How COVID-19 Changes the Sharing Economy

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Written by Liwen Xu

Airbnb, Uber, WeWork. Everyone’s heard of these unicorns— in just a few years, they grew from spur-of-the-moment ideas to full fledged platforms with over $10 billion valuations. 

These companies helped create the sharing economy, where demand meets supply by sharing partially available resources with others in need— an extra seat in a car, room in a house, desk at a workspace. A key differentiator that propelled their growth was their low fixed costs; the companies themselves owned little other than their brand and platform. Even WeWork, which has to rent buildings via long term contracts, does not own the office buildings that it rents. 

These unicorns drove revenue, growth, and investor interest so quickly by appeasing their skyrocketing demand with all this extra supply. Airbnb, Uber, and WeWork have each made a business of working as the automated middleman. 

However, during the coronavirus era and the subsequent recession, these companies had to face reality— sharing resources would become a burden rather than a perk. And then, the deeper realization: there was also no longer a need for the middleman.

What’s industry analysis say?

The Porter’s 5 Forces framework analyzes how industry-wide forces affect a company. Buyers, suppliers, substitutes, new entrants, and rivalry— each play a major role in how these unicorns do. After all, the strategist’s job is to “cope with competition,” and anyone coming after your profits is competition.

High threat to profitability

Buyers: Uber, Airbnb, and WeWork are each very demand-driven, whose businesses rely heavily on price-sensitive riders, vacationers, and entrepreneurs or small business workers. 

Medium threats to profitability

Suppliers: Without the drivers, home hosts, and workspaces, these companies would not be able to appease demand. However, buyers are usually prioritized over suppliers for each of these companies.

Substitutes: For Uber, users can walk, bike, take a train, drive, or carpool as an alternative. For Airbnb, guests can rent a hotel, stay at a friend’s place, or stay at a hostel. As for WeWork, workers can go to coffeeshops, work at home, or rent other office buildings.

Rivalry: It’s higher for Uber, as there’s Lyft and other ride-hailing services. But for Airbnb and WeWork, their network effects and brand are so powerful that not many rivals could even match them. 

Low threat to profitability

New Entrants: Because each company has built up its platform and its audience, network effects play to its advantages and make it more difficult for new companies to penetrate the market. 

How they were winning. . .

Each of these companies have key differentiators, such as their brand and traction, that make it difficult for new entrants to enter. These companies are also first and foremost dependent on customer demand, and secondarily suppliers who can provide what the customers seek— rides, housing, workspaces. 

While it seems that each company’s platform and growth propel customers to choose them, coronavirus has forced people to turn to alternatives. Due to worldwide shutdowns, safety concerns, and more careful consumer expectations, users are now turning to substitutes. Instead of calling an Uber, people can drive their own cars, bike, walk, or simply stay at home. Maybe order delivery, with Doordash and Instacart. Instead of staying at an Airbnb, people turn to hotels with strict regulations, friends’ homes, or waiting on taking vacations. As for work, many people are going to their offices and facilities less often, and will otherwise work from home.  

No more of the “easy money, no rules” era that these companies have excelled in, as Shira Ovide from Bloomberg coined.

What’s next?

It’s inevitable that these companies will continue to see their growth and revenue fall. Each is trying to adapt to this new coronavirus-infected environment. 

Though its golden era seems to have ended, the sharing economy can outlast coronavirus. Now, it’s about survival rather than growth. While we can’t safely share spaces as freely anymore, experiences can still be shared and there are ways that these companies can cater to them.

Here are a few basic tips:

  1. Stick to the demand. Pivoting to what the buyer wants has always worked when propelling growth, but now, users are afraid to share spaces. Demand has not only decreased, but has shifted to prioritize health rather than convenience. Whatever customers deem important now— space, cleanliness— is what these companies must turn to. Airbnb did a good job of this in March, offering refunds without the usual deadlines in lieu of the coronavirus outbreak. These offers show that this home-sharing unicorn truly values its customers, taking on the financial burden to alleviate their users’ inconveniences. Taking this a step further, Airbnb has also set up an emergency fund for hosts, making sure that the company not only protects its relationship with buyers, but with suppliers as well.
  2. Prioritize cleanliness. WeWork, Uber, and Airbnb are promoting cleanliness and distancing in their facilities, whether it’s increased sanitization stations at the workplace, provided wet wipes in cars, or required masks on rides. For a while, Uber and Lyft were even sending messages to their riders to boycott ridesharing while they implemented these new measures. Uber, Airbnb, and WeWork have each created a coronavirus resource page on their websites that outline their hygiene measures as well as how to verify users’ safety through the web or mobile app (i.e. mask verification through Uber’s app).
  3. Sustain trust and leverage the brand. As each company has a strong brand, customers trust the products and services that these companies offer. So, Uber and Airbnb are branching out to contactless user experiences— UberEats and Airbnb’s Online Experiences, though not their main services, are promising options to focus on during this time, not only to bring in revenue, but to continue building that trust with the customer. Food delivery and virtual tours and experiences are, after all, still activities and moments that can connect us. Companies like Uber, Airbnb, and WeWork can additionally create brand loyalty programs, where safe usage of their services can accrue discounts and promotions, leading to further use of their platform and product. 

All in all, these companies will be forced to hedge their budgets, both where to invest and where to cut costs. Airbnb laid off 25% of its company, and Uber and WeWork both let go of large portions of their workforces as well. Because the cost of customer acquisition is so high, these companies remain unprofitable. By maintaining customer loyalty, lowering acquisition costs and reducing churn, these once-upon-a-time unicorns can actually survive coronavirus and build a stable, long lasting product. For now, they must stick to their core strategies, and hope that by the time things return to normal, they will have their platforms ready and their customers eager to use them again. 

AirBnB, are you bullish?

Though the threat of coronavirus persists, it’s not the end for these companies. In AirbnBaller, Scott Galloway declares that Airbnb is overvalued, a fighter, and worth more than the three largest hotel firms combined. 

Why? Despite the threat of COVID-19, Airbnb has outpaced hotels in terms of number of guestrooms available, website traffic and therefore online presence, and projected market cap ($120B). Airbnb not only has adaptable supply in terms of hosts and homes, but also a global presence that draws demand exponentially. This goes to show that even in the midst of a pandemic crisis, a loyal audience, worldwide accessibility, and a strong brand can lift a company out of difficult times.

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