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Collaborative Consumption and the Sharing Economy in Developing Markets
April 15th, 2013
This is an edited excerpt from Pablo Barros' upcoming book, Behaviour change, consumption and sustainability: how companies can influence individuals in a world in transition, due for publication in September 2013.
While companies and governments continue to explore new ways of influencing the decisions of individual consumers, there are also a number of increasingly visible social and economic trends that are emerging and pointing the way to alternative and more sustainable forms of consumption. These trends have the potential to mount a major challenge to the hyper-consumption of today’s global economy. It is largely in the fast-growing economic powerhouses of the developing world — such as Brazil — that the extent of that potential will be determined.
These disruptive trends include the growing practice of collaborative consumption, a rapidly evolving model that leverages the power of the Internet, smartphones and social networking and has skyrocketed in popularity during the economic slowdown in the developed world. In addition to well-known sites such as eBay and Craigslist, trusted resources for the sale or exchange of used goods and other products and services, innovative new players — such as holiday rentals site Airbnb, carsharing marketplace RelayRides and errand service Task Rabbit — have achieved significant success by harnessing the ability of social media to create social connections and credibility.
Globally, collaborative consumption can be dated back to 2005, but it has gathered force in the US since the financial crisis of 2009 and the start of the Great Recession, and has also been widely adopted in Europe. One of the main factors contributing to the success of the model seems to have been the pressure on household incomes, as well as the increased penetration of mobile Internet applications and social media, and the growing consumer demand for more sustainable lifestyles and use of resources. But will traditional consumers in emerging markets adopt these practices without the prodding of an economic crisis?
The trend is already gaining traction in some emerging markets. In the last decade, Brazil has added around 30 million people to its middle class, a group whose spending is largely responsible for the country’s strong economic growth. This surge in spending is coinciding with the emergence of a new range of popular collaborative consumption services made available by mobile communications technology, the Internet and social networking. For example, in the last two years several cities have successfully implemented bicycle-sharing systems, including Rio de Janeiro, São Paolo, Porto Alegre and Recife. Rio’s system, which just like its peer in London is sponsored by a large bank, enables both residents and tourists to rent bicycles at low cost using their mobile phones. Its unqualified success points to the high potential of the Brazilian market for collaborative consumption, and belies the myth that such services can only gain traction in more sophisticated economies.
Urban Brazilians are already among the world’s most avid users of online services and particularly social networking, as evidenced by the rapid growth in recent years of local collaborative consumption services that extend well beyond bicycle sharing — examples include Descola aí, where consumers can sell, exchange and buy products and services; and Babags, a network for renting luxury bags in Rio. The Brazilian collaborative consumption sector has also received major investments from outside, such as from the global marketplace OLX, which records about 60,000 transactions per day and has advertised heavily in Brazil.
The question remains: Do these systems represent a credible and viable alternative to the ongoing consumer boom in the developing world? This is a critical issue for consumer-facing organizations in these markets. In Brazil, leading players in the economic system are engaged in analysing and trying to better understand how and why consumer behaviour is now changing so dramatically.
There are now three generally accepted ideas as to what is going on around the world’s consumer markets:
- Firstly, there is an ongoing paradigm shift about what it means to own a car, a bicycle, a household appliance, a book, a film or a piece of clothing. The value of a product is beginning to be seen in terms of its use, not in its outright ownership, as per traditional consumer models.
- Secondly, there is an increased level of acceptance of used products, thanks partly to the popularity of online platforms for buying and selling used goods.
- Finally, people are also adopting what could be called collaborative lifestyles, in which not only goods are shared but people share their time, space and expertise.
These new models of consumption are gaining such popularity that every day new businesses spring up based on this model; the development of the sharing economy has the potential to bring about a revolution in how we consume and how what we consume is produced. According to an article by Jaime Contreras in MIT Sloan Expert, collaborative consumption is a potentially $110 billion market. Traditional corporations are now moving rapidly into the space; Avis Budget recently purchased Zipcar; RelayRides has received an investment from General Motors; and BMW has agreed to a partnership with ParkatmyHouse.com. Furniture giant IKEA has also carried out pilot programmes that aim to incentivise consumers to sell its used furniture.
While all these initiatives are focused on developed markets, according to the World Economic Forum some 70% of the global middle class will reside in developing countries by 2030. In middle-income countries such as Brazil, many of which are experiencing an extended consumer boom, and where per capita spending is set to converge with that of developed countries, can collaborative consumption lead to a more sustainable model of production and consumption? Can it help the developing world avoid the mistakes of developed economies?
In the book What’s Mine Is Yours, social innovator Rachel Botsman argues that there are four factors needed for a successful business model based on collaborative consumption: sufficient critical mass, available capacity, belief in the commons, and trust and credibility between strangers. All of these are present to varying degrees in developing markets such as the BRICs, which are collaborative consumption giants in the making. The only unknown is the speed with which collaborative consumption services will emerge and be taken up as an alternative to traditional hyperconsumption. Any companies operating in developing markets will need to understand and plan for the potential impact of these services, and consider how to redefine their services to reflect the growing demand for common access to assets.
We expect that in developing countries there will be a reinvention of business models in various sectors as a result of the disruptive influence of collaborative consumption. But as the growing populations and expanding middle classes of developing economies such as Brazil, China and India exert increasing pressure on natural resources, collaborative consumption represents an exciting and sustainable alternative that we ignore at our peril.