Nothing gets a capitalist heart beating faster than the thought of cashing in on socialism – at least, when socialism takes the form of the new "sharing" economy.
The latest beneficiary of the sudden passion for sharing goods and services among complete strangers is the wonderfully named BlaBlaCar, a French Web app that connects travellers looking for cheap transportation with drivers who have empty seats. It raised $100-million (U.S.) from venture investors on Wednesday, a huge amount for what amounts to an automated hitchhiking service.
Yet despite the success of its financing efforts, BlaBlaCar looks positively downscale compared to other sharing services. Airbnb, a service that lets you rent out your spare room, your house – or even your couch – has raised more than $800-million and is being valued at $10-billion. Uber, another car-sharing service, just raised $1.2-billion in a financing that puts a price tag of $17-billion on the entire company.
Enthusiasts argue these firms have found a sweet spot in an economy where online tools can quickly match up people who have unused stuff and people who would like to rent that stuff for a brief time. The bulls have a point – but anyone who's tempted to invest at today's valuations should consider the spotty history of earlier attempts to build a sharing economy.
Remember Zipcar? The car-sharing service, which allowed its members to rent vehicles by the hour, seemed to offer a great alternative to car ownership for people living in dense, urban neighbourhoods. When it went public in 2011, it quickly soared to a market capitalization of more than $1-billion. But when it failed to generate a consistent profit, its share price tumbled and it was acquired by Avis Budget Group last year for less than half its peak valuation.
Or how about the timeshare resort industry? The notion of buying a part interest in a vacation property has always made sense – sort of. Problem is, no company has ever been able to make the business pay off in the way that theory would suggest. The industry is better known for high-pressure sales tactics than spectacular investor returns.
The lacklustre history of earlier sharing efforts isn't necessarily a death knell for BlaBlaCar, Airbnb or any of the other current entrants in the field. But they do suggest that it's not easy to build a business that is based on having myriad unrelated people divvy up a resource.
One problem is that businesses that are premised on sharing things don't always generate huge savings for users, perhaps because of the amount of administration required. Based on my experience, renting a Zipcar vehicle for a day isn't always cheaper than renting one through a traditional car rental company. Similarly, numerous reviewers who have tried Uber, the trendy car-sharing app, conclude that it is often – but not always – cheaper than hailing a cab. In both cases, the quality of service can vary a lot.
The savings that are generated by some sharing services reflect the fact that they're unregulated – and any company in the sector has to deal with the threat that government is unlikely to leave them unregulated if they grow large enough.
In New York, Airbnb has been forced to strike a deal with regulators who suspect that people who rent out part of their homes through the service are concealing income and perhaps violating state housing laws. Uber has been the target of protests by London cabbies; it is also under pressure from several local regulators in the United States who claim it is running an unlicensed taxi service.
Even if these companies succeed in winning regulatory approval for their businesses, they face another hurdle: increased competition. Uber is already battling rivals such as Lyft and Sidecar, not to mention BlaBlaCar. Airbnb is going up against VRBO and Wimdu.
In a sharing economy, profits too may be shared. And that doesn't bode well for investors who overpay for a slice of any of these companies.