Covid-19 did not kill the sharing economy

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June 12, 2020 12:59 pm

“I thought we were peddled.” When the covid-19 epidemic broke out in March, Emmanuel Bamfo, head of the startup company Globe, founded a year ago by six people, thought he should look for another job. His company functioned as a short-term Airbnb: an application allowed users to rent their homes for a few hours, in whole or in part, such as the bedroom or bathroom. An offer that evidently became unattractive during a pandemic.

But in the end, instead of closing, Bamfo decided to remodel his service. Now users of the application can “buy” some time in empty apartments that under normal circumstances would be offered for rent for longer periods on other sites. By paying between $ 25 and $ 125 an hour, you can rent an apartment in San Francisco. An excellent solution for those who want to work for a while without children in need or need a change of environment. The demand for this type of service seems high, unlike the offer. The application has a worldwide waiting list of over 113 thousand people (the company must verify the identity of potential tenants) and claims to have ten thousand apartments in its database.

It is not yet clear whether Globe’s success is destined to last. Officials from the San Francisco city council wrote to the company that the service violates the city’s confinement ordinance. However, the initial success of the new Globe report shows that the catastrophic predictions for the “sharing economy” after the advent of covid-19 may prove to be exaggerated. More than decreeing its end, the virus is forcing the sector to reinvent itself. This evolution, among other things, could also include a return to its socialist roots.

The phenomenon has paved the way for another sharing economy, which aims to generate profits by creating online markets

The severe recession caused by the financial crisis of 2007-2009 had contributed to creating an ideological push towards the use of technology to build an economy in which consumption would have been more social, temporary and sustainable. Instead of owning objects, people would have shared their use through applications and other online services. “I don’t want objects, I want the pleasure that derives from them,” said Rachel Botsman, one of the promoters of the new trend. The use of services peer to peer for the use of books, CDs, electronic equipment and cars it never took off, because many of these activities did not generate the money necessary to be self-sufficient. But the phenomenon has paved the way for another sharing economy, which aims to generate profits by creating online markets where supply and demand meet. Startups of this kind have managed to transform themselves, through what is called in jargon “Blitz-scaling”, in large global companies. Such dimensions promised large revenues and attracted huge capitals

Airbnb, Uber and Bird were the icons of the new sharing economy. In total, the world’s leading suppliers of vacation rentals, taxi rides and electric scooters have grossed over $ 30 billion in funding. At the height of their success, their overall valuation exceeded one hundred billion dollars. At one point it was thought that Airbnb and Uber would reach the highest share price ever for technology startups. And instead, even before the advent of the virus, the stars of the sharing economy had already started to die out.

Making money was more difficult than expected. Uber needed huge external financial contributions, while maintaining a fleet of electric scooters proved more expensive than Bird had imagined. Flooded with capital venture, these companies have expanded into other markets. Uber has decided to develop self-driving cars and deliver food. Airbnb has evaluated the possibility of producing television programs and managing hotels.

By the time it went public, in May last year, Uber had lost a total of $ 16.6 billion between 2016 and 2019. The company admitted that it would lose more money before becoming profitable, and this is one of the reasons why the initial public offering did not have the predicted success. In the case of Airbnb, the company has been able to generate profits for some time thanks to its business model based on a commission on rent, but subsequently it began to lose money: 322 million dollars in the first months of 2019. The pandemic has the stock exchange listing scheduled for April or May was interrupted.

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When the health emergency practically reduced companies to inactivity, there was already talk of attention to profitability and the importance of reducing costs. Since then Airbnb has had to deal with a million cancellations and a billion dollars in refunds. In April, the number of Uber rides dropped by almost 80 percent compared to a year ago. At the end of March Bird, faced with comparable losses, reacted by laying off over four hundred employees, one third of his total workforce. At the beginning of May it was Airbnb’s turn, which fired 1,900 employees, a quarter of its staff. Uber has also laid off a quarter of its workers, some 6,700 people. Lyft, his main rival in the United States, has made slightly less drastic staff cuts.

Now, in addition to layoffs, companies are trying to convert their businesses to restore customer confidence. Health conditions are a major concern. Airbnb instructs the host on how to clean the rooms and has introduced a 24-hour waiting period between one stay and another (it is not mandatory, but guests can see on the website which host follow this indication). Bird scooters are regularly subjected to a “bath”. Uber verifies that drivers wear a mask through automatic technology that analyzes selfies.

The companies also exploited the crisis as an opportunity “to return to the fundamental principles”, as Brian Chesky, the head of Airbnb, pointed out. Today the company focuses on host who rent out their private homes rather than the professionals who manage various real estate properties and who accounted for a growing percentage of Airbnb’s businesses. Uber has canceled several businesses, including a driver credit card project and e-bike services. Today Uber wants to focus on its role as a company that “moves people and things in the cities,” said its CEO, Dara Khosrowshahi recently.

But will it really be enough for these companies to be cleaner and more agile to relaunch themselves when the confinement measures are canceled? What if the “isolation economy” changes people’s habits to the point of making sharing a marginal activity? Will we witness the return of the property in vogue?

Change habits
All three companies mentioned expect a return of demand, but in different places and for different reasons. According to Chesky, instead of making short trips to the largest cities in the world, people will choose destinations closer to home and for a longer time. The average length of stays booked on Airbnb, in fact, has almost doubled, reaching a week, while the share of national reservations has more than doubled and now represents 80 percent of the total. Stays less than three hundred kilometers from home, which accounted for 33 percent of bookings, now make up 56 percent. Chesky also plans to benefit from the possibility that work from home remains a widespread practice, allowing people to change residence for some time. “Many people say to each other: ‘If this is so, maybe I don’t need to live in the city right now.”

Uber and Bird plan to migrate from public transport to cars and scooters. In the future people may want to avoid taking buses and trains, assuming that it is possible to do so considering the likely cuts in municipal budgets. Already now there are signs in this regard. Bird scooter rides are on average 50 percent longer than before the pandemic. Uber, meanwhile, aims to incorporate its competitors. Despite having renounced the electronic bicycle sector, in fact, the company has invested in Lime, Bird’s main rival in the field of electric scooters. Uber also wants to acquire Grubhub to strengthen its presence in the home food delivery sector, which it hopes will see great growth in the future. “In difficult times, it makes sense to focus on consolidation,” explains Khosrowshahi, who did this job excellently in his previous job as head of Expedia, an online travel site that engulfed his rivals.

Even some small companies in the sharing economy are surprisingly optimistic. In places that have already lifted some confinement measures, such as Germany, the activity immediately resumed, explains Nicolas Brusson, the head of BlaBlaCar, a company present in 22 countries that offers a service based on the sharing of travel expenses by car. According to Brusson, the recession due to coronavirus will further increase the demand for cheap car travel. Among other things, stresses Brusson, the pandemic forced BlaBlaCar “to look at its resources differently”. In the future, the company will offer more services to its driver and passenger community, and has already developed a new application called BlaBlaHelp that allows users to ask others to do their shopping for them.

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If there is an example of how the pandemic could bring the sharing economy back to its roots, it is certainly that of Olio. Based on the desire to reduce food waste, this London-based service allows its users to share with their neighbors the food and other products they no longer need. “We initially experienced a moment of panic: we wondered if a sharing application between neighbors could continue to exist,” explains Tessa Clark, head of the company. But after changing the service by introducing a physical contact-free delivery, shares increased by about 50 percent for food and 200 percent for other products.

According to Sonali De Rycker, partner of the European division of Accel, a capital company venture who invested in both BlaBlaCar and Oil, after the crisis, businesses based on activities that existed before the internet (such as sharing food with neighbors) will certainly do better than online stores. De Rycker is convinced that after the pandemic, consumers will be even more likely to save money or to put aside some money by renting goods and services. So let’s expect a world in which objects will pass more often from hand to hand, even if they must be carefully cleaned between one passage and another.

(Translated by Andrea Sparacino)

This article was published by the weekly The Economist.



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https://www.internazionale.it/notizie/2020/06/12/covid-sharing-economy

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