of Collaborative Consumption. This was when the modern conceptualization of the Sharing Economy started to gain traction.

Location-based services: whenever, wherever service provision. A key enabler of the evolution from online marketplaces to the Sharing Economy is GPS-enabled location-based services. With traditional online marketplaces such as eBay the location of the good/product/service doesn't matter, e.g. the seller could be based in China and buyer could be based in the UK. However, with Sharing Economy providers like Uber and Airbnb "localization" of supply/demand matters a great deal, e.g. London Uber drivers required for London Uber riders, NYC Airbnb hosts for NYC Airbnb renters etc. Location-based services enable this level of precision in matching supply/demand. According to Pew Research, 9 in 10 smartphone owners now rely on their phone for location services and/or to get directions vs. 7 in 10 in 2013. Furthermore, location services appeal to all ages with usage ranging from 82% among those aged 50+ to 95% among the 18-29Y demographic.

Key consumer driver: "peak stuff." unbundling £3.5tn/US$4.5tn in idle assets to drive access over ownership. A key factor driving the overarching business model of the Sharing Economy is unlocking the value of unused or under-utilized assets - idling capacity - whether for monetary or non-monetary benefits (social, economic and/or environmental). We think we have reached "peak stuff" with many industries' idle capacity ripe for the Sharing Economy to "unbundle" and drive the shift towards access over ownership:

Experience economy is booming, Sharing Economy will drive this further. The experience economy prioritizes doing, seeing and feeling over having "stuff" or possessions. This includes "doing something different" and searching for unique, often personalized experiences. Among Millennials for instance, vacation/leisure experiences rank as the #1 spending priority (source: Euromonitor). In addition, Millennials and Gen Z are driving mindshare on live music and festivals. 81% of Millennials say music triggers their best memories, and 8/10 say that the most effective way to connect with them is through a branded live music experience

Customer is Queen/King: Sharing Economy is cheaper and more convenient than incumbents.  Consumers are attracted by the Sharing Economy because it is more convenient and cheaper than traditional methods. According to Crowd Companies: 7/10 consumers cite convenience as the #1 reason to share, 6/10 share because it's cheaper and 4/10 do so because of service quality and/or unique product. Product wise, consumers were most willing to share electronics (28%), lessons/services (26%) and power tools (23%) (source: Nielsen).

Like in traditional consumption, brands matter in the Sharing Economy because they develop trust among consumers with the aim of becoming a go-to service. With most users still learning the ropes in the Sharing Economy, increasing brand mindshare as the leader in market verticals is crucial. According to Vision Critical and Crowd Companies brands are important across sectors like personal/professional services, pre-owned/custom goods, crowdfunding etc. For any given sector below only up to five key brands were used by Americans as their go-to, with some more concentrated than others e.g. 91% of Americans use Etsy for custom products

Sharing economy platform usage trends were the most positive. In order, Lyft, Airbnb and Uber had the largest percentage of users indicating increased usage. Millennials relative use of sharing economy sites were much higher than 30-60 age group. Sharing economy sites getting the best traction include well-known brands like Uber, Airbnb and Lyft with the largest percentage of users indicating increased y/y usage, while Orbitz, Priceline.com and Hotels.com had the biggest percentage of users reporting decreased usage.

Contrary to popular perception, the Sharing Economy is not just a DM-specific megatrend; it is EMs that are taking the lead in driving this space. Countries with a strong socialist background and a more closed economy are more likely to share. The lower the country scores on the Index of Economic Freedom the more likely its consumers are willing to share goods with others. The two cultural extremes of China and the US illustrate this phenomenon.

The Sharing Economy is especially strong in Europe: Half of Europeans are willing to share with a third having used the services of a sharing platform. One in two Europeans have heard of collaborative platforms. France ranks #1 in Europe on Sharing Economy services, which have been used by more than a third of the population (source: Nielsen 2014, EU 2016).

Meanwhile, Chinese companies are already leaders in the Sharing Economy and are also pioneering new forms of sharing e.g. rides (Didi), bikes (Ofo), umbrellas (Molisan), battery-packs (Shenzhen Laidian), basketballs (GanPai) and P2P lending (Lufax).

Sharing Economy startup valuations are the highest in the world, or "From unicorns to decacorns": 8/10 start-ups are Sharing Economy-based. Globally there were 194 companies valued as unicorns (start-up value of >US$1bn) with a cumulative valuation of US$745bn as of May 2017 (source: BofA Merrill Lynch Global Research, CB Insights). 8/10 largest start-ups by valuation 2017 YTD were Sharing Economy companies, including Uber (US$68bn), Ant Financial (US$60bn), Didi Chuxing (US$50bn), Airbnb (US$31bn), Lufax.com (US$18.5bn), Meituan-Dianping (US$18bn). WeWork (US$17bn), Spotify (US$13bn), Xiaomi (smartphones, US$46bn) and Palantir (big data, US$20bn) were the only two companies not involved in the sharing space (source: BofA Merrill Lynch Global Research, CB Insights).

There are 40 unicorns and even 10 decacorns globally in the Sharing Economy space. Of the decacorns, i.e. start-ups with a valuation of US$10bn, the US accounts for four (Uber, Airbnb, WeWork, Dropbox) but China has also emerged as a dominant player with another 4 (Ant Financial, Didi Chuxing, Lufax.com, Meituan-Dianping). Europe also has a thriving Sharing Economy start-up scene with 7 unicorns (BlaBlaCar, Farfetch, HelloFresh TransferWise, Funding Circle, Delivery Hero, Adyen) and 1 decacorn (Spotify) year to date in 2017.

Disruption in context: US$6tn of global GDP already disrupted.12 broad industry sectors, accounting for an aggregate US$6tn or 8% of global GDP, are at risk of disruption over the long term (source: BofA Merrill Lynch Global Research based on various sources). The 12 sectors are education, energy/waste, financials, food, goods and equipment, health/healthcare & wellness, ICT, logistics & services, media, retail, shelter (travel, leisure & work) and transportation