Entrepreneur Beware: Pitfalls of the Peer-to-Peer Economy


In the sharing economy we invite strangers to sleep in our homes, ride in our cars, and eat at our tables. We even ask them to pick up and deliver our groceries. What’s most remarkable about this era of “collaborative consumption” is that millions of users have turned their personal possessions into commercial assets. Private property is now open to the public – or at least anyone with a smartphone. But what happens when the once-distinct line separating business from personal use is thoroughly blurred? What are the cons of putting a price tag on our personal items and time?

Perhaps the biggest downside to peer-to-peer rentals is the liability. The nation’s biggest insurance companies have only begun to weigh in on the issue, mostly focusing their attention on Uber and Lyft drivers using their personal vehicles for commercial purposes. Taking the kids’ friends to soccer practice is one thing, but Geico, State Farm and other major carriers have said it’s a big no-no to turn the Subaru into a taxi.

But insurance companies have been mostly silent on the other dilemmas created by the burgeoning world of We-Commerce. For example, hotels carry hefty policies in the event a customer slips in the hall. What happens, however, if someone renting out their home through Airbnb or VRBO has a guest tumble down the steps? Would a homeowner’s insurance policy cover a guest’s medical expenses if they discovered the owner had turned their suburban ranch into a La Quinta? Who is responsible if an amateur chef sends his eight EatFeastly guests to the hospital with food poisoning?

One thing is certain: don’t count on your sharing economy partner to bail you out of a tight spot, at least not initially. Most sharing economy companies have done all they can to release themselves from liability and will urge drivers and hosts to call their personal insurance carrier first.

Another downside to becoming an employee in the sharing economy is the benefits package … because there isn’t one. Forget health, dental, or retirement. As a full-fledged entrepreneur, you are on your own for everything – including gas, repairs, tools and tolls (on this note: both Lyft and Uber drivers have brought class action lawsuits against the companies claiming they should be classified as employees). Sharing economy users also must become their own accountants, filing and remitting taxes to the IRS for all that collaborative consumption they did throughout the year. How does the IRS know if you made money from a sharing platform? Companies like Airbnb dutifully report it, of course.

Perhaps the biggest negative of the sharing economy is how personal it can get. Sharing platforms pride themselves on rating systems that work both ways: drivers rate riders, guests rate hosts, users score those running errands. It can be an unforgiving system because for whatever reason consumers have lost touch with the nuances of a five-point system. In other words, most people think in terms of excellent or worst with no thought to what lies in-between. One bad score can crumble a perfect record, leading to fewer customers, reduced earnings and lots of downtime. A personal shopper for Instacart had it happen to him and his wallet suffered as a result. (He summed up the experience of eking out a living after a bad rating: “It feels like [I’m] selling my hair to buy a hairbrush.”) Remember the ratings system works both ways, however, so your neighbor might know if you’re buying too many bags of cat litter or not tipping enough.

Of course, gig economy entrepreneurs who fall victim to a bad score can always fill their time in other ways, like working on their taxes or dialing up a new insurance company.