Sharing homes, cars – and lawsuits

Recent challenges to travel’s sharing economy have included harassment and conflict, making 2014 the year that players like Airbnb and Uber are forced to grow up – or disappear.

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.

Next steps
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.

Airbnb already has made moves to build stronger relationships with local municipalities. To play defence against the Attorney General of New York, it shed more than 3,000 New York listings last week. To get bigger, it will have to first go smaller as it cuts enough illegal inventory to placate regulators. In cities like New York, it could lose more than half of its listings as it professionalises the marketplace. 

Airbnb’s popularity, however, will lead to greater crackdowns by landlords and condominium boards, both of which are free to set more restrictive rules than a state or city. Many hosts will be scared off by this, and those users that are left will form the core of its future business. 

Airbnb knows that these are the likely outcomes, so it has been strategic as it looks forward. “Our business isn't the house. Our business is the entire trip,” Airbnb founder and CEO Brian Chesky told the magazine Fast Company in March. Airbnb plans to expand beyond hosting: it holds patents on a wide variety of travel-related services, and this summer is likely to roll out cleaning services, verified business-friendly listings and transportation services.

The next challenge
Once the sharing companies have worked things out with regulators, they will need to think about their providers. The amount of profit – or risk – at stake is causing participants to think seriously about their roles in the industry. 

On New Year's Eve, an Uber driver struck and killed a six-year-old girl in San Francisco. Uber quickly issued a statement to distance itself from the driver: "The driver in question was not providing services on the Uber system during the time of the accident. The driver was a partner of Uber and his account was immediately deactivated." Despite Uber’s tactic, it has been sued by the family of the deceased.

Not having many physical assets makes it easy for these companies to shirk responsibility. But behind the image of helping out locals by giving them new revenue streams, the brands are creating the ultimate outsourcing economy. The terms and conditions signed by each participant shift all liabilities to the providers and users, protecting the companies both legally and financially. Lyft and Uber drivers and Airbnb hosts accept all the risk of breaking laws, committing insurance fraud, violating their lease and being fined by their condo board – while at the same time making startup founders and Silicon Valley investors wealthy.

As more stories of hosts being evicted make the headlines, we'll likely see Airbnb react with a solution that makes users feel more secure, much in the same way it introduced a financial guarantee that can protect a host if a guest trashes their home. Uber has started charging riders a $1 “safe rider” that pays for background checks, and Lyft introduced a new insurance plan for drivers that covers them between fares.

The current companies won't be the only major players in the sharing economy: they'll spawn a new phase of innovation from outsiders trying to fix the problems. In San Francisco, Beyond Stays and Superhost provide property management and hospitality services for Airbnb hosts; and Pad Pipers decorates homes to make them ideal for guests. We'll see entrepreneurs create smart insurance policies for drivers and hosts, and leasing companies, such as Breeze, that provide cars for Lyft and Uber drivers.

The move from disruptor to established company is not easy. But 2014 may be the year the big players in the sharing economy either grow up – or begin to disappear. 

Jason Clampet is the co-founder and head of content of Skift, the most visited travel industry news site in the US