Should CFOs be worried about decreasing revenues due to the sharing economy?

Posted by  Noelia Gomez Rivero

Although the term ‘sharing economy’ only began to appear in the 2000s, in its simplest form it’s been one of the foundations of the way humans have interacted and traded for centuries.

What has changed in the last 20 years is that technology has exponentially expanded the range of things you can trade and the pool of people you can trade with. For example:

  • Staying in somebody’s home.
  • Car-pooling to the local shops.
  • Or even simply borrowing a drill for some housework.

Media commentary on the sharing economy tends to focus on how market share and profits are being eroded from established organizations. But that’s far from the whole story. One of the best examples of how industries can adapt – though sometimes forgotten because of the obsession with AirBnB and Uber – is the music industry.

Although Napster triggered a change in the industry by enabling music to be shared, for the users the real pain point was that they simply wanted to listen to more songs, whenever or wherever they wanted. They had MP3 players to fill, and the industry had been too slow to pick up on how people’s tastes and attitudes were changing.

This change reshaped the industry profoundly, and although the ramifications are still being felt, the reality is that many music firms have survived by adapting – creatively creating premium content to sell physical copies, working with legitimate sharing platforms, and putting more emphasis on revenues from live concerts.

However, some CFOs are not yet convinced that they can apply the same strategies in their industry, to help their company not only survive but thrive in this new reality. How are you supposed to apply this model to manufacturing? What about banking? Or insurance? Or hospitality?

Of course, while not all strategies from the music industry can be transferred, there are some considerations for CFOs to take into account, before assuming that defeat is inevitable and surrendering their revenues to the sharing economy:

  • If you become involved, and you succeed, there is real value to be created. While the number of companies that provide services through the sharing economy platforms is relatively small (compared with the number of individuals providing services), they already generate a third of the revenues.
  • Co-operative ventures, working with other non-competing firms, can create value by combining efforts. A good example from traditional “bricks and mortar” business would be implanting coffee shops in supermarkets, but collaboration works well in less obvious scenarios too. By using the sharing economy and thinking out of the box, you can bring costs down and provide gain a competitive advantage.
  • Some are diversifying by acquiring or organically building companies focused on the sharing economy. This is a good alternative tactic if you feel that sharing isn’t relevant for your current business model, but is still a space where you should be present.
  • Finally, you can look at redesigning products using the latest disruptive technology. It can start small, but – done well with controlled risks and a good exit strategy – it can help keep you on the front foot.

Of course, you may still determine that your company just won’t compete well in the sharing economy space and evolve as a premium brand. Whichever route you take, you will still need to support your company with a profound transformation of your finance function, starting by making it more strategic and more responsive to changes in the marketplace.

If you want to learn more about how the sharing economy can transform CFOs’ lives, please join our on-demand webinar right now.

Noelia Gomez Rivero

Head of Office of the CFO Centre of Excellence