This spring, I went to Chicago to help my sister move, and rented an apartment on Airbnb. It was fantastic – cheaper and much bigger than a boring hotel room, and three times more convenient. When I went to Paris with my husband, we did it again. We found a charming place near the Eiffel Tower that came stocked with madeleines, guidebooks and Nespresso. Parfait! We sent the owner a bunch of money through Airbnb (it takes a cut from both sides) and everyone was happy. We may never stay in a hotel again.
Back in Toronto, a lot of my friends swear by Hailo and Uber. No waiting in the rain for a taxi that never comes. You simply use your smartphone to hail a ride electronically. Your phone tells you how long it will take to come and even shows it on the way. With Hailo, you can pay with your phone too – no wallet required. Hailo connects you to regular cab drivers, but Uber can connect you to a fleet of people using their own cars. In the new world of the sharing economy, you can find a ride or a room any time you want it.
When you stop to think about it, it’s amazing. Millions of people are willing to take a chance on renting places they’ve never seen from people they’ve never met, and to be chauffeured around by unregulated strangers. They’re pretty confident that it will all work out, and it usually does. They don’t need a brand name (Yellow, Hilton) to reassure them.
All of this requires a remarkably high level of social trust. It turns out that we’ve gotten pretty good at evaluating information on the Internet (as David Brooks pointed out in The New York Times this week). The Internet has become an excellent source of aggregated consumer information. We get restaurant tips from TripAdvisor and movie reviews from Rotten Tomatoes. One reason Airbnb works so well is that both guests and hosts are strongly encouraged to review each other. This helps ensure that people are on their best behaviour and obey the rules.
A lot of people are convinced that this sort of peer-to-peer interaction, also known as the “sharing economy,” will transform society. Airbnb CEO Brian Chesky believes the economy will be saved by minimally regulated micro-entrepreneurs who will be able to turn underused assets (spare bedrooms, cars) into productive money-makers. He thinks the future will be more like the days before the Industrial Revolution: more creative, more connected, less impersonal. Tomorrow’s big cities, he says, will feel more like villages, where everyone was essentially an entrepreneur.
Whatever you think of this collectivist-libertarian utopia, the sharing economy is the hottest concept since Google. Airbnb, which started in 2008, now has 550,000 listings around the world and a market valuation of about $10-billion, which makes it worth more than either Hyatt or Holiday Inn. Uber, which had all of 550 employees in January, is currently valued at $18-billion – about as much as Hertz and Avis combined.
What makes them worth so much? Beats me. Airbnb doesn’t own the rooms and Uber doesn’t own the cars. In essence, they are platforms for connecting buyers to sellers and turning goods into services. They are also hugely disruptive.
The highly protected taxi industry is especially vulnerable, As the Washington Post’s Emily Badger wrote recently, “A taxi cab is a car remade by government, modified dozens of ways by edicts within subsections of articles of the city’s taxi code.” Taxi drivers say they simply can’t compete with freelancers who don’t carry commercial insurance and aren’t made to play by the same rules. And what happens to the value of taxi medallions (which are worth billions of dollars) when the market is thrown open to part-timers, amateurs and anyone else who drives a car? In cities such as Chicago, their value is already plummeting.
Governments, which are responsible for constructing all these regulations, don’t know what’s hit them. Some are trying to ban the ride-sharing companies outright; some are trying to regulate them. Despite massive protests, the City of London has declared that Uber is legal – for the time being, until the courts help sort it out. Portland has also decided that Uber is okay. Toronto has decided that Uber is not, and has taken it to court for various licensing offences.
Meantime, the City of New York has been waging war against Airbnb, which is undermining the highly regulated and powerful hotel business. It also turns out that a lot of Airbnb hosts are in violation of a state law that says tenants can’t rent out their apartments to others for less than 30 days at a time. Airbnb has responded with a massive PR campaign to build goodwill.
In fact, the new-age caring and sharing story is a myth. These new businesses run on the good old-fashioned principles of supply, demand and mutual self-interest. I learned that both my hosts in Chicago and Paris were absentee landlords who rent out their places on a more-or-less full-time basis. My Chicago host asked me to be circumspect, possible because her activities were technically illegal. A lot of places listed on Airbnb are actually managed by apartment-rental companies.
But so what? I love it anyway. I can stay in any part of Paris or Chicago or Berlin or Rome that suits me. I get a far more enjoyable experience, while avoiding all the built-in costs of a hotel room – front desk, fire exits, swimming pool and six layers of city taxes. Car services offer a similar advantage – control and convenience, without the frustration of regulated scarcity.
These new businesses (or ones like them) could be what Amazon is to books, or downloading to music, or (I shudder to say this) digital to newspapers. They came out of nowhere. They are messy, unfair and immensely destructive – and also wildly popular.