Micro-Sharing Economy: Driving "Good Deflation"

Airbnb, founded in 2008, is pegged near a $24 billion valuation, and Uber, founded in 2009, is north of $50 billion. In comparison, neither Google [GOOG] nor Amazon [AMZN] was valued in the billions before going public. While private equity has undergone a dramatic shift that results in companies staying private longer and growing larger, the sharing economy is doubtedly experiencing secular growth, with two of the most richly valued pre-IPO companies in the world, and fifteen others that are valued over a billion dollars. What’s next…? A micro sharing economy taking shape.

The Airbnb platform lets people generate income by allowing strangers to sleep in their home for $60 (give or take) a night. Likewise, Uber gives car owners the chance to make money by shuttling people around in their vehicles. But, what will happen when people can rent out their washers for a load of laundry, their kitchens for a night, or their lawnmowers for an hour? The Internet of things (IoT) is creating the three enablers of a micro sharing ecosystem:

• real-time monitoring
• seamless payments
• verified reputations.

Two of these enablers brought Uber to life: the driver is easy to locate and payment is seamless. Verified reputation of drivers, however, is a weakness. Given highly publicized safety concerns, ARK Invest believes more people would use Uber if profiles of drivers were matched to the biometric IDs of the person behind the wheel.

Uber’s success could inspire more efficient use of many other assets. For example, if a person could locate and pay for use of a washing machine via his smartphone, then the sharing economy could expand into home appliances. Users could enter a house with a biometric ID scanner to increase the sense of security for both renters and owners. In a micro sharing economy, all assets are potential revenue generators, allowing people to buy fewer items, and rent the rest.

ARK Invest projects that every home will have 50 IoT devices by 2025, that seamless payments will continue to soar, and that biometric ID scanners will become commonplace. Any asset with a microcontroller and Internet connection could become part of this micro sharing ecosystem. With American homes averaging 60 embedded microcontrollers, the ecosystem is primed.

Companies spanning multiple device categories should benefit from the micro sharing economy. For example, ARM Holdings’ [ARMH] intellectual property is currently in 95% of smartphones, and gaining share in other embedded applications. Although less well known, Ambarella [AMBA] is strategically positioned, providing video systems on chips (SoCs) for consumer devices such as GoPro [GPRO] action cameras, Chinese firm DJI’s drones, and Google’s Dropcam. Silicon Laboratories [SLAB], Atmel Corporation [ATML], and STMicroelectronics [STM], are also employing a similar strategy of developing silicon relevant to multiple IoT applications.

Software platforms will facilitate the sharing economy as well, with Airbnb and Uber as bellwethers. In the future, ARK expects a platform that connects all renters and lenders, with functionality allowing renters to search for multiple devices by what, where and when. Payment support for these services will likely come from PayPal [EBAY], Stripe, bitcoin, or other digital currency startups. Companies that remove risk from participants via custom insurance, such as Metromile, or ID verification, like hardware solutions provided by NXP Semiconductors [NXPI], or securing the devices themselves, as done by Infineon [IFX], should also prove valuable.

As the sharing economy grows, inefficiencies will be squeezed out, putting manufacturers of shareable resources at risk. The hotel industry is a case in point. A study focused on Austin, Texas revealed that each 10% increase in Airbnb’s revenues took 0.37% out of the area’s hotel room revenue. Due to rapid Airbnb adoption in Austin, some hotels have experienced an 8-10% drop in revenues over the last five years.

Pricewaterhouse Coopers predicts sharing economy revenues could grow from $15 billion today to $335 billion in 2025. In an ongoing micro sharing economy shift, society will experience new bursts of efficiencies, further separating the world into those content to rent, and those willing to own knowing that their costs can be defrayed. As incumbent industries experience declines, macro-economic data may be confusing and construed as deflationary. Instead, this “deflation” will be caused by technology driving down costs, which should catalyze new kinds of growth and attract capital that may unleash future waves of innovation.