Investing in a Shared Economy: The Constructs Behind the Concept

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Last summer, Zero Hedge compiled a primer of sorts on the global sharing economy. Their primer drew largely from Bank of America’s report on the global sharing economy, which was quite bullish on its future. According to BofA, the sharing economy comprises a $2 trillion dollar market opportunity, and should continue to grow dramatically. This market opportunity was highlighted by the following factors:

  • Millennials and Centennials–Generations Y and Z, respectively–and the undisputed number one proponents of the sharing economy. However, all generations are increasingly driving the sharing economy.
  • Key concepts of the sharing economy include “unlocking” the value of idle assets–those that are unused or underused; think of cards, spare rooms, etc.–and new technological advances. This includes the widespread use of smartphones, the internet, and electronic payments.
  • Almost three quarters of Americans have used one or more sharing economy service, while on a global scale, about 67% percent of consumers are will to share personal assets.

 

Unsurprisingly, the sharing economy is a piece of the pie that investors are eager to partake in. In March 2017, Airbnb closed their Series F with an additional $448 million, bringing their total capital raised to an astounding $1 billion. This put their valuation at $31 billion. Another sharing economy startup, Instacart, raised $400 million at a $3.4 billion valuation. The company aims to be a pioneer in on-demand grocery delivery.

 

Those who don’t have access to these private companies can still invest in the broader sharing economy through public equity markets. Companies like Netflix, Box, PayPal, Alibaba, and Amazon, while not traditionally thought of as “sharing economy” companies, are very popular stock picks for those that want to take part in the growth of this segment. These companies are often seen as “‘entry points’ for investors who might be bullish on future prospects of the sharing economy.”

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What’s more, financial analysts and economics view the sharing economy as a sector worthy of investor funds. One BofAML equity strategist, Felix Tran, commented, “Although it is difficult to accurately gauge the link between such exposure and share price performance, we still consider Sharing Economy exposure as an important and positive point to track.”

 

Are There Any Developments Taking Place in the Sharing Economy?

 

Yet despite the tremendous potential for growth, the sharing economy is often–mistakenly–limited the mobility and hospitality industries. In other words, Uber, Lyft, and Airbnb dominate the market. To be sure, these companies are pioneers in the field and carrying business forward, but this doesn’t mean that the sharing economy is anywhere near its full potential. In addition, the current system suffers from several setbacks and criticisms. It sometimes appears as if the sharing economy has stalled, no longer able to take the next leap forward.

 

However, several companies are working hard to revolutionize the way the sharing economy operates. Much of their efforts center around blockchain technology, which, through decentralization, can make streamline the sharing economy even more. Many believe that these initiatives will be what propels the sharing economy to the next level.

 

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On the one hand, there are industry specific blockchain platforms looking to shakeup the incumbents. LaZooz, for example, is developing a decentralized app for ride sharing. It utilizes blockchain technology to enable transactions between drivers and passengers. Unlike Uber and Lyft, rides are paid for with cryptocurrencies, making it easier to use in other countries and much more cost-effective. Additionally, by removing third parties–such as Uber and Lyft–the transaction fees are lower for riders and profit margins are higher for drivers.

 

On the other hand, some are going for a full scale sharing economy revamp. The Sharering Network, for example, is developing a decentralized crypto token that is specifically designed for the sharing economy. It can be exchanged on a global level, has instant transaction confirmation, and is secured by the blockchain. It is also free of fees and surcharges, making it ideally suited for sharing economy businesses and consumers. It aims to address one of most common criticisms of existing sharing economy companies, namely that fees are too high and margins are too low. This network could finally provide a genuinely distributed and peer-to-peer environment.

 

As technology continues to change the way consumers interact, both with each other and with businesses, the global sharing economy will continue to change as well. Companies that have developed the infrastructure early on may well see substantial upside as the world catches on to the changes.

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