In early March, Vermont’s Department of Financial Regulation issued a consumer alert cautioning people that a “revolution” was brewing in the Green Mountain State. It was referring to the “sharing economy,” in which people use online platforms to rent their homes, cars — even their pets — to strangers. Titled “Be aware before you share,” the alert warned potential loaners that they could face major liability if they lack proper insurance. Is it a sign that state officials are starting to clamp down on off-the-books commerce?
Over the past couple years, the on demand economy has created a lot of imbalance in marketplaces and numerous opportunities for arbitrage. Smart consumers have taken advantage of this imbalance by opting for Airbnb rooms instead of hotels, Uber cars instead of taxis and food delivery in lieu of a trip to the grocery store. But smart producers have been able to leverage their entrepreneurial spirit in another way to create new kinds of opportunities.
Future vacations to Havana, whether to gawk at classic American cars or follow the Hemingway trail, will have at least one familiar element — Airbnb has arrived in the Cuban capital. Starting today, hundreds of rooms are available on the site, some renting for as little as $15 a night. Cuba was one of the few countries in the world where Airbnb didn’t already have a presence, and with today’s launch, the San Francisco–based company is among the first wave of American businesses, along with Netflix and Apple, to take advantage of loosened trade restrictions.
The biggest hotel chain in the world owns not a single hotel. A ‘transportation company’ worth $40bn – more than Delta airlines – has no vehicles. And a multinational ‘cleaning company’ operating in 32 cities, including London, buys no cleaning supplies and does not employ a single cleaner. Airbnb, Uber and Homejoy are middlemen of the newest new economy, connecting customers with workers via the ‘frictionless interface’ of the mobile internet, and taking a commission along the way. Airbnb – so called because it conjures up images of an airbed, inflated by a considerate friend – generates annual revenues of $300m in New York City alone.
Today, many insurance policies do not cover the sharing economy. Hypothetically, if employees were on a business trip and suffered bodily harm in an Uber, they could potentially sue the employer for failing to ensure their safety. Most employees are completely unaware of how complicated, stressful and restrictive this issue can be for a travel manager.
Adi Vaxman tried to do the right thing when she was setting up Tripda, a ride-sharing application that allows drivers to find passengers and share the cost of long-distance trips. She wanted to know whether Tripda could be liable if somebody using the site got in an accident, and whether the company should insure itself or provide insurance to drivers to protect against loss. “We spent a ton of money on lawyers to try to figure out the best way to run this,” said Vaxman, a veteran entrepreneur and former PayPal executive, who’s raised $11 million in venture financing for Tripda so far. “And with all the questions we’re asking, the answer always is `it’s a gray area.’”
Cities are still wondering how much to embrace the sharing economy. There are good reasons they might want to do so—from economic development to expanding services—but also reasons to be wary. The gig economy clearly upsets the position of traditional businesses like taxicabs and hotels, and sometimes falls outside existing laws and regulations. And these companies, let’s remember, are hardly charities. Their motives are worth assessing before cities hand over the keys.
Airbnb has every reason to enter the news services sector—and to threaten a broad range of media/services such as Trip Advisor or Yelp. Seen through the eyes of travel information publishers, Airbnb holds a dream position: a huge base of 25 million potential readers/users, spread over 34,000 cities in 190 countries, well in tune with the brand’s core product and attributes. For a start, should Airbnb develop a publishing arm, its unparalleled notoriety would save it tens of millions of dollars otherwise required to promote its content services—after all, in the travel industry, advertising and marketing demand high spending.
A group of bills have surfaced in the California Capitol to regulate online home-rental companies such as Airbnb. The proposals seek to set tax rules and help users of the services understand the risks. Following in the footsteps of Uber and Lyft, Airbnb appears to be the next sharing service giant to collide with regulators over a business model that helps people share their goods and services, disrupting a traditional industry along the way.
The explosion of sharing or on-demand services like Uber and Airbnb is the beginning of an economic upheaval every bit as significant as the industrial revolution. The on-demand economy promises to radically reshape the cost of services and change the face of the workforce. These upheavals, in turn, are altering state and local government policies — imposing unforeseen fiscal risks.