Eighty-three percent of U.S. broadband households, or more than 250 million consumers, own and use a smartphone. A recent beneficiary to this mass adoption has been the sharing economy phenomenon, which includes sharing apps such as Uber, Lyft and Airbnb. These business models are augmented by real-time data including location, instant gratification, on-demand pricing, and easy payment options.
Their ease and convenience — built on the intelligence of social, location, and mobility data through a smartphone-plus-app ecosystem — have created perfect conditions for sharing economy apps to thrive.
In most cases, sharing economy apps connect buyers and sellers, providers and recipients, or owners and users through a well-designed, low-friction app experience that benefits both sides. When such experiences are delivered at scale, they can be massively disruptive or complementary to existing industries and business models.
Currently, 40 percent of monthly sharing economy app users in the U.S. strongly agree that they rarely use traditional services due to their sharing economy app use.
In order to truly be disruptive, sharing economy apps first must align supply and demand. The most successful companies building their respective businesses have focused initially on the supply side. Insufficient supply can be fatal to a sharing economy app, while rallying the supply side can offer better customer experiences and perception, put added pressure on competitors, and provide a greater ability to scale.
The most successful sharing apps also work to ensure the quality of the customer experience. First impressions are crucial to repeat usage and are a significant factor in the app’s word-of-mouth marketing push. Quality experience is also important at the launch phase, and companies usually devote a great amount of time and money to ensure a good start.
This requires a well-designed in-app experience. A simple and easy-to-navigate user interface with a good number of essential features is a good starting point. Such a UI requires beginning with a clean and uncluttered menu, minimizing clicks from the time the app is opened until the transaction is completed, and ensuring transparency with information that is critical to consumers’ decision making.
Successful app companies have a track record of onboarding a large number of users quickly and efficiently, often by offering incentives to encourage first-time users. Ride-sharing giant Uber offers incentives as generous as a week’s worth of free rides, or as straightforward as US$20 off the customer’s first ride.
Successful apps also capture opportunities to drive first-time use during occasions in which traditional services are inadequate to meet consumers’ needs. For example, Airbnb saw a boost in usage when it advertised heavily before the 2008 Democratic National Convention, which had more attendees than Denver’s hotels could support.
Uber, meanwhile, got its initial start at tech conferences and venture capital events in San Francisco, a city notorious for its slow taxi services. The company now explicitly takes advantage of conferences, sporting events, and bad weather, where Uber’s app usage doubles.
Clearing the Hurdles
The two biggest challenges sharing apps have encountered at all stages are competition and regulation. While the technical entry barrier for most sharing economy apps is usually low, business and revenue models are easy to copy. As a result, the market is flooded with competition.
New apps may face threats from incumbent players entering their markets as well. An example of this is Amazon’s launch of Amazon Fresh, a grocery shopping and delivery service that competes directly with Instacart. The e-commerce giant also launched Amazon Restaurant, a food delivery service that competes with GrubHub.
However, once a successful app has built up a significant presence in a geographical market, it often makes it difficult for other apps to scale and compete. Mounting an attack on a market leader usually requires high acquisition costs for suppliers and consumers, a money-burning process that can hurt a startup’s financial health.
In addition to managing competition, sharing apps also must comply with regulation. Poor compliance with regulation can invite government penalties and lawsuits that can sink a business, and outdated regulations can slow down or even halt business expansion. In addition, dealing with regulation or fighting lawsuits can be highly distracting to business execution, creating headaches that entrepreneurs want to avoid but sometimes must face.
Deflecting these challenges while building on success is critical for the survival of any sharing economy app. The apps that accomplish these feats must be willing to adapt, grow, and sometimes pivot. They must be able to expand within their verticals, across verticals, and make opportunistic acquisitions.
Within-vertical service extension means apps can add more service tiers that provide differentiated user experiences, such as Uber expanding to offer a mid-range car service (UberX), a low-cost tier (UberPop), and a shared car service (UberPool). This approach provides more service options and ratchets competition with other ride-hailing apps.
Across-vertical expansion means apps can add new service categories to take advantage of service synergy or the similarity of user needs. An example of this expansion is Care.com’s addition of senior care finder and pet care services.
Lastly, companies can consolidate via acquisitions, since organic expansion often takes too long. Market leaders can enter a new service market through acquisitions of key players, as Letgo did when it merged with Wallapop to form a larger and more versatile marketplace.
Parks Associates ultimately expects more of these acquisitions and increasing market consolidation to occur as the sharing economy app market matures. The result of this market growth likely will have a lasting impact on traditional players, with some benefiting and others struggling to adapt.