Jeremiah Owyang: Sharing makes for sustainable business

Jeremiah Owyang: Sharing makes for sustainable business

Editor's note: Jeremiah Owyang will speak Oct. 14-17 at the GreenBiz VERGE conference in San Francisco.

In May, Jeremiah Owyang lent his car overnight to a young university student, using the RelayRides sharing service to arrange the transaction.

The whole process unnerved him on many levels, even though his family was $50 richer the next morning. Owyang couldn't help but think about what the student was doing with his car and whether it would come back in the same condition.

But the experience turned out just fine, and the respected industry analyst is planning to hand over his keys again, for much longer periods of time. You can file this under the category of first-person research. After all, in his role as partner at Altimeter Group, Owyang is a vocal proponent of "collaborative economy" theory, which envisions a future in which people won't outright own many products they use. Instead, they will rent, share, swap or borrow them.

 Lyft"It's an economic model, it's more than a business model, of shared ownership and shared access between people, startups and corporations," he explains. "And perhaps even government, too."

The "sharing" economy model that Owyang spends much of his time studying -- one figure estimates its value at more than $26 billion -- will disrupt pretty much every business function or industry you can name or think of. Dozens of startups are defining it -- from Airbnb (room or home rentals) to SurfAir (private airline membership club) to Lyft (an on-demand ridesharing facilitator) and LiquidSpace (which seeks to make the most of real estate portfolios).

Owyang believes the rise of these companies, and their peers, will have a major impact on the way businesses view corporate sustainability.

"This is green, because it means that consumption goes down. It means that people trade in local markets," he says. "It means people trade on demand. It means people share idle goods that are not being fully utilized. It means they become more efficient. In the old way of business, you were trying to sell, sell, sell. Consume, sell, consume, sell will no longer be relevant."

Yes, that's right, because people can get whatever they need from each other, the sharing economy could trigger billions or even trillions of dollars in lost revenue for companies that ignore it, Owyang predicts.

Consider one of the first industries being disrupted: automobiles. One shared car reduces the need for nine cars on the road, estimates one University of California, Berkeley, study. If you figure that the average sticker price of an automobile is $30,000, that's a $270,000 sales loss for the industry. That doesn't even begin to account for the lost revenue for auto taxes, parking, tools, car washes and so on.

"I could draw up the financial argument suggesting that one properly shared car is more than $1 million in ecosystem impact," Owyang says.

The BMW 328i sedan.That's why some of the most innovative car companies are studying ways to be involved. One example is BMW On Demand, which started in Europe. The program lets people rent cars at certain dealers for as little as four hours, up to a nine-day stretch. Right now, it's only available in Manhattan.

Playing devil's advocate for the legacy way of doing things, I ask Owyang about some legal troubles that Airbnb is running into, such as in New York City where one host has run afoul of the "illegal hotels law" and is being fined. Owyang shrugs this off, saying that the sharing concept already has gained so much momentum that it will be difficult to regulate.

"While it may be deemed illegal, the only way you can stop it is if you stop the Internet," he says.

Indeed, Owyang sees this as a great opportunity for smart businesses. He believes there are three distinct ways in which companies can join this economy and profit from it. Here's a summary of the models he proposes:

1. Create a company as a service: Instead of selling one product just one time, companies should think about selling one product more than 100 times under a subscription or recurring revenue model. Think of Netflix, which sells DVDs as a service, and Salesforce.com, which is software as a service.

2. Motivate a marketplace: Under this model, businesses come together to help consumers "resell, gift, swap or trade their own goods." One vivid example is Patagonia, which is working with eBay on the Common Threads Partnership, a site where people can swap or recycle Patagonia clothing and gear.

3. Provide a platform: Think of the typical departments within a company: finance, research and development, production, delivery, marketing, sales and the storage of products, such as a warehouse. In the collaborative economy, pretty much every function is provided by the crowd. For example, Kickstarter or Lending Club provide the funding engine, Etsy or Quirky provide the creative products, and so on. Companies can reduce costs and capital expenditures by availing themselves of these services. "In this radical future, you can't tell the difference between employee and customer," Owyang says.

How far away is this future? While it might be tough for people of a certain age to imagine, he believes the transition will be accelerated -- in the United States at least -- by the 20-somethings currently entering the workforce, who are weighed down by thousands of dollars in college debt and practically live on the Internet and their mobile devices. It would take a long time for one of these consumers to spend $300 on a designer handbag, but they might be tempted to rent one temporarily one using Bag, Borrow or Steal.

In other parts of the world, Owyang says, sharing is a more common, even necessary practice. The pressure to embrace more sustainable consumption practices only will grow stronger as the world's population mushrooms to approximately 9 billion people by 2050.

"We have no choice but to share," he says. "We have no choice."

Jeremiah Owyang image by hyku via Flickr.

Editor's note: To learn more about the sharing economy and the convergence of sustainability and technology, be sure to check out VERGE SF Oct.14-17.