SHARING ECONOMY Archives

16/10/2019by EOS Intelligence EOS Intelligence No Comments

Coworking Shakes Up Traditional Office Space Rental

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Touted as the future of real estate rental, the coworking model is rapidly taking over the traditional office space rental. In less than a decade, there has been a sudden rise in the number of operators offering space-as-a-service. Driven by more and more people looking to work flexible hours, while still having access to space and services offered in a traditional office setting, coworking space market has experienced a steady growth. Coworking space operators have come up with new ideas to explore secondary sources of revenue generation rather than just relying on offering memberships. While the ideas are successful and earn profits for the business operators, the road ahead is not all rosy.

Coworking space is growing

Globally, the number of coworking spaces are forecast to cross the 30,000 mark by 2022, more than double from a little more above 14,000 spaces in 2017. It is expected that in 2019 alone, approximately 1,700 new spaces will open worldwide with more than 40% of these sites coming up in the USA. In terms of members who use coworking spaces, between 2017 and 2022, the number is expected to increase nearly three times, from 1.74 million to 5.1 million.

A decade ago, when the concept of coworking space was still new to many, the demand for such spaces was limited, as it came mainly from freelancers. However, with the upsurge in entrepreneurial excursions, growing instances of corporate employees working from remote locations, and proliferation of other independent professionals, coworking spaces started to offer not only a place to work but also a platform for the users to grow and exchange ideas.

Enhanced work flexibility, emphasis on work-life balance, and better networking opportunities are some of the key factors that drive the coworking market growth. Easy availability of these spaces at cost-effective prices also contributes to the soaring demand.

Future of coworking spaces is promising

According to the 2018 Global Coworking Survey^*conducted by coworking magazine Deskmag, 42% of all coworking spaces reported being profitable. Larger coworking spaces occupied by more than 200 tenants are reported to be nearly twice more profitable than coworking spaces used by 50 or fewer occupants.

Between 2014 and 2018, the number of coworking spaces housing more than 200 members increased 2.5 times, while spaces that rent out more than 200 desks have increased six times.

Coworking spaces operators have robust expansion plans. One out of four is planning to expand their current location by adding more desks. Every third player plans to expand operations by opening new spaces. In comparison to the existing size, operators plan to expand their area by an average of 70% in the future.

Coworking space operators are capitalizing on members’ needs

Memberships and space rentals

The primary revenue stream for any coworking space is providing services at a fee. This includes, but is not limited to, renting out desks (open or flexible), renting out space (conference halls and meeting rooms), virtual offices, private cabins, etc.

Coworking space operators are currently offering fixed and tier-based (one day pass or monthly pass) memberships to tenants. Apart from these, the operators’ revenue stream comes from membership packages for using particular spaces such as conference halls and meeting rooms for fixed duration charged per head and from virtual memberships granting the users access to a virtual address and mailbox.

Promotional events and pop-up set ups

Coworking space operators are using common working areas for promotional activities, marketing campaigns, or other pop-up shops over the weekend when tenants are not utilizing the space for their work.

They rent out space to exhibition organizers who set up booths for showcasing and marketing their products or utilize the space for arranging pop-up retail for small-scale entrepreneurs such as artists, jewelry suppliers, toy sellers, and others. For instance, WeWork often organizes external events where it invites non-member hosts (not having a WeWork space membership) to conduct events in their premises, for which it signs an external event agreement.

Coworking space operators charge the hosts (both member or non-member) for such events in multiple ways – fixed price a day or price per square meter of the area occupied in addition to charging a percentage of commission for the sales made by the stall or pop-up shop.

Ancillary services

Rather than just offering a place to work, coworking spaces are also offering additional amenities to members such as nursery, gym, or pet daycare facility. Cuckooz Nest, a based in London 36-desk coworking space, offers onsite childcare service for children up to two years of age at a chargeable fee while employing certified nannies. In October 2018, The Wing, a women-focused coworking space, announced that it would start offering on-site childcare across all its current and upcoming locations – the service will be staffed by certified babysitters at an extra cost.

Similarly, Work & Woof, a coworking space based in Austin, Texas, offers free pet daycare with each membership starting from US$30 a day. WeWork also has a pet friendly policy wherein members can bring their pets to work, though they are permitted only in private offices or be leashed in common areas. These add-on services act as diversified revenue streams for the space operators.

Challenging times ahead

Even though the future of coworking space looks positive, the players operating in the coworking space market do face some challenges and threats.

Pure-play coworking space operators face competition from hotels doubling as coworking spaces while offering a place to stay. For instance, Dubai-based Hotel Tryp by Wyndham offers hotel guests and walk-ins easy access to its coworking space called ‘Nest’ at a fee charged hourly, daily, or monthly, depending on the length of the guest’s stay.

Another hotel, Hotel Schani Wien in Austria, has transformed its lobby into a small space of 12 desks for coworking purposes; while in-house guests can utilize the space for free, others can choose a coworking pass (priced at € 90 for 10 days or € 150 for 30 days) or rent a coworking desk for €190 a month.

Another mixed-use infrastructure development that could hurt the coworking space players are unused or empty shops in shopping malls. According to a survey conducted in 2018 by Jones Lang LaSalle IP, a Chicago-based commercial real estate services firm, it is estimated that coworking space in retail properties will grow at a rate of 25% annually by 2023. The need to generate revenue from vacant spaces has forced retail landlords to find new ways to fill the space with alternative tenants; offering this space for coworking purposes seems to be a feasible option.

The concepts of hotel or retail coworking are unlikely to become the next big thing in the near future. However, with individuals exploring easily accessible work spaces, it would be interesting to see how these ideas unfold and how they affect the players in the coworking space.

EOS Perspective

Since its inception over a decade ago, coworking space has grown from an idea to a full-fledged industry reshaping the entire work landscape. Coworking space has had a striking and multi-dimensional impact on the commercial real estate industry.

Coworking space has reformed the commercial real estate industry for good. Players are remodeling and utilizing old abandoned buildings, warehouses, and factories to set up new premises. In 2013, Amity Packing Co., a 40-year-old meatpacking facility (with an area of 83,000 square feet) based in Chicago, was acquired by WeWork (along with other partners) and was renovated into a mixed-use commercial building with 77% of the space being used as office space.

The impact of coworking has not been all positive for the real estate developers (who play in the traditional office space development) since they are losing out to developers inclined to the concept of coworking. Such players should modify their real estate portfolio to fit both traditional and coworking users, since the demand for traditional office space is not extinct, but only diminished.

For real estate agents, the increasing number of coworking spaces does not paint a rosy picture either. As tenant and space provider deal with each other directly, the role of middlemen will gradually cease to exist. However, not all is bad as agents can sign commission deals with coworking spaces for recommending new members. Brokers also see advantage in making connections with start-ups or businesses in their incubation stage at these places, hoping to benefit while they expand and search for new premises or coworking space.

Nonetheless, unlike developers and agents, real estate landlords seem to benefit from the coworking space. Their flow of revenue is constant – when the premises are occupied by multiple independent tenants in a coworking space, steady income is guaranteed. Coworking also eliminates issues such as losing money during phases of vacant property (in case the tenant moves or closes operations) and pulling out money from own pocket (such as agent fee to look for new tenants or operational costs of the facility while it lies vacant, which in traditional rentals can stretch over longer periods of time).

Banks and financial institutions also seem to be optimistic about the coworking concept. Banks consider coworking spaces to be a low risk investment because of multiple and diversified income coming from many tenants. Single-occupant office spaces are dependent on the success of the business – in case the business fails, the banks are stuck with limited options to recover the investment. In case of coworking spaces, the premises will never go empty all at once.

Coworking spaces are agile and are likely to prosper as they adapt to the changing needs of the users, who demand flexibility at work. Other than offering flexible office space, unrestricted work hours, and a place to connect with like-minded people, coworking spaces have transformed the way many people work. It is clear that the future belongs to coworking spaces provided the space keeps evolving and upgrading to meet the ever-changing demands of the occupants.

*All results indicated for 2018 represent year ending 31^st Dec, 2017. (n=1980, including coworking spaces (operators or staff members), coworking members, planned/future coworking spaces, former coworking members, and people who have never worked in a coworking space).

06/09/2019by EOS Intelligence EOS Intelligence No Comments

Blockchain: A Potential Disruptor in Car Rental and Leasing Industry

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Blockchain, with its ability to offer significantly more transparent and decentralized way of conducting operations, has the potential to come to the forefront of technologies which are disrupting the way most industries work today. While the application of blockchain is still currently focused largely on cryptocurrencies, the technology is slowly finding its way to a range of industries, including the car rental and leasing industry.

Car rental and leasing sectors are growing worldwide, driven by rising technological advancements in transportation and increased need for ease of mobility. A shift in demand from car ownership to car sharing (not to be confused with ride-sharing services such as Uber or Lyft) is driving the growth in car rental and leasing industries.

The process of renting a car is highly centralized, where the car rental company being the main point of contact for the driver to rent cars. Car rental companies need to maintain a fleet of cars, as well as car stations and staff to efficiently run their operations, which makes up for bulk of their operating costs. Car rental companies cover these costs from (high) rental rates charged to their customers.

In the peer-to-peer (P2P) care rental (or car sharing) model, there is no need to maintain any infrastructure or staff required to perform the task of renting, a fact that reduces the overhead costs. Lower costs offered by P2P car rental have resulted in the model gaining prominence. P2P car sharing has significant potential, highlighted by recent investments in car sharing services such as Turo and Getaround. In July 2019, US-based Turo raised US$250 million from IAC, an internet media company, taking its overall valuation to US$1 billion. Getaround, a US-based car sharing company established in 2011, raised US$300 million funding from SoftBank in 2018.

However, the P2P car sharing model is inherently prone to fraud and other illicit activities, causing lack of user trust, which in turn acts as a barrier to scaling of rental business, despite the growing demand for car sharing.

The issue can be aided by the emergence of blockchain, which is acting as the market disruptor. The use of a distributed ledger for car rental and leasing is likely to revolutionize the industry, especially P2P car sharing.

Blockchain to enable peer-to-peer car rental gain further prominence

There is a shift in paradigm from car ownership to car sharing, via car rental or leasing. The fact that vehicles are under-utilized and parked (and inactive) most of the time, while the vehicle owners incur ongoing fixed costs such insurance, tax, maintenance, and parking, is further driving this shift.

Emergence of use of blockchain in car rental offers a safe (from frauds) and reliable car-sharing platform, a fact that is likely to further promote P2P car sharing. Inherent unalterable properties of the blockchain offer a secure platform for both car owners (to list their cars) and the customers.

The concept of blockchain in car rental industry works similarly to any other blockchain transaction. Service providers (or car owners) and end clients registered on the blockchain can sign digital smart contracts which execute contract terms based on pre-agreed rules in place, similar to a regular rental model.

The smart contract also contains the necessary information, such as details of the renter (driving license proof, insurance, and credit card details) and data such as car registration number, rate, mileage, length of rental, and credentials of the car owner. All financial transactions (rental payment) can be done either through a card, or using associated cryptocurrencies and tokens purchased to get registered on the blockchain.

The process is fully decentralized and digital without any intermediary required which is the key advantage of car rentals being executed over blockchain. Transparency of transactions made over a distributed ledger also adds to the credibility, thus lowering the risk of any fraudulent activity to a great extent.

Lower fee offered due to elimination of intermediaries is another major advantage of using the blockchain technology in car rental industry. For example, HireGo, a UK-based blockchain-based car rental start-up, claims to offer transaction fee up to 35% lower compared with traditional car rental charges under the existing B2C model. Moreover, use of smart contracts has made the system direct and reliable, as information on the contract is unalterable.

Blockchain technology is designed to encourage a sharing economy platform so that businesses such as P2P car rentals and leasing can become integrated and cost-effective, through collaboration among participants in a common, transparent, and “trustless” (or distributed trust) environment, which are the primary attributes of blockchain.

Blockchain in car leasing to improve visibility

When it comes to leasing, blockchain has even more potential. Tracking a car right from the OEM, transfer of ownership, tracking of repairs, mileage, fuel, and maintenance over a single distributed ledger can help bring visibility across the leasing journey. This in turn can help customers avert mileage fraud, while also eliminating any disputes at the end of the lease term.

With all necessary and unnecessary repairs being visible to all parties involved, calculation of charges and violation penalties is likely to become much easier.

The use of a distributed ledger also eliminates the need of undertaking time-consuming paperwork at each node (or stakeholder) of the leasing value chain, thereby improving the overall efficiency of the process, while also cutting costs, making it much more cost-effective to lease a vehicle.

Similarly to its function in car rentals, a distributed ledger also eliminates high costs charged by car leasing companies, resulting in increased popularity P2P leasing of vehicles through smart contracts. Blockchain can also be used as an open maintenance log, as well as for the provision of other value added services such as insurance and toll payments.

Transparency across the lease to help minimize customer disputes

The benefits of blockchain are most prominent at the end of the lease term, when a customer returns a leased vehicle. The use of an open distributed ledger eliminates any disputes that may occur between the service provider and end client, with regards to end-of-lease charges. Transparency across the lease lifecycle, including open logs of vehicle usage, mileage, fuel, maintenance, tire changes, and insurance, make it easier to calculate any end-of-lease charges, based on the pre-defined terms of the smart contract. These charges can also be automatically paid in the form of cryptocurrencies or tokens, as per the provisions in the smart contract.

Blockchain entries can also help leasing companies estimate the approximate value of the vehicle at the end of the lease term, making it easier to decide whether to remarket (re-lease) or dispose of the vehicle, as well as reducing the overall time and resources required in the remarketing process.

Newer blockchain-based platforms expected to drive growth

The global automotive blockchain market is likely to witness growth of 31.1% CAGR between 2020 and 2030, with Asia witnessing the fastest growth. Majority of this growth is attributed to proliferation of car rental and leasing in countries such as India and China, where people are seeking easier means of mobility and are making cautious effort of reducing traffic in metro cities.

Several companies in the region started investing in building platforms using blockchain. In 2017, Mumbai-based Drivezy, an Indian car sharing company, successfully developed a car rental and leasing platform using blockchain, in which users can rent cars and make payments using cryptocurrencies and tokens. In 2018, the company raised US$20 million in a Series B funding through an initial coin offering (ICO). Such investment is encouraging further start-ups looking to utilize blockchain for car rental and leasing.

Darenta ICO, a Russian car rental start-up, developed a platform for existing car owners to rent out their cars using a digital solution that employs geolocation, smart contracts, and other blockchain technology. Launched in 2018, the company has already expanded its presence in 20 countries, and plans to enter the USA and Canada, followed by other European and Asian markets (including China) by 2020.

Several major companies have also invested in developing other technology platforms using blockchain technology, which could have applications in the rental and leasing businesses. In 2017, Ernst and Young, for example, launched a blockchain-based platform called “Tesseract” to support an integrated and autonomous mobility. Through this platform companies and individuals can share cars, while payment and insurance are handled through blockchain. In 2017, Renault also launched a prototype blockchain platform to track information about a car’s maintenance history, including repair shops and dealerships at one place, through a digital maintenance log prototype.

Explore our other Perspectives on blockchain

Lack of acceptance of cryptocurrencies likely to pose challenges

While blockchain has plenty of benefits, broad scale deployment of the technology faces certain challenges as well – one of the most crucial ones being recognition of cryptocurrencies in key emerging markets in Asia, including India and China. Most blockchain-based solutions are looking at ICO to generate funds, issuing their own cryptocurrencies (mostly based on Ethereum tokens), which also act as a mode of transactions and payments for the service. Lack of regulation of cryptocurrencies is currently limiting the adoption of blockchain technology in the rental and leasing space.

Also, for the blockchain technology broad scale implementation, there is a need for high performance computers (or supercomputers) along with highly skilled workforce to handle the blockchain. Such challenges can cause delay in widespread adoption of blockchain technology for car rentals and leasing system at a larger scale.

EOS Perspective

Currently, blockchain is considered synonymous to cryptocurrencies such as bitcoin, which is still very unstable and is commonly seen as an investment rather than a mode of transaction. Such a perception is likely to continue to prevail in the short term. Once the paradigm shifts from cryptocurrencies being looked at as a mere investment tool, to being considered as a mode of transaction or a trustless platform, which utilizes inherent properties of blockchain, the overall acceptance of blockchain is also expected to increase. This shift is also likely to bring more stability in cryptocurrency prices, which in turn is also expected to generate a more positive regulatory outlook in favor of cryptocurrency and blockchain technology.

Once blockchain gains prominence, we are likely to witness a lot more start-ups promoting peer-to-peer car sharing (rental or leasing), driving a change in the way people look at their cars. Idle vehicles will increasingly be considered as assets which can generate a source of additional income via car sharing model, resulting in better overall utilization of cars.

ICOs are likely to remain the most common mechanism to generate funds. While the technology has several potential uses, which are expected to disrupt the car rental and leasing market in the near future, the state of blockchain acceptance currently remains highly speculative, primarily due to its close association with cryptocurrencies.

16/05/2019by EOS Intelligence EOS Intelligence No Comments

Sharing Economy in the GCC: A Success Story Waiting to Happen

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The current landscape in the Gulf countries is believed to show solid scope for sharing economy platforms’ growth. On the other hand, the region still lacks consumer engagement as well as updated and adequate regulations, which may cause these platforms to stumble and fall on their way to growth.

The concept of sharing economy has been spreading with great velocity worldwide with the advent of new technologies and connectedness. It emerged as a recognized concept around 2008-2010 with the arrival of successful players such as Uber and Airbnb offering P2P platforms that allowed financially strapped consumers to earn extra income. Global sharing economy was valued at US$15 billion in 2014 and is expected to reach US$335 billion by 2025.

GCC’s good foundations and latent potential

In 2016 alone, PwC estimated that consumers in the Gulf Cooperation Council (GCC) spent US$10.7 billion within five sectors of the sharing economy platforms – household services, accommodation, business services, transportation, and financial services.

The spending in sharing economy was of course lower than spending on similar services acquired through traditional avenues – for instance, in 2016, hotel revenues were expected to hit US$24.9 billion in the GCC, a considerably higher sum than accommodation revenues in the sharing economy that totaled to US$1.29 billion in that same year. This indicates latent potential, and with part of the traditional service revenue possibly taken over by sharing economy, the scope for growth is very promising, underpinned by favorable characteristics of the GCC countries.

Young and technologically-participative population

Sharing economy platforms do not hire employees directly but work with self-employed service providers instead. The essence of these platforms is to enable people – mainly young, dynamic, and technologically-participative – to use them as a way to exchange goods or services for money.

The appeal of the GCC for sharing economy platforms is exactly that – the diversity and demographic profile of the region’s population allows sharing economy platforms to reach a large pool of young, tech-savvy consumers and service providers. In 2018, 60% of the GCC population was under the age of 30 – considered key demographic to interact and use sharing economy services on both the demand and supply side.

Large immigrant pool willing to engage

Another market growth driver that is somewhat unique to the region is the large percentage of non-nationals living and working in the GCC. Between 2016 and 2017, 51% of the Gulf region total population were non-citizens, who, according to a 2016 PwC survey, were active users of the sharing economy services, largely due to relatively low incomes and limited (if any) access to other ways of improving their financial standing. The region’s large volume of immigrants has always been a steady trait that is very unlikely to change in the future. Due to this, high numbers of expatriates participating in the sharing economy platforms on a daily basis is likely to ensure a long-term steady growth of these platforms in the region.

(Slowly) growing women’s economic inclusion

Another appealing aspect of the GCC market is that all six countries have been changing (alas, slowly) their attitude towards women’s economic inclusion, fueled by shifting cultural norms that traditionally imposed limitations on women’s ability to work and earn.

This change is likely to allow them to participate more actively in the workforce, and a ride-hailing app company could be a good option to provide transportation to and from work to female workers, since in some GCC countries they are not allowed to drive by themselves, while in others they customarily do not often do it. With women representing around 40% of the GCC population, higher financial independence places them in the group of potential consumers of sharing economy goods and services for their transportation as well as household services needs.

Eagerly-consumed fast connectivity

Regardless of the gender participation mix at both supply and demand side, the sharing economy players are certainly set to benefit from fast adoption of technology by local consumers in the GCC. In 2017, 64% of the population owned a smartphone and, by 2018, 77% of the GCC population were mobile network subscribers. Such rates seem to give strong foundation for sharing economy platforms to grow.

Moreover, the GCC highly tech-savvy youth seeks new technologies and faster mobile connections. In response, the Gulf countries aim to become global leaders of 5G deployment (all markets planning to launch 5G by 2020), a major contributing driver to the sharing economies growth in the region. High-speed mobile connections plus a growing pool of eager-tech young adults willing to engage in P2P platforms are likely to become a major driver for their growth.

Nonetheless, despite these favorable foundations, there may be roadblocks representing a threat for the success of sharing economy platforms in the Gulf region.

Large immigrant pool refrained from joining the platforms

One of the key obstacles is the cultural-legal environment prevalent in the region. While the region has long been characterized by large share of immigrants in local populations, their way of working is controlled by Kafala, an outdated sponsorship system carried out by the GCC. This system allows immigrants to work in the region only for their sponsor, who is legally responsible for them during the time of his or her stay.

Kafala system does not allow for self-employment, nor does it allow for second employment beyond the job given by the sponsor. Since sharing economy companies interact mainly with freelance service providers, there is a large portion of expatriates working in the GCC who will find it difficult to be able to freely join the platforms as service providers.

Explore our other Perspectives on sharing economy

Lack of legislation and consumer protection

Lack of a dedicated government entity to oversee sharing economy services in the Gulf countries may cause consumers to be wary of using these platforms, ultimately hindering market growth.

According to a 2016 survey conducted by PwC, GCC users put considerable emphasis on trust and transparency when dealing with online providers, two factors that can influence their purchasing decisions.

In sharing economy, users need to be able to trust platforms’ screening process for providers before they deal with them. As a result, if the states do not establish bodies and laws governing sharing economy services, the platforms could witness weak demand from both consumers and services suppliers who are cautious about protecting themselves.

Limited awareness and lack of need

Lack of consumer awareness and simply lack of need for the sharing economy services is also an issue for the market growth since not all GCC nationals seem to be aware about the existence of the sharing economy platforms.

According to the same PwC survey, an average of 21-35% of respondents were not familiar with the sharing economy concept. This could be attributed to the fact that many households in GCC countries have traditionally enjoyed high income levels, a fact that resulted in no need for shared services and allowed them to afford services of expatriate workers hired directly and for long term (e.g. employing a household driver or cleaner, rather than using external providers as needed).

Consequently, local consumers may not see the need to use an online platform dampening the success of sharing economy platforms. This might change, as households’ incomes growth stagnates and sharing economy could help stretch that income.

EOS Perspective

The GCC countries could be a promising landscape for sharing economy platforms to dock successfully. The region offers growing population, continues to be characterized by a solid base of young, tech-savvy users, as well as females and non-citizens available to participate in the sharing economy market.

However, despite the current growth, these platforms could nosedive unless local authorities deal with regulatory deficiencies. A dedicated supervisory entity is required to allow local authorities to regulate sharing economy companies, which will also provide support to consumers through consumer protection and better screening processes of services providers. Local customers clearly manifest their need for such a protection, and the lack of it is likely to dampen the demand and thus market growth.

The update of labor policies such as the Kafala system is also required for sharing economy platforms to witness a continuous growth. This growth can only happen through allowing a good share of the readily-available pool of expatriates to work under a more flexible scheme these platforms require. This is something for GCC states to consider, as there region is increasingly facing the requirement for economic diversification and stimulation of its sluggish economies. Creating labor policies that allow people to work for sharing economy platforms legally (at least as a secondary employment, as it is increasingly allowed in Dubai) is likely to create employment opportunities across the region, spurring consumer spending and generating tax revenues.

While there also are other obstacles in the GCC sharing economy market, it is the lack of appropriate regulation and supervision of the industry, as well as the current form of the Kafala system that are the two key challenges to the market’s accelerated growth. Considering the nature of these challenges, it seems that the potential of this market is unlikely to be realized without active facilitation by the local governments. However, it is uncertain to what extent the governments will try to understand the potential economic benefits of fully embracing sharing economy, and change the deeply-rooted, long-standing, archaic labor laws.

05/02/2018by EOS Intelligence EOS Intelligence No Comments

Commentary: OLA Finds Its Way on Aussie Roads

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With plans to expand globally, Ola Cabs, India’s leading ride-sharing service provider, marked its entry into the international market by announcing in January 2018 the launch of its services in the Australian territory. While the exact date of the service launch in Australia is not yet decided, as it is subject to regulatory approvals, the service provider has already started the ground work by inviting private hire vehicles to join them. The company is starting to collaborate with private hire vehicle owners in Sydney, Melbourne, and Perth, the three cities where Ola cabs will initially be available for rides, to be ready to roll out once the commercial operations commence.

Presently, the market for ride-sharing service providers in Australia includes players such as Uber, Taxify, and GoCatch, among others. With Uber, which has emerged as the leading player in Australia, already present in the market, Ola needs to have its strategy, policies, and priorities set just right to smoothly launch and successfully run its operations. However, the presence of Uber has worked, to some extent, in favor of Ola, as it paved the way for ride-sharing services in the country resulting in regulatory policies being already in place. This makes the market entry a bit easier for Ola as the company will not need to deal with several challenges that the early market entrants in such novelty markets as ride-sharing typically have to tackle.

However, competing against its largest rival, Uber, is not the only concern for Ola. To be successful in the Australian market, Ola also has to focus on smaller and newer competitors, and set its operational and pricing policies keeping in mind their strategies in the market. Taxify, an Estonia-based company that launched its operations in Australia in December 2017, is expected to closely compete with Ola, especially with its ride services being operational only in Sydney and Melbourne, two of the locations where Ola is launching its services as well. With two ride-sharing service providers launching its operations in similar locations within a span of few months, a price war between the two is expected to happen. Currently, Taxify offers rides to its commuters without any surge pricing, making the ride cheaper than Uber. If Ola plans a similar pricing structure, among other strategies to drive the business, the competition between the two operators will, most likely, heat up very soon.

With two ride-sharing service providers launching its operations in similar locations within a span of few months, a price war between the two is expected to happen.

In the Australian market, the ride-sharing services segment is still in its infancy stage of development and with only one player (in this case, Uber) currently dominating the scene, it makes sense for Ola to launch its operations here now, offering a new option for consumers to choose from. Entry of Ola, along with new players such as Taxify, may indicate a transitioning phase in the Australian ride-sharing market as the entry of new players has the potential to end Uber’s monopoly. Currently, with very little known about the operating dynamics, not much can be commented about the success of Ola in the Australian market. However, the unsaturated state of the local market clearly indicates that Ola has a good chance to thrive in Australia, as long as they get the pricing right and set their eyes on the long-term business growth rather than short-term gain through higher prices.

19/01/2018by EOS Intelligence EOS Intelligence No Comments

China Bike-Sharing Market Moving towards Consolidation

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Though several bike-sharing start-ups in China flourished in past two years, mainly due to backing from venture capital funding, many are finding it difficult to keep up the momentum as the investment dries up in absence of sustainable business profitability model. Small players in particular are struggling to comply with recently introduced regulatory standards for the industry. In our article titled ‘Bikes Are Back: China Gaining Pedal Power’, published in April 2017, we discussed the outlook for the bike-sharing app-based businesses in China, and now we are taking a look again into the current market dynamics in view of new regulatory framework that can reshape the competitive landscape.

The bike-sharing industry in China has noted a steep growth in a short span of time. As per estimate of Ministry of Transport, there were about 70 bike-sharing companies operating in China by July 2017 (as compared to 17 in January 2017). However, the market is skewed towards the duopoly of MoBike and Ofo. According to Sootoo (an online service platform providing analysis for internet and e-commerce industry in China), as of March 2017, MoBike and Ofo accounted for 56% and 30% market share, respectively. Other companies face cut-throat competition to carve up the remaining 14% of the market.

The summer of 2017 was particularly harsh on several small players unable to bear the heat of increasing competition and financial crunch. Chongqing-based Wukong, which shut down its operations in June 2017, is believed to be the first bike-sharing company to collapse. Subsequently, several other small companies, including 3vBike, Xiao Ming Bike, Cool Qi Bike Ding Ding Bike, Kala Bike, and Kuqi Bike, also wound up their businesses citing issues such as lack of investment, cash flow crisis, mismanagement, competition, losses due to theft and vandalism, etc.

Intense competition, especially among the second-tier companies, is driving the market towards consolidation. In October, Youon, a Shanghai-listed company operating in 220 cities and owing 800,000 bikes, acquired 100% stake in Hellobike (a Shanghai-based company with presence in 90 cities across China). In November 2017, Bluegogo, owning fleet of 700,000 bikes and 20 million registered users, announced that the company was facing financial troubles and hence the business was sold to another Chinese start-up, Green Bike-Transit. This acquisition trend is likely to continue, as the capital intensive and cash-burning bike-sharing businesses has come under the purview of strict regulatory framework.

In August 2017, Ministry of Transport and nine other ministries jointly issued the first set of guidelines with the aim to better regulate and standardize the emerging bike-sharing market in China. State governments developed their own standards and regulations based on the guidelines.

Some of these regulations are in favor of bike-sharing companies. For instance, central government directed state authorities to step up their efforts in providing protection to bike-sharing companies against vandalism, theft, and illegal parking issues. The users are required to register with the bike-sharing operators using their real name. This will allow the security forces to easily identify and penalize the offenders. This may bring some respite to small players such as 3Vbike, a Beijing-based company with a fleet of over 1,000 bikes, which shut down its operations in July 2017 after most of its bikes were stolen. Moreover, local authorities need to work with bike-sharing operators to develop dedicated parking spaces near high-demand locations such as shopping areas, office blocks, public transportation stations, etc. This is likely to ease up chaos and nuisance caused by illegal parking.

On the other hand, some of the regulations call for bike-sharing companies to bear additional expenses. As per the new regulations, all bike-sharing operators are required to provide accident insurance to their users, a practice which was earlier followed only by the market leader, MoBike. The companies are also required to set-up support mechanisms to manage customer complaints. In the guidelines, central government also advised state governments to develop local standards for regular maintenance of bikes. Accordingly, the government of Shanghai and Tianjin instructed bike-sharing operators to appoint one maintenance personnel per 200 bikes and the bikes need to be discarded after three years in operation. Such standards are certainly necessary to enhance user experience and safety, but it will put additional strain on already financially-stressed companies.

As per the new guidelines, companies are encouraged not to charge security deposits at all. If security deposit is collected, the company must clearly distinguish security deposit fund from other funds and ensure timely refund of the deposits. The bike-sharing companies typically charge CNY 99 – CNY 299 (~US$15 – US$45) as one-time refundable security deposit and then a rental fee of CNY 0.5 – CNY 1 (US$0.08 – US$0.15) is charged for every half-hour to one-hour ride. Since the firms need to refrain from using the deposits, and given that the rental fees are likely to remain significantly low due to intense competition, the companies might struggle to manage day-to-day operations. Investor money will dry out eventually, hence the companies are in dire need of developing new revenue streams. Besides in-app advertising, companies are also exploring the use of their bikes as an advertising space. For instance, Ofo customized number of bikes with Minions characters to generate revenue from advertising the release of ‘Despicable Me 3’ movie in China.

The new guidelines also allow the local authorities to limit the number of bikes to check over-supply and traffic congestion. Following the announcement of this new guideline, Beijing, Shanghai, Guangzhou, Wuhan, Shenzhen, and eight other cities reportedly banned deployment of additional bikes. As a result, the prime markets are now off-limits for new entrants.

EOS Perspective

App-based bike-sharing start-ups have revived the biking culture in China. By July 2017, the bike-sharing companies, claiming 130 million registered users in total, flooded the streets of China with 16 million bikes. The bike-sharing boom is certainly more than a fad, however, a shift in market composition is expected in the near future.

The new regulations have paved the way for development of higher industry standards aimed at better user experience and safety. However, compliance with these regulations is likely to put an additional financial burden on small players. Moreover, small players are finding it difficult to challenge the duopoly of MoBike and Ofo (together accounting for 86% of the market share as of March 2017). The consolidation among second-tier companies might ease the competition, however, this might not be enough to level with the market leaders. To survive the competition, small companies will need to either innovate or capitalize on niche markets and opportunities. Most of the companies operating in the market today have similar service model. Technological innovation or distinguished service model can enable the company to stand out from their competition. Furthermore, with rising level of competition and market saturation in major cities, small companies need to shift focus on underserved third and fourth-tier cities. For instance, in May 2017, Shanghai-based Mingbike announced its plan to gradually move out of Shanghai and Beijing in a strategy shift towards smaller cities. In these smaller cities, the companies can also explore niche business opportunities such as gaining exclusive contract for operating around local attractions.

Speculation about the merger of two dominant players MoBike and Ofo surfaced in October 2017. The two bike-sharing giants are under investor pressure to consolidate and put an end to the competitive pricing war. For now, both the companies have clearly stated that they are not interested in merger at this point. However, industry experts are hopeful of a merger in the future given the history of the investors – Tencent (backing MoBike) and Alibaba (backing Ofo), who separately invested in taxi-haling rival companies that eventually merged to become a single dominant player in China. Didi Chuxing, a taxi-hailing service company, was formed with merger of Tencent backed Didi Dache and Alibaba backed Kuaidi Dache in 2015. In 2016, Uber merged its China operations with Didi Chuxing, while retaining a minority stake. Travis Kalanick, co-founder of Uber, acknowledged that both the companies were making huge investments in China but unable to retrieve profits and the merger was aimed to build a sustainable and profitable business in China. Bike-sharing industry in China is also at a similar juncture. Since both MoBike and Ofo have not achieved profitability yet and they largely depend on investments, they might give in to the interest of the investors. Hence, one can expect that the bike-sharing industry in China might eventually move towards monopoly.

02/01/2018by EOS Intelligence EOS Intelligence No Comments

Sharing Economy: Africa Finds Its Share in the Market

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The concept of sharing economy has become a global phenomenon and after capturing several markets across Northern America, Europe, and Asia, it is now finding its way in Africa. The pre-existing sharing culture in several African countries makes this business concept gain good momentum across the continent. In addition to global companies, such as Uber and Airbnb, which have witnessed exponential growth in their limited years of business in this region, there are a host of home-grown players that are offering niche and country-specific services in this space. At the same time, sharing economy business does face a great deal of challenges in Africa’s complex markets. Safety concerns as well as limited availability and use of technology are two of the largest roadblocks for a thriving sharing economy business model. Although companies seem to find their way around these issues on their corporate drawing boards, the challenges are more intense and impactful in reality. Therefore, while the concept of sharing economy is likely to boom in the continent, it remains to be seen which companies manage to best adapt to local dynamics and thrive, and which players will fail in navigating the complexity of the regional markets.

Sharing economy businesses have been growing at an accelerating rate globally with leaders such as Airbnb and Uber taking over their traditional hospitality and travel competitors and becoming the largest players in the tourism and passenger transport sectors, respectively. After gaining huge market in several mature economies, the asset-light collaborative economic model is now making its presence felt in Africa. With vast youth population and a growing middle class, several markets in the African continent offer a huge growth potential for companies operating the sharing economy model. In 2016, Airbnb alone witnessed a 95% rise in the number of house listings in the continent, which increased from about 39,500 in 2015 to 77,000 in 2016. Moreover, the number of users of its online platform reached 765,000 in 2016, witnessing a 143% y-o-y rise, and is expected to further expand to reach 1.5 million registered users by the end of 2017. Similarly, Uber, which entered Africa in 2013 through Johannesburg, has expanded into 15 cities across eight African countries in a span of just four years and has over 60,000 partnering drivers across the continent.

This remarkable growth is underpinned by a burgeoning middle class that is looking for (and increasingly can afford) convenient and reasonable solutions. Moreover, the sharing economy concept helps Africans bridge service gaps created by inadequate resources and infrastructure present in the continent. For instance, with increasing number of tourists and a limited number of high-end and mid-tier hotels or resorts, companies such as Airbnb are in a perfect position to fill such a demand-supply gap without much investment. In addition, sharing economy companies also help ease the unemployment and underemployment issues faced across several countries in Africa. The sharing economy model helps channelize a work stream for people who are unemployed or work in the informal sector, and provide them with a formalized platform where they can sell and market their services. Sharing economy is largely dominated by workers aged 18-34, which is also the age group largely affected by unemployment in Africa.

However, the key reason for the sharing economy model to have eased so well into the African lifestyle is the pre-existence of a sharing culture, which has been prevalent informally here for many years. Unlike in many developed regions, the concept of sharing economy is not new to Africa and the main task for global players entering this market was to formalize it through tech-based platforms. Therefore, despite being one of the least developed regions globally, Africa comes as a good fit to the sharing economy model. As per a survey conducted by AC Neilson in 2014, 68% of respondents in the Middle East and Africa region are willing to share their personal property for payment, while 71% are likely to rent products from others. These numbers are much higher in Africa than in Europe and North America, wherein only 54% and 52%, respectively, are willing to share their possessions for pay and even fewer (44% and 43%, respectively) are interested in renting others’ products.

While global companies are at a strong position to capitalize on this opportunity, there are a host of local players across the African subcontinent that are also looking for a share in the pie. Although these companies have come up across Africa, they are somewhat clustered in the more developed regions of South Africa, Kenya, Nigeria, and Uganda.

South Africa

Being one of the most developed economies in the subcontinent, South Africa has openly embraced the global sharing economy phenomenon and has been the entry point into the continent for several leading international players such as Uber, Airbnb, and Fon. Uber has received great acceptance in South Africa with the first 12-month growth rates in Cape Town and Johannesburg superseding the growth experienced in other cities globally, such as San Francisco, London, or Paris (during their first year of operations). Uber provided 1 million rides in 2014, which was its first year of operation in South Africa, rising to 2 million rides by the first half of 2015. The company has also created more than 2,000 jobs in the country where unemployment levels are as high as 30%. Likewise, Airbnb boasts of similar growth in the country. In 2016, about 394,000 guests used Airbnb listings for their stay in South Africa, in comparison to 38,000 guests in 2014. During that year, Airbnb’s users generated US$186 million (ZAR2.4 billion) worth of economic activity in the country, of which about US$148 million (ZAR1.9 billion) was attributed to Cape Town, Johannesburg, and Durban. Fon, an unused bandwidth sharing company, also enjoyed success in the South African market and more than doubled its community hotspots from 21,000 (at the time of its launch in 2014) to 52,000 community-generated hotspots in 2015. Taxify is another global player in the ride sharing space. Launched in 2015, Taxify is an Estonian company offering similar services as Uber. The company has managed to acquire 10% of South Africa’s ride sharing market by offering 15% lower fares compared with Uber, while providing a higher driver payout (Uber takes a 20-25% cut from drivers while Taxify takes a 15% cut).

These international players are challenged by several local companies, which, despite being much smaller in size, are competing on both price as well as local expertise. In the ride sharing market, there are several smaller domestic players, such as Zebra Cabs, Find a Lift, and Jozibear. Similarly, in the accommodation sharing market, acting as a direct competitor to Airbnb is South Africa’s local, Afristay (formerly known as Accommodation Direct). The company has applied a country-specific approach and has succeeded in providing more varied and cheaper options as compared with Airbnb in South Africa. Having a single country focus, Afristay has close to 20,000 listings across 2,000 locations in South Africa. Airbnb on the other hand has 35,000 listings in the country.

Another emerging space of sharing economy concept adoption in South Africa has been seen in the medical sector, wherein players, such as Medici and Hello Doctor, are connecting patients with medical practitioners. Hello Doctor currently services around 400,000 patients in South Africa. Medici, which launched in May 2017 has partnered with the Hello Doctor and aims at connecting rural and less developed regions to remote access medical advice and consultations.

Kenya

Owing to a burgeoning middle class as well as an increasing access to education and the Internet, Kenya is a strong market for the digital sharing economy. Airbnb witnessed significant growth in Kenya, increasing its listings in the country from 1,400 in 2015 to 4,000 in 2016. The number of guests choosing to stay in an Airbnb accommodation have also expanded three-fold during the same period. Uber has received a similar response in the country, completing 1 million rides in its first 15 months of operations (beginning 2016), and having 1,000 drivers registered with them in the beginning of 2016. However, a local Kenyan company, Little Cabs, which is owned and operated by the country’s leading telecommunication players, Safaricom in partnership with Craft Silicon, a local software firm, is a stiff competition to Uber. The company, which began operations in July 2016, managed to acquire 2,500 drivers and 90,000 active accounts by the end of the year, owing to more attractive pricing and driver-payout in comparison to Uber. Moreover, it offers several services, which have not been introduced by Uber in Kenya yet. Having the backing of the leading mobile network operator, Little Cabs is attracting customers by offering them discounted mobile recharge along with trips, free Wi-Fi for passengers, and the option to process payments using M-Pesa – Safaricom’s mobile money service, which has two-third share in mobile market in the country. However, despite a smaller fleet size and less attractive services, Uber continues to be the market leader in Kenya for now, with a revenue share of about 30% (in comparison to Little Cabs, which has a revenue share of about 10%) primarily due its global brand value and first mover advantage.

Another newcomer to the sharing economy market in the country is Lynk, which aims at connecting service providers across about 60 categories to customers in Kenya. These include services such as plumbing, beauty works, tuition, or party planning. Having started operations in 2015, the company identified and recruited about 400 workers across 60+ service categories, who provided 800+ services to paying customers within its first year of operation.

All of that being said, the sharing economy concept has not had that easy of a ride in the continent and has faced one too many challenges on its way up. The main issue challenging the success of this concept has been the limited use of smartphones, which are inherent to this business model. While the use of smartphones in today’s time is taken for granted in most economies across the globe, this is not the case in Africa. In many cases, these service providers (especially drivers) are using smartphones for the very first time in their lives. Although the youth population is expanding in the continent, elevating the demand and use of smartphones, the numbers still remain extremely low – both at the consumers’ as well as service providers’ end. In 2015, only 24% of Africans used Internet on their mobiles and e-commerce penetration was mere 2%. This makes it imminent for companies looking to excel in the sharing economy space to provide training and workshops to help service providers adapt to and embrace the smartphone technology. Companies aiming to build a stronger position in the market over their existing competitors should also look at providing cost effective and easily accessible financing for the purchase of smartphones for service providers interested in registering in their sharing apps. In the African scenario, such a move would incentivize service providers to join the company’s sharing platform, potentially choosing it over other competitors present in the market, while the company would be able to expand its supply-end of the business by growing the registered service providers’ base.

The other issue that is key to operating in Africa is safety. Since the entire concept of sharing economy is based on trust, ensuring safety becomes a very important aspect in this line of work. Considering the high number of cases of theft and vandalism as well as weak regulatory system, African customers’ trust in service providers in their region is naturally lower than the western market customers’ trust in their local service providers. This impedes the service use growth and forms one of the largest barriers for sharing economy to reach its full potential in the continent.

In the transportation segment of the sharing economy market, the issue of safety is increasingly addressed by several players. To ensure safety of passengers, drivers undergo a rigorous background check that includes a multi-level verification. Companies also undertake innovative approaches to ensure only verified drivers work under the company logo in attempt to improve safety. In one such case, Uber introduced a ‘selfie protection’ feature, in Kenya, wherein a driver is required to take a selfie in the Uber app once in a while, before accepting a ride request from a customer. In case the photo does not match the one registered with the account, the account is blocked. In a market such as Africa, while safety precautions are a necessity, if marketed correctly, they can also be a differentiating and marketing factor. Along with general information and ratings, companies can also show driver’s verification details and training credentials on their app before a consumer selects a ride. In case of other services, they can also include details of the certifications undertaken by the service provider.

In addition to this, the limited use of plastic money – which is the main form of payment in sharing economy-based businesses globally – is another speedbump in the operation of such a business model in Africa. While several ridesharing companies are tackling this issue by introducing cash payments, it remains a limiting factor for companies whose services nature leaves a limited scope for introducing cash payments option, e.g. Airbnb.

Regulatory barriers and outburst of traditional competitors is another challenge, however these issues are common for players across markets globally, though in various intensity. We have talked about it in more detail in our article in October 2016, Sharing Economy Needs Regulator Support. Companies such as Uber have had to face several regulatory roadblocks, the latest of that being a July 2017 lawsuit ruling recognizing Uber drivers as employees (instead of the company-preferred ‘driver partners’) as per South Africa’s labor laws. While the company does have plans to work around this ruling as it currently only applies to the seven drivers who filed the lawsuit, such issues have the potential to disrupt the companies’ smooth operations in the country. There have also been severe protests from traditional taxi companies and Uber has faced several safety-related problems with Uber drivers being attacked and cars being burnt in Kenya, as well as cases of smashed windscreens at railway stations in South Africa. To counter this, the company has posted security guards outside railway stations in Johannesburg for the security of the drivers.

EOS Perspective

While the concept of sharing economy seems to fit perfectly in the African lives, it does require the companies to follow a very localized approach accounting for specific regional dynamics in order to blend with the countries’ local fabric. While this gives an advantage to the local companies that better understand customer needs, it becomes difficult for them to match the scale of global leaders who have hefty marketing budgets.

Although sharing economy has largely captured the travel and passenger transport, with medical, education, and several other vocational services also seeing new businesses entering with sharing economy model, it is the crowd financing segment that might see the next boom in Africa. African region houses several dynamically emerging economies, with huge hunger for capital, and digital crowd funding platforms can help SMEs connect with potential investors, and help African start-ups with seed capital. In addition to basic investment, these platforms can also offer mentoring opportunities to small start-ups. While there already are a couple of companies, such as VC4Africa, that are operating in this space, crowd financing as a sharing economy business still has great potential to be tapped in Africa, especially beyond the Tier 1 cities of Johannesburg and Cape Town, where ideas are in abundance but there is lack investment and support.

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Originally published on EMIA on 21st December 2017.

19/04/2017by EOS Intelligence EOS Intelligence No Comments

Bikes Are Back: China Gaining Pedal Power

Once a symbol of China’s culture, bikes use slumped with the country’s economic and urban development. The country’s streets have seen a mass influx of cars and China became the largest automobile market in the world. Commuting by bikes started to be perceived as a symbol of belonging to a lower class, while owning a car represented a higher economic and social status of an individual. However, this trend seems to be changing again, along with commuters’ view on using bike as a mode of urban transportation. With sharing economy on the rise, mobile app-based bike sharing starts to appeal especially to younger Chinese, who perceive biking across the country’s cities cool. Given the congested roads and poor air quality, the government is ready to embrace such greener bike renting services that offer eco-friendly alternative to cars and have the potential to reverse the way people commute thereby reshape the dynamics of the cities in China.

Previously known as the ‘kingdom of bicycles’, bikes were China’s major mode of transportation from 1980 to 2000. However, over time, the economic boom led to a high demand for cars making two wheelers go out of fashion. In 1980, around 63% of people in China used bicycles for their commute. By 2000, the rate dropped to 38% and as of 2016, it was below 12%. In 1995, there were estimated 670 million bikes in China, a figure which fell to 370 million in 2013. But now, the new bike sharing apps are likely to help promote the reversal of this trend in China, a country which has been making efforts to promote cars in the last two decades.

While the country already witnessed the emergence of innovative bike sharing apps over the last few years, bicycle sharing is still set to become a vital focus area for several China’s start-ups in 2017. This new bike-sharing service borrows from the known public bike concept present both in China and in several cities across the world, but unlike the government-run bike rental programs (also present in various cities in China), these bike sharing start-ups offer bikes equipped with GPS. GPS lets the user know which bike is in the user’s vicinity and allows to hold the bike for up to 15 minutes until the user arrives at the location where the bike is parked. The bike is unlocked by scanning a QR code and the GPS device is charged by pedaling the bike.

Popularity of such apps is fueled by the rising demand for means to commute on short distance, currently an underserved area of public transportation. For instance, in Beijing and Shanghai, white-collar workers depend primarily on public transportation for their daily commute, which leads to an increased demand for means to commute from their home or their workplace to the nearest subway or bus station. Bike rental caters to this demand without any complicated procedure or heavy deposit required (since these apps offer bikes with minimal and refundable deposit). In addition, the bike rental concept is becoming a hit with college and school students who cannot afford or try to avoid the responsibility of owning an asset, and also consider biking around the city cool.

Furthermore, the bike rental industry resonates with the growing awareness of an urgent need to address the issue of dramatically deteriorating air quality in most Chinese cities by offering eco-friendly substitute to cars, thereby fighting China’s increasing traffic and air pollution problem.

As of January 2017, there were around 17 companies operating in this new bike rental sector of sharing economy market, out of which MoBike and Ofo are the leading players attracting investment from foreign companies. In January 2017, MoBike raised US$ 215 million from a range of investors including Warburg Pincus, Tencent Holdings, and Ctrip.com International. In February 2017, the company raised additional funding from Singapore-based investment company Temasek Holdings and investment group Hillhouse Capital. The start-up also announced it raised an undisclosed amount from Taiwan-based electronics contract manufacturing company, Foxconn, in January 2017 with a view to increase its fleet size to reach 10 million new bikes every year. The association also aims to cut down the overall production cost and reduce the distribution cost of placing bikes internationally by setting up production houses in strategic locations.

MoBike’s competitor, Ofo, has also been in the limelight for attracting investments from tech players. China’s leading ride-hailing start-up, Didi Chuxing, investment group DST Global, and a private equity firm CITIC are some of the investors in Ofo, which has raised a total of US$ 450 million as of 2017.

App-based bike rental industry has become one of the hottest sectors in China, leading to various domestic and international investors eager to cash in, funding new start-ups operating in this market. The start-ups compete majorly on price and the range of services offered with regards to finding and unlocking bikes, and aim to increase their presence throughout China and abroad. Despite the increasing investment, these start-ups are facing challenges which might hinder the growth of the industry. At present, no industry-specific regulations have been laid out for the bike renting services, including framework of rules and criteria qualifying companies as bike-renting operators, monitoring their activities, or setting up bike maintenance requirements, which can in turn affect user safety. In addition, start-ups face the constant fear of theft and vandalism of their fleet, which can lead to considerable expenses. For instance, in March 2017, around 4,000 bikes were found to be illegally parked in public areas in Shanghai and were confiscated by local authorities. Most of the bikes were owned by MoBike which is now required to pay a management fee and hopes to get 3,500 bikes returned.

Further, the ‘park anywhere’ policy followed by most operators is a double-edged sword, mostly due to users’ negligence with regards parking the bikes. While the policy increases the chances of bikes being found in immediate vicinity, a fact appreciated by the users, it also agrees to bikes being parked in remote areas. As a result, cities in China witness bikes being piled up along freeways and private buildings, and also obstructing pedestrians on the sidewalk.

EOS Perspective

Internet-based bike renting business is booming at an unprecedented rate and adding new momentum to the push to build up the country’s green transportation system. Investors are ogling opportunities presented by the growing platform which leverages on millions of young and tech savvy users. The bike rental start-up battle has just started and the competition is helpful in boosting the size of the industry. Start-ups such as MoBike and Ofo are thriving in the short run by offering new services which let the commuter rent a bike with the help of a mobile phone. However, the increasing investment is not enough for long-term viability and external support in the form of regulations and parking rules is required.

In order to grow, bike rental operators have to resolve issues such as bike theft, vandalism, and disorderly parking. For instance, to avoid bike theft, MoBike has hired staff patrols to keep a check on the bikes. However, this generates additional costs and is only partially able to address the issue of bike theft, as these patrols are unable to monitor all bikes at any point of time. In addition, MoBike introduced a credit score system for users to avoid damage to the bikes, by increasing the user’s responsibility for equipment. Under this system, penalty points are taken in case of any vandalism. Once a user’s score falls below a certain level, the rental fee is increased.

Bike rental companies also need to work on their business model for long-term viability. Despite booming in the short run by offering new and innovative services, these companies will need to overcome a major challenge around the profitability model – tackling it either through in-app advertising, government subsidies, or expanding to other ancillary services. It seems that long-term growth based exclusively on rental fees might be limited as soon as streets in key cities become saturated with this kind of service. Further, the industry is yet to solve problems such as the limited number of bikes a city can handle, as the road space and bike-dedicated lanes might not expand fast enough in most Chinese cities. Unless these companies come up with a long-term plan for sustainability, the future of the industry is hard to predict.

12/10/2016by EOS Intelligence EOS Intelligence No Comments

Sharing Economy Needs Regulator Support

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Sharing economy works on a business model where individuals have the ability to borrow or rent goods or services owned by someone else. The concept has been widely accepted in a short span of time and companies such as Uber and Airbnb have become well known among consumers. The sharing economy sector has witnessed tremendous growth with aggregate valuation of the companies operating in this market reaching US$ 140 billion in 2015. The industry has already started causing a shift in the employment sector and is said to have far-reaching implications which are likely to disrupt the traditional rental business model, particularly for companies in hotel and transportation sectors. The growth potential of sharing economy has become of considerable interest to policy makers around the globe as well, and the industry has recently come under scrutiny of various governments and regulators, and is likely to face regulatory barriers affecting its potential to scale up.

The concept of sharing economy, also known as peer-to-peer economy, facilitates a direct contact between consumers and service providers and is centered around the use of privately owned, unused inventory. Technology is key to the growth of this type of economy, which has already witnessed the emergence of several sharing platforms enabling consumers to share products and services such as cars and houses.

EOS Perspective

Companies such as Uber and Airbnb have become the talk of the town, due to their tremendous growth achieved thanks to a simple business model: providing consumers the ability to monetize idle inventory and rent an asset, instead of purchasing it. Sharing economy also meets consumers’ desire for social interaction, lower costs, and technology-based access to goods and services. However, the sudden and overwhelming rise in its popularity has shaken the governments’ ability to appropriately and sufficiently regulate this economy. Weak legal frameworks hampering consumer’s safety and tax collection have led to debates around the benefits of sharing economy.

Implementation of the traditional regulatory frameworks in the sharing economy sector is likely to upend the peer-to-peer business model. Inclusion and implementation of monetary employee benefits, tax obligations, and safety regulations in the sharing economy can be expected to lead to an increase in the cost of services offered by these companies, thereby defeating the purpose of the existence of sharing economy. Thus, instead of imposing regulations originally developed and meant for traditional rental sector, there arises a vital need to develop a new policy framework best suited to the peer-to-peer business model.

Instead of completely imposing bans on these services and eliminating the opportunity to make use of idle inventory, governments should work alongside these companies and create regulations tailored to their regions to encourage safe business conduct. For instance, Airbnb signed an agreement with the City of Amsterdam to promote responsible home sharing in 2015. The agreement includes a set of rules for the hosts to be followed before activating their listing, and also stipulates the collection and remittance of tourist tax by Airbnb on behalf of the hosts. In addition, the agreement also includes a partnership with Airbnb to collect content from the company’s database to shutdown illegal hotels. These efforts are expected to ensure the hosts receive clear information on renting their homes and promote consumer safety.

Sharing economy has the potential to make a tremendous impact on the traditional rental sector and is likely to create opportunities across various different economic activities. However, from a legal perspective, it cannot be ignored that the model lacks a strong regulatory support, which over time will continue to put pressure on this newly emerged sector. The peer-to-peer model will be required to address these imperatives in the near future in order to scale to new heights.

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