Rayshauna Gray makes frequent trips around New England from her home in Cambridge, Massachusetts. The 27-year-old doesn’t own a car and says she can’t imagine ever wanting to.
It takes two minutes for her to type relayrides.com into her Internet browser and arrange to rent one of many vehicles sitting unused in her neighbors’ garages.
“It’s super easy,” said Gray, a residential manager at the Cambridge Institute of International Education. “I get a car only when I need it, maybe every month and a half or so.”
Emerging online services are connecting consumers such as Gray to a previously untapped universe of idle assets, enabling them to squeeze more value out of cars, designer dresses, baby toys and bedrooms that belong to other people or businesses. In this leaner, more efficient kind of consumption, which is just taking hold in major cities, New York University Professor Arun Sundararajan sees the makings of a new wave of productivity gains.
“It allows you to get more out of the same capital—or the same out of less capital, less input, less labor,” said Sundararajan, who teaches at the Stern School of Business and is among the first to begin studying the so-called sharing economy.
If he’s right, the sharing trend might help reverse a slowdown in productivity that has prompted some economists to worry that innovation driving the U.S. economy has stalled. A measure of productivity based on output generated by a given amount of labor and capital slowed in the U.S. to an annual 0.7 percent growth pace in 2005-2011, compared with an average since 1985 of 1 percent, according to Organization for Economic Cooperation and Development data.
First, Sundararajan is trying to get his arms around the size of the sharing economy. He is estimating the current and future share of money spent through these services, most of which are closely held companies that don’t release quarterly earnings.
He’s also studying how rapidly consumers are switching to sharing from more traditional forms of consumption and the pace at which new marketplaces are creating jobs and encouraging entrepreneurship. He says he hopes to release his research in 2014.
More than 200 startups, backed by a total of $2 billion in funding, are now involved in the renting, reselling, giving or swapping of goods and services, according to Altimeter Group LLC, a research and advisory company in San Mateo, California. Two-thirds of the services act as third-party matchmakers facilitating exchanges between consumers. Others such as Zipcar Inc. maintain their own fleets of items to offer to members.
As this model becomes more mainstream, consumer spending in the sharing economy will make up “at least a single-digit percentage” of gross domestic product in five years, Sundararajan estimates. Policy makers should start thinking about creating “metrics that capture the use of assets, not just the sale of assets” to more comprehensively monitor the health of industries, he said.
Among early adopters is Southport, Connecticut, resident Kathryn Queen, a vice president at Bodnar Capital Management. Queen rents clutches from Bag Borrow or Steal Inc.’s inventory that she’ll need just once—such as the black Valentino she recently borrowed at $150 a month. She shipped the item back to the service after she attended the fundraiser that she needed it for, saving her most of the retail value of the item, about $2,500, in addition to space in her closet.
At any time, 80 percent to 85 percent of Seattle-based BBOS’ rentable merchandise is out on loan to its customers, according to Chief Executive Officer Khaled El-Marsafy.
“I used to buy cheaper bags, but now I buy more expensive bags, and fewer of them,” said Queen, 35, who has given away or sold most of the lower-priced items she owned. “I’m much happier, because the bags I do have are all much nicer. It allows me to have a closet of investment pieces instead of a lot of junk that you never wear.”
Other consumers are not only saving money but also earning a little extra. Ben Palmer in Boston rents out his Lexus to RelayRides Inc. members on the occasional weekend, making about $100 to $200 a month for a vehicle that he himself rarely drives. He says the money that supplements his salary at the U.S. Department of Housing and Urban Development pays for the car’s maintenance costs and helps him justify keeping it.
“I’ve invested so much into it and it would feel like a loss if I had to sell it,” said Palmer, 29.
The downside to Palmer and Queen’s gains is the risk that these services lead to a society that needs fewer handbags and automobiles. If that’s the case, it’s unclear if the smaller rental fees collected in the sharing economy will be able to offset a decline in more expensive upfront purchases.
One car-sharing vehicle takes about nine to 13 cars off the road, and 2 percent of bike-share members reported the service was somewhat or very important to their decision to sell an automobile or postpone buying one, according to the research of Susan Shaheen, co-director of the Transportation Sustainability Research Center at the University of California at Berkeley.
“This has all the hallmarks of a disruptive technology for a bunch of industries that have never had to think about disruptive technologies,” said Nicholas Colas, chief market strategist at ConvergEx Group, a trading services company in New York. He described the change as potentially “catastrophic” for businesses reliant on an ownership society.
“In the near term GDP would take a hit,” he said.
Ian Hathaway, formerly an economic analyst with the Federal Reserve, said he is optimistic innovations such as sharing networks will boost growth over time.
“Doing more with less is how the economy grows sustainably over the long term,” said Hathaway, now a San Francisco-based research director at Engine, a nonprofit research and policy group focused on technology entrepreneurship. “It’s stuff that makes us do things better and new ideas that make us do things better.”
Some businesses are already preparing for a future of more sharing, with General Motors Co.’s venture arm investing $3 million in RelayRides, based in San Francisco.
“As more people are moving into urban environments with increasing congestion, GM is looking at alternative business models,” Dan Flores, a GM spokesman, said in an e-mail. “GM Ventures invested in RelayRides because we think car sharing could one day provide another mobility option for our customers to consider beyond the traditional vehicle purchase process.”
Of course, many consumer items, such as large appliances, aren’t easy to exchange, or are used so frequently that they don’t lend themselves to sharing, such as mobile phones. Also, urban sharing networks would be hard to replicate in sparsely populated rural communities.
And it may be, Colas said, that once jobs and wages regain their pre-recession vitality, consumers would again be willing to shell out more for the convenience and comforts of owning.
Gray in Cambridge insists no economic boom could persuade her to own a car as long as she has access to services such as RelayRides. She says she’s excited to try out more of the services she’s heard about that will enable her to share more.
“I like this idea that it’s more communal, less wasteful,” she said. “I don’t want to be bogged down by owning a bunch of stuff.”
–With assistance from Craig Torres in Washington and Tim Higgins in Detroit. Editors: Mark Rohner, Brendan Murray