How the Sharing Economy Will Shape National Digital Transformation

As we continue to embed digital technologies in our work and in our homes at an unprecedented rate, the world economy stands at a new tipping point. According to market research firm IDC, by 2023 the global economy will reach digital supremacy — the point at which products and services provided by digitally transformed enterprises will account for more than half of total global GDP.

This growing trend toward digitalization is primarily being driven by people born after 1980 (Millennials and Generation Z). These generations are always online. They grew up using social networks. They value experiences over products. And they demand personalized customer experiences from businesses. It is their essential affinity for all things digital that has helped give rise to a new economic model: the sharing economy.

The Rise of the Sharing Economy

The sharing economy relies on a new economic construct that links excess capacity with real-time demand. It connects consumers to providers via online ecosystems or platforms, transforming traditional business-to-consumer models into consumer-to-consumer models. The most prominent examples of this model are vehicle-for-hire provider Uber, and Airbnb, the home-sharing platform that has disrupted the accommodation industry. These companies don’t maintain their own inventories of vehicles or rooms, but they have revolutionized the traditional transport and tourism industries. They have quickly become major global brands, providing online platforms that connect tourists to homeowners and drivers with vehicles to passengers.

Though Uber and Airbnb are perhaps the biggest success stories, the sharing economy’s impact stretches well beyond these two companies and their sectors. Today, there are job platforms that connect freelance workers with job providers, and crowdfunding platforms that help entrepreneurs raise capital. There are crowd-lending platforms that help people borrow money, and energy grids to share excess solar energy. There are even platforms that let people lend their personal belongings — including clothes, devices, and even their cars — as well as provide skilled personal services such as handyman work and repairs. The concept of sharing and exchanging isn’t new, of course, but advanced technologies have eliminated barriers and created conditions in which the sharing economy model can flourish. The key attributes that drive the sharing economy are freedom of choice, aggregation of supply, optimal resource use, and community-based work relationships.

The Future of the Sharing Economy

The success of players in the sharing economy comes from their ability to deliver innovative services and experiences at scale. The sharing economy is expected to flourish because this resonates with the trend of continuous personalized customer experiences. In the key sectors affected by the sharing economy, 50% of revenue share will go to sharing economy players by 2025 — up from 5% in 2013, according to a study by PwC.

Indeed, the sharing economy is already influential is many countries. For example, in 2019 the Chinese sharing economy involved 800 million people and 78 million service providers and created 6.23 million jobs. China estimates that the sharing economy will account for 10% of its domestic GDP in 2020; that figure is expected to grow to 20% by 2025.

As sharing economy leaders grow and new players enter, the services and functionalities will likely evolve. For example, mobility-as-a-service providers will increasingly use artificial intelligence to predict passenger behavior, based on a history of services and transactions, to offer more customized services, such as variable pricing. This could be further extended to transactions made with partners and offer value-added services such as shopping deals.

Another trend that is shaping the sharing economy is how leading players extend their sphere of influence. Currently, they are mostly expanding into fields related to their existing lines of business, exemplified by Uber providing food delivery services; car-hire company Careem providing bike-rentals; and food services aggregator Zomato entering the video streaming space, focusing on food related content. In the future, the playing field for these enterprises could extend to areas such as payments.

Implications for National Digital Transformation

For those nations in the Middle East actively pursuing national digital transformation, the evolution of the sharing economy is significant — particularly because the age group that drives digitalization accounts for nearly 75% of the region’s population. This new economic model is changing how people both consume products and access services, reshaping employment models and industry ecosystems at the same time. The effects of the sharing economy on nations are multifold, but let's focus on three key areas that pertain to digital transformation: data regulation, digitalization, and digital infrastructure.

Figure: Sharing Economy and its Implications for National Digital Transformation

Data Regulation

The sharing economy runs on data and thrives on platforms. The current and future value proposition of any sharing economy firm depends on two factors: how much data it can collect, and how well it can convert that data into actionable insights. These insights might enable new business opportunities, strengthen the value chain, reduce the cost and complexity of operations, and facilitate agile decision making. They can also support future AI-based algorithms to facilitate citizens, businesses, and industries grow their portfolio in a way that strengthens national GDP.

For national governments, this raises some serious questions. Who is collecting this data? What are they collecting? How are they using it? And where are they storing it? Faced with these questions, the focus shifts to regulation and policymaking. For the sharing economy to thrive, the digital trustworthiness of the ecosystem is paramount. The trust environment in the sharing economy extends beyond the traditional ideas of security, risk, and compliance to include privacy and ethical business practices. National policymakers need to create a trust framework that governs data and includes regulations and policies covering areas such as data privacy, security, and cloud. Such a standards-based regulatory approach will facilitate the adoption of technology and promote its use for the benefit of citizens and businesses, especially in sectors such as tourism, healthcare, utilities, and Smart Cities.

Digitalization

The emergence of the sharing economy provides opportunities to solve some of the key challenges that Middle Eastern nations and cities face today, namely: determining how to efficiently use excess capacity, and how to solve issues such as traffic congestion, last mile connectivity, and demand spikes related to major events such as the World Expo in Dubai (scheduled to begin in October 2020) and the 2022 FIFA World Cup (due to be held in Qatar). Governments collect more data than any industry, and this data is particularly important to solving these challenges and allowing the sharing economy to grow. The governmental organizations that are mandated to provide such services could partner with the digital disruptors in the sharing economy to offer services through their platforms. This would enable governmental organizations to circumvent legacy infrastructures and co-create digitally integrated products and services — allowing them to get ahead in the digitalization era and offer superior passenger and tourist experiences.

Digital Infrastructure

In economies that run on data and thrive on platforms, digital infrastructure becomes the backbone. National governments should shed their traditional conceptions of infrastructure as only physical buildings and facilities; they should focus on digital IT as well as telecom infrastructure and digital platforms that enable the high-quality customer experiences that digital citizens expect. This highlights the importance of building nationwide 5G-based telecom and IT infrastructure, which enables the IoT edge network and cloud-based platforms to thrive. The level of growth forecast for devices, network elements, and data indicates the need for network connectivity and bandwidth to grow exponentially. Technologies such as 5G and Wi-Fi 6 — offering ultrafast speeds, support for a high density of devices, and low latency— become crucial enablers of national digital transformation plans.

Embracing Change

The sharing economy’s rise is one of the defining trends of the digital economy, which is growing rapidly with significant implications for national digital transformation. While it raises several data regulation, privacy, and security challenges, it also provides opportunities for national governments to solve escalating issues, such as traffic congestion, excess capacity use, and unemployment. Governments pursuing national digital transformation should address the challenges the sharing economy presents through regulation and policymaking, as well as through accelerating the building of digital telecoms and IT infrastructure. Meanwhile, public sector organizations should seize the opportunities the sharing economy creates, to enhance the citizen experience and get ahead in the digitalization era.

Policymakers must understand the bigger picture and create regulatory guidelines to manage the long-term changes in employment patterns, public safety, competition, and digital trust arising from new, evolving business models. They also need to recognize that new demands are being put on government agencies in terms of revenue collection, traffic and competition management, passenger security, environmental supervision, and employee welfare. For legislatures and public officials, the goal should be implementing forward-thinking policies that both capitalize on, and expand the benefits of, the sharing economy.