I’ve recently came across an article describing how the Corona crisis will accelerate our economy into the future. 

One thing that struck me was the section about shared services. 

Ford and BMW have both stated that they seem to have misjudged the consumer behaviour in regards to shared services. GM has even cancelled their car-sharing service Maven. 

The consensus is that people don’t really want to share something as personal as their car. 

I’ve been telling this to friends for years now. 

In my opinion it comes down to the following: People share infrastructure, but they don’t share the means to move along infrastructure.

My personal experience

I am a member of Car2Go, the Mercedes-Benz and Smart carsharing, for years now and have used it every once in a while. 

But for most of the time I just used the Berlin public transport (or any other city that I was present in). 

It has also not prevented me from buying my own car and over the time I started realizing that the benefits are getting less and less. 

Let me take you through the process real quick:

You need to walk to the car – which takes a few minutes – then at your destination you need to find a parking spot which takes another few minutes. And if you park wrongly, they surprise you with a giant reparking bill (can be up to hundreds of Euros, yes it happened to me). And with all of that you take longer and pay more money than with a well planned public transport trip. 

Clearly it is really not this great innovative thing that some Silicon Valley Guru with well prepared marketing slides will tell you.

So let us dive into the Shared Economy by the example of Car Sharing and let me share why in my opinion the shared economy doesn’t work for anything more than infrastructure.

That’s right, sharing does work – but only for infrastructure, not for individual products.

The flawed Psychology of Shared Services

Let me give you an example of how ridiculous shared services actually are. 

Every one of us needs to go to the doctor every once in a while. Now here in Germany with a public healthcare system which we share as infrastructure, I can choose a doctor to go to, get an appointment or just walk in there if I don’t mind waiting a bit and then will get treated personally. 

The infrastructure is that my health insurance covers the cost and I can go to every public doctor that I want. 

The means of using the infrastructure is getting a personal treatment from the doctor. 

Say I have a flu, he will attend to me, check for my symptoms and then make sure I get the right medicine to get back on track. 

Now imagine this as a shared economy service. 

A service where the company wants to grab a certain maximum of profits.

The doctor would call in any patient that has called in for flu symptoms at the same time, ask them into a big room and then just do a mass questionnaire to determine roughly the right medicine for the right groups of symptoms. 

Let’s not forget that the people will probably also infect each other with their variants of infections. 

(By the way – I have a few things that I wrote in the last years and I totally wrote this before Corona happened – how ironic.)

All of this only to save costs? 

Doesn’t seem like the right thing to do, huh? I wouldn’t use this service. 

But then why do we use services like CarSharing – honestly they are exactly the same thing.

Instead of taking the public transport ride you wish for or having the private transport you exactly need in that moment (Taxi) you have to put up with whatever cars are close to your position and take whatever price the company offers you.

Just like not being able to choose your doctor and putting up with whatever the doctor has in mind in terms of mass caretaking.

The Reversal

Let’s have a second look – this time at the users perspective. 

I will use another example – to write my articles I use Google Docs – they are synchronized along all my devices and I can easily access them with an internet connection (not the best thing to do in terms of data security, I know). 

I share my Google Server (Infrastructure) with probably tens of thousands of other people. But what I don’t share is my personal access (means to the infrastructure) to this server – my account. 

I mean I could – just to save costs on this, I could share my account with 100 other people (and there are probably semi-legal services out there empowering you to do so). But I don’t want to. 

People could read my documents, everything would be chaotic and out of order and I don’t really like the thought of having other people in the same account that I use. 

I guess you are getting my point. Sharing the road with other cars is not that much of a problem, sharing the car with other people is a different topic. 

Everyone is the same?

And I didn’t even dive into the topic of the human need for individualization and customization yet. 

We need and want to be unique to a certain degree. 

A highly shared economy has an almost communist class system integrated into it. Everybody is the same in the same price category. Either you can afford the service or you can’t but that really is all there is.

Not really what everybody wants. 

There is a reason why in China people sell their inner city apartments and use half of the money to throw a gigantic wedding slightly surpassing the grandeur of their neighbours one. 

And the reason is definitely not a financial one. I can see financial advisors getting seizures just reading these lines.

After decades of communist indoctrination about being equal and non-individualistic, people have had enough and decided against all financial intelligence to be so individualistic and special and throw this giant wedding. 

So human psychology is standing in opposition to a shared economy. 

The ‘deduplication’ of economy will happen in the factories, not at the consumers front

The next assumption behind the shared economy is that the consumers will accept and settle with less wealth and comfort in exchange for lower prices.

Instead of paying for a car you only have to pay based on consumption. 

That way if you are in the economic situation of actually using a car much less than a normal person would, you could save money in the long-term by paying much less than what you would over the same period that you use the car.

But besides being flawed for the fact that with a self owned car a higher value is justified because it provides much more than just arbitrarily availability for mobility and also has wealth attached to it, there is another overlooked factor. 

Developments in technology. 

Cars are reducing in prices rapidly, mostly due to more automated construction. 

Tesla is expected to sell their Model 3 for much less in a few years from now due to heavily improved battery technology and cheaper manufacturing (https://edition.cnn.com/2020/05/01/tech/tesla-china-model-3-price-cut-intl-hnk/index.html).

Now at the same time a shared service like Car Sharing at the market start phase where it is right now is traditionally already cut low on margins so in the future you can expect price increases (actually, there have already been several of those and a fairly strong one in Germany after the two biggest companies have fused). 

So the math just does not work. Potentially cheaper cars in the future meet potentially more expensive car sharing in the future. 

And this is not yet taking into consideration what effect some other technologies like 3D printing might have on the car manufacturing industry. 

Maybe soon the part that used to cost $1.000 to manufacture is now $200.

So you can clearly see how the economics work against carsharing and for owning cars. 

I am going to do a much deeper look into the economics of manufacturing using 3D printing in the course of the next articles, but for now let’s just go with the assumption that 3D printing and digitization in the manufacturing process will lead to massive decrease in manufacturing costs and time.

Car sharing occupies a market segment that doesn’t really exist and Corona exposes this

Think about the market segment that car sharing occupies. 

What is it exactly? 

Every single segment it occupies is already occupied. 

Want to move from A to B in a big city? Use public transport. 

Want to have the comfort of a car? Call an Uber/Taxi.

Need to transport something? You can literally just rent a car.

The market segment is sort of “Want to move from A to B in a big city with more stress and a higher price than public transport while potentially taking more time but at least it is not as expensive as a taxi but it will take much longer than taxis because of the availability? – Use car sharing”.

You see, it also doesn’t do anything better than the other segment occupiers do. 

And now you add in the Corona Crisis. 

People resort back to their more natural inclinations and take a step away from the most specialized forms of consumption and transportation. 

What is the most expendable thing? Car sharing. 

As soon as there is something that doesn’t go as planned, car sharing is the first thing to be expendable and abandoned. 

Why? Well you share it with other people, so you don’t really get the health benefits of having your own car to yourself. 

You are potentially laid off from your job and you have to save money on every corner that you can. 

You are not out in the night that much anymore because bars close early and clubs are closed, so public transportation has a higher availability when you need it. 

Corona exposes all the weaknesses of the shared economy and in my opinion demonstrates why in the future services like these will slowly start to fade and will be replaced by cheaply produced mass products that even the poorest can afford. 

A look at the numbers

In fact, car sharing has dropped by 50% and more in lockdowns and has not resumed to previous levels outside of lockdown, stalling at 85-90% levels of pre-covid.

At the same time, general mobility has decreased by only 30% during lockdowns while it has even increased to more than 100% in comparison to past years outside of lockdowns. People abandon carsharing, but not cars. 

Not particularly exciting for a business model that is supposed to grow.

A look into 2050

First of all, thanks for bearing with me up until here. This is a longer post than usual.

As stated before, the shared economy is flawed. 

It is a projected ideal future that really isn’t that ideal. 

The following is what I believe will happen.

Margin pressure will reduce the availability of such a service to the lowest possible minimum at which a certain amount of customers are still going to pay for it, however those customers will be small in numbers and eventually such a business will be more of a liability than an added value to a large car manufacturer. 

There is a reason why a company like Tesla, who is at the forefront of the digital transformation in the car manufacturing industry doesn’t get into car sharing. 

It is not a business model for the future, and so will all of the sharing economy not be. 

Consumers will be more inclined to pay extra money to something personal to them, which belongs to them and gives them the freedom of customization and using it whenever and wherever they want than they would to buying a shared service. 

With all of that said – enough from me, what do you think?

Is my prediction right or is there something I have completely missed about the shared economy? 

Let me know in the comments, on social media or via Email. 

I will reply to everyone. 

Until then

Philipp