Sharing homes, cars – and lawsuits
An economy based on sharing seems as though it should evoke only warm, fuzzy feelings – but in the past week, a spate of conflicts has underlined just how contentious the industry can get.
Protestors harassed Uber riders and drivers in Seattle on Saturday, forcing 10 cars for the transport app to a halt. In the US cities of St Louis, Madison and Pittsburgh, regulators have started pulling over cars from the ride-sharing company Lyft, saying the cars are operating like unlicensed taxis. Last week, the subpoena against Airbnb by the Attorney General of New York State – who says most of the company’s hosts are operating illegally – was argued before a judge in the state capital.
But the ensuing press meant that it also was the first time that many travellers were exposed to the size and scope of the sharing economy. And the conflicts themselves pointed to what is really happening: in 2014 the major players in the sharing economy are going to move from disruption to collaboration.
The growth of sharing
At its core, the industry is about using technology and social media together to share – and potentially profit from – an underused asset such as a car or an apartment. The new businesses, which – unlike websites like Craigslist that merely mimic classified ads – use geolocation technology, user reviews, social media and secure payment systems to make opportunities discoverable and transactions fast, seamless and relatively safe.
The genius of Airbnb, for example, is that as the middleman, it only makes money if it drives bookings. To do this, its website is big on pictures and personalities; user photos are front and centre; and guests and hosts alike build trust through reviews of one another. Car-sharing services such as Lyft have similarly found success by putting power in the hands of the people: a chauffeur can choose not to pick up a user with bad or no reviews, and a rider can decide not to use a particular driver.
Given how simple it is to participate, it has been easy for both car- and home-sharing services to argue that it is mostly everyday people taking part. To hear the companies themselves tell it, the average driver or host is not a threat to established industries: he or she is just making some extra money on the side.
What really happens
The reality, however, is much different. After all, if this was just a side business, the sharing economy wouldn't be growing so explosively. Earlier this month, Airbnb closed a financing round that valued the company at $10 billion, and Lyft raised $250 million on a $700 million valuation.
In its largest markets, Airbnb's business is built not on someone renting out a spare room but on users who make a business of renting their entire apartment on a steady basis. New York's Attorney General understood that for many hosts, Airbnb is a full-time job. Using research commissioned by Skift, his office was able to determine that at least two-thirds of the rental activity on the website violated state laws that limit almost all short-term rental activity in New York to 30 days or more, or to homes where the resident is present during the rental.
Airbnb was forced to contend with these data last week, when its legal team met lawyers from the New York Attorney General's office in an Albany courtroom. Airbnb is attempting to have the Attorney General’s subpoena of user data quashed; the company does not want to release specific numbers about behaviour or inventory, and is calling the request an invasion of privacy. The judge has yet to make a ruling.
The New York battle will shape how Airbnb and its peers, such as HomeAway and VRBO, do business in big cities and vacation markets. The spotlight on the business behind sharing has brought regulators and tax collectors to the fore and forced these young companies to ease up on their sin-first, ask-forgiveness-later business strategy. Where they once operated with disregard for municipal and state regulations, they are being forced to find middle ground with authorities.