As the Sharing Economy Grows, Established Businesses Balk

By Ron Watson, Jr.

On any given night, up to 40,000 people acquire private rooms in 30,000 cities across 192 countries through Airbnb, a digital service that connects those looking for affordable lodging with property owners wanting to profit by renting their unused living quarters. In seven years, Airbnb has become a titan of the sharing economy; it placed 2.5 million customers in non-commercial rooms in 2008 alone. But the success has come at a price, as hotels (and the cities that rake in hotel tax dollars) have seen their bottom lines drop and begun lobbying for some kind of modernized private rental regulation.

The hotelier’s protests are heard most loudly in cities that are known tourist destinations, like New Orleans. Every year the city regularly hosts prominent sporting events, the two-week Jazz and Heritage Festival, and Mardi Gras bacchanal. These attractions help draw nearly 10 million visitors that spend more than $6 billion annually. The tourism industry raised $625 million in taxes and employed approximately 70,000 workers in 2014.

That same year, Airbnb and similar services brokered about 100,00 overnight stays in the metro New Orleans area, less than 1% of all lodgers, according to a recent study. Though small when compared to that of other cities, Airbnb’s presence fueled a backlash from licensed hotel and bed and breakfast owners, who claimed private-home rentals are illegal under a little-known law that restricts stays to 30 days or greater. The New Orleans City Council, fearing cuts to tax coffers, moved to make all unlicensed short-term rentals illegal.

San Francisco is also considering restrictions on private home rentals, but the city has become a battleground for the twin pillar of the sharing economy: private car rental. Ride sharing entities Uber, and to a lesser extent, Lyft and Sidecar, have cut a huge swath through San Francisco’s taxicab industry, which reported a 65% drop in rides per cab each month in July 2014, from 1,400 to 500 every 30 days. Taxi owners have maintained Uber drivers – who use their own cars – are not licensed as for-hire drivers, don’t have the proper training, do not have to undergo background checks, and aren’t required to pay extended insurance costs.

But consumers are dictating the market. Tech-savvy San Franciscans are able to hail drivers via Uber’s smart phone app and get a ride in an average of five minutes. They’re also able to pay for the service through various electronic platforms and can leave feedback for future customers about every driver. All of these advantages have left traditional cab companies playing from behind. And just like New Orleans, a lack of taxable revenues have resulted in municipal governments scrambling to find ways to regulate the ride sharing arm of the sharing economy. The San Francisco district attorney’s office has brought consumer protection actions against Uber and Lyft, citing misleading practices stemming from a $4 surcharge for rides to or from airports.

What’s lost in the protests of licensed owner/operators is the technology that allows the sharing economy to flourish. Virtually every digital service, from Airbnb to Uber to online shipping company CitizenShipper, uses a feedback system that allows customers to rate those they’ve hired. This distinction, and the peer-to-peer nature of connecting with the actual person who’s performing the task you require, is what will continue to set the sharing economy apart.

Technology’s nice, but it all comes down to the bottom line. Greg Ruiz, who used Airbnb to rent a one-bedroom apartment for the 2015 New Orleans Jazz and Heritage Festival, estimated he saved $1,000 during his weeklong visit, and said he would gladly do it again.

“There is really no comparison between staying in a furnished apartment and  getting a hotel room,” Ruiz said. “You definitely save money, and there’s real value in dealing directly with the person you’re renting from. Plus, you aren’t staying in a cramped hotel room.”

“This is definitely the future of traveling, and if hotels don’t start offering competitive rates and experiences, they will be left in the dust.”

The benefits of the sharing economy have also touched other service sector jobs in logistics and transportation. The corporate shipping industry has been jolted as qualified men and women have begun using their vehicles to earn full time incomes transporting appliances, cars, and even pets. Online shipping company CitizenShipper, which has built a community of 52,000 drivers, provides a secure platform where people on both of sides of the transportation transaction can connect. The website allows customers to review a driver’s feedback and experience while prospective drivers can consider every detail before committing to a shipment.

CitizenShipper drivers like Gary Muraco are finding their niches while technology continues to renovate the way traditional business is conducted.

“I’ve been able to make money even as big business is suffering,” said Muraco, who transports mostly vehicles, jet skis, and motorcycles. “CitizenShipper works because it’s a great idea at the right time, and it’s a company that’s in prime position to make its mark on the shipping industry.”

In the final installment of this series, we’ll cover what’s on the horizon for the sharing economy.

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