Shared Economy Faces Uncertain Future Under New Normal

Last year looked very well for companies. Between growth plans and new business models, businesses like Uber and Airbnb did not stop growing. But then, a pandemic struck the world. Now, with a never-before-seen crisis caused by COVID-19 and an accelerated loss of liquidity, companies have been forced to make staff cuts, reduce growth expectations and have even decided to continue operating without profit but with the intention of keeping their business alive.

"Before the pandemic, these companies enjoyed tremendous momentum in industries such as transportation, tourism and even apparel," PwC Consumer Market Analyst Steve Barr said in an interview with AFP. Barr had long predicted that the ‘shared economy' would generate US$335 billion in revenue by 2025. "I think there will be a very significant change in consumer behavior," he says now.

A key in the business for the companies of the so-called ‘shared economy’ are densely populated cities. However, COVID-19 will cause de-urbanization in some cities, Barr says.

Fewer Trips, More Food

In 1Q20, the Uber Eats division gave a big boost to the company's revenue of US$3.543 billion, 14 percent more than in 1Q19, as users increased food orders by 52 percent. On the contrary, the number of trips was reduced 3 percent worldwide. "While our Rides business has been badly affected by the pandemic, we have taken quick steps to preserve the strength of our balance sheet," Uber CEO Dara Khosrowshahi said in a statement.

Just a few weeks before, the company said it was shutting down its Uber Eats service in seven countries and that its Careem subsidiary in the Middle East would fire 31 percent of its employees.

An IBM survey released this month found that more than half of ride-sharing app users plan to reduce their use or abandon these services. For analyst Richard Windsor, "Users' aversion to these types of services, which involve getting into a vehicle with a stranger will not ease until there is a vaccine." On the contrary, Arun Sundararajan, a professor at New York University who researches the shared economy, is optimistic about the future of these companies. "We will see a shift toward greater control of personal space. Many people will move away from public transportation in densely populated areas."

A Hard Time for Tourism

Stay-at-home orders have forced people to remain in confinement. Many had planned trips that they had to cancel and the future is uncertain the rest of the year. During the first three months of the year, arrivals at the main tourist destinations in the world contracted 22 percent. If these orders are not relaxed internationally, global tourism will decrease by between 60 and 80 percent, according to the World Tourism Organization (UNWTO). This caused Airbnb to lay off 25 percent of its employees.

But the future may not be so bleak for Airbnb after all. Sundararajan believes that the new protocol the company introduced to build trust among its guests will help it compete against large hotel and resort chains in a post-COVID-19 world. Among Airbnb’s new rules for its hosts are that they must allow days off between each reservation.

"As soon as people travel again, they will seek space where they feel they are in control. They may not want to go through a busy hotel lobby or stay in places where they do not know who was there before," says the professor.