If 2011 was the year “collaborative consumption” went mainstream, and 2012 was the year it started to look like a threat to the old guard in the business world, 2013 may be the year that the crazy kids in the “sharing economy” are forced to grow up in a big hurry.
For evidence, look no further than Airbnb, the website that lets us all rent each other’s apartments/tree houses/haylofts for the weekend. A quick gander at the site’s New York City listings last month led the travel news site Skift.com to conclude that more than half of them were in violation of state law.
Airbnb’s response, via its global head of public policy, David Hantman: “We can’t possibly keep up with the law in all the cities.”
But Airbnb’s strategy of pleading ignorance or powerlessness in New York, one of its biggest markets, doesn’t exactly add up: Here the company actively lobbied against the very rule that so many of its users are apparently flouting. The city’s Office of Special Enforcement has already ramped up enforcement efforts, according to Skift, while a New York Times story about an Airbnb renter who suddenly found himself facing $40,000 in potential fines has Airbnb customers shaking in their boots.
It’s cavalier web startup culture smacking into old-school American bureaucracy, and we’re bound to see it play out over and over in the coming year.
“The tech industry is growing up and learning how to deal with the real world,” says Neal Gorenflo, cofounder and publisher of the web news outlet Shareable.net.
Some companies have been less than graceful about it. Uber, the smartphone-powered town-car service that sets up shop in new cities without consulting local officials, is now being sued by cab drivers and car-service companies in San Francisco and Chicago, and faces a $20,000 fine from the California Public Utilities Commission. In Washington, D.C., the company (and its many adoring fans) beat back plans to outlaw the service, and convinced the city council to pass a new law explicitly legalizing it, but it was a rather nasty process.
Driving this type of clash is a sense among some startups that the sharing economy should be immune from government rules designed for companies created in the old model. Arun Sundararajan, an associate professor at NYU’s business school, wrote in Wired in October that reputation systems (Airbnb CEO Brian Chesky calls them “magical”) and the transparency of the web make regulations obsolete:
After all, profit is a much more powerful driver for quality than regulatory compliance. If your last customer — one who has been vetted by others and has built reputation credibility — complains about the hygiene levels of your shared lodging, your future business prospects on Airbnb are pretty bleak.
As an added precaution, Sundararajan suggested that low-cost surveillance cameras could be installed in cars or homes that are being rented — and then he took it a step farther.
Why bother with restaurant inspections, when we could put a camera in the kitchen to spot health violations and leave Zagat and Yelp reviews to “administer” the quality control? Do we even need hotel regulators any more, when we have TripAdvisor to give us instant feedback on cleanliness, service, noise levels, and several other dimensions?
Sundararajan’s proposition seems optimistic. I suspect plenty of web-savvy customers share my trepidation at relinquishing the safety of dinner to the handful of anonymous netizens crazy enough to obsess over an online kitchen livecast. While many of these regulatory battles do smack of governments protecting old industries that are “disrupted” by the new sharing model, there are often good reasons that these rules exist.
Tenant advocates point out that laws against short-term rentals, like the one Airbnb users are apparently breaking in New York City, are designed to prevent landlords from turning apartment buildings into hotels and driving the price of living in cities such as New York and San Francisco even higher than it already is. There’s something to be said, too, for requiring taxi drivers to get special certification for the sake of their passengers’ safety. There is clearly a place for a little policing, albeit under some rules that are written with these new business models in mind.
We’ve seen some smart rewriting of the rules already, as with the laws on the West Coast that allow car-sharing companies to provide insurance for car owners and renters. And now, in San Francisco, which has been the cradle of much of the sharing economy, efforts are afoot to work out a more comprehensive system. Mayor Ed Lee, who was elected with help from tech investors, has created a “sharing economy working group” to look at the issues that arise when these new companies shake up the local business landscape.
“Many players in the sharing economy understand that the city is a crucial partner, and understand that city managers really do have a job to do,” says Milicent Johnson, a former Shareable.net staffer who is involved in the discussions in San Francisco. “The unique thing about these companies is that the users run them — and the users are the citizens of the city. The end goal is to do what is best for the city.”
But it doesn’t help that a few of the bigger kids in the sharing scene are being less than forthright about their impacts and infractions.
Airbnb, which claims it’s worth $2 billion, has been cagey about its regulatory issues in New York City and elsewhere. Molly Turner, the company’s public policy director, says Airbnb is “collaborating” with regulators, but wouldn’t provide details. Turner pled ignorance about the report that more than half of the company’s listings in New York were illegal. Responding to the New York Times story in the company’s new public policy blog, Hantman, the global public policy chief, writes only that “New York hosts have generally not been targeted for enforcement.”
Turner points out that in the past two years, Airbnb has created a hosting manual, a “policies” section on its website, a “trust and safety center,” and a “responsible hosting” page. “We try to remind people that there are a lot of things they need to think about when they post a property on Airbnb,” she says.
“I don’t think sharing economy companies are anti-regulation at all,” Turner adds. “The question is what’s reasonable.”
But the “shoot first, ask questions later” approach, as Slate’s Matt Yglesias calls it, is still the default for many sharing economy startups. And while this approach served companies like Airbnb in their early stages, it could be dangerous for this budding industry as it continues to grow and spread — not because these industries need regulation per se, but because they’re going to get it one way or another.
“The attitude is that we’ve got a great product and they [regulators] shouldn’t be involved in it,” says Patrick Murphy, CEO of the D.C. lobbying firm 3Click Solutions and one of the organizers of the nonprofit Collaborative Economy Coalition.“But you [sharing economy companies] are a threat to existing industries, and these companies spend millions and millions to protect their market share from each other and anyone from the outside.”
If sharing economy wunderkinds can’t get their acts together and face regulation reality head-on, they may watch their profits decline and lose traction in the battle to make collaborative consumption a societal norm. But the costs to consumers will be much steeper: We’ll all have to go back to renting stuffy hotel rooms and driving our own cars. And that would just suck for everyone.
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