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
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.
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
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
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