A few years ago, renting out a spare room via the lodging website Airbnb bordered on daring. Now, in thousands of cities around the world, it seems almost conventional.
But as the founders of the emerging category of “sharing economy” companies are learning, going mainstream brings a whole new set of legal and regulatory challenges.
Sharing companies enable people to share anything from a car to a house to an office desk, using the Internet to vet and match those who have something with those who need it.
Sharing-economy entrepreneurs say their firms are a boon to the economy, because they enable productive use of assets that would otherwise be sitting idle. And they can enable all manner of people to, in effect, start their own small business.
“We could create millions of entrepreneurs who don’t fit into the market system,” Brian Chesky, co-founder and chief executive of Airbnb, said at a Reuters Technology Summit roundtable in San Francisco this week.
Airbnb itself is an entrepreneurial phenomenon, with venture investors valuing it at $2.5 billion. Sharing firms such as RelayRides (rent out your car), LiquidSpace (rent out a spare workspace) and TaskRabbit (rent your free time for errands) are just a few of the myriad new firms with “sharing” models.
“Certainly, this is becoming mainstream,” said Jeremiah Owyang, an analyst at research firm Altimeter Group. Peer-to-peer rental of goods such as toys and electronics is already a $26 billion industry, estimates Rachel Botsman, author of “What’s Mine Is Yours: The Rise of Collaborative Consumption.”
But moving beyond small circles of like-minded people in tech-savvy cities to become national or global services with millions of customers is no simple matter.
Airbnb has run up against local regulations in many cities that restrict the way rooms can be rented. In New York, for example, the city fined Airbnb host Nigel Warren $2,400 for renting out part of his apartment in September.
A judge ruled in May that Warren violated a law forbidding short-term rentals by residents; the city’s Environmental Control Board has granted an extension until July 15 for him to file an appeal. Many cities have similar laws.
But Airbnb’s Chesky said he believes educating officials on the merits of his business could result in the city softening its stance, citing examples such as Amsterdam, where the city was originally against Airbnb and is now allowing it, he said.
One tactic: convincing officials that Airbnb is contributing to the local economy. Earlier this month, Airbnb released a study showing that guests and hosts in Paris contributed $240 million to the local economy; Airbnb guests stayed an average of five nights, compared with two for those who stayed in hotels.
Similarly, insurance companies are grappling with how to handle car-sharing businesses, in some cases discouraging their customers from working with them.
- Sharing Economy Calls For Insurance Innovation, By Andrea Wells, Mar. 5, 2012, Insurance Journal;
- Are Traditional Insurers Ready For P2P Car-Sharing Challenges, Opportunities?, Carrier Management.
RelayRides, the biggest player in the sector, provides car owners with $1 million in liability insurance during the rental. In other words, the owner’s existing auto insurance would not come into play if the rental driver gets into an accident, according to RelayRides Chief Executive Andre Haddad.
But the insurance industry raises questions such as what happens if there is a dispute over whether a ding to the car happened while it was rented out, or while the owner was driving. And in serious accidents, $1 million may not be enough, a spokeswoman for the Insurance Information Institute said.
In February 2012 in Boston, a driver of a RelayRides car hit another car with four passengers and died. Insurance companies are still negotiating over who will pay what.
Haddad said he cannot comment on that case. But he pointed out the insurance RelayRides offers is several times what the average driver carries or state minimums.
“You are better off being in an accident with a RelayRides car,” he said.
Governments Join The Game
Some of the companies advocate drawing local governments into using their services as a way to bring them around to seeing the law the sharing-economy way.
“We have libraries and city halls and municipalities that are using our platform to make their space more accessible,” said Mark Gilbreath, chief executive of office-rental service LiquidSpace, who cites the Palo Alto City Library and the County of Santa Cruz, both in California, as examples. “Demystify it by bringing them into it.”
Like most sharing companies, TaskRabbit has put a lot of effort into background checks and other methods of assuring that those who provide its services are trustworthy. Founder Leah Busque said about 12,000 people now actively offer their errand-running services on her site.
Increasingly, the executives say, participants are turning to social networking services such as Facebook to build comfort over doing business with someone they may not know.
Customers appreciate that sharing-economy businesses are often less expensive than comparable services, such as hiring a temporary staffer through a traditional agency. The services sometimes give a different flavor—staying with a local rather than at a hotel—or seem more socially or environmentally responsible, as with renting a car for a few hours from time to time rather than buying one.
Ironically, one factor that has helped bring many people into the sharing economy—a weak overall economy—may take some out of it as the economy improves, creating less incentive to run errands for others or rent out a personal car. But the sharing-economy businesses say they are not worried.
“It’s simply a more efficient model that will endure whether it’s an upcycle of growth, or whether it’s a downcycle,” said Gilbreath.