How The Heavy Hand Of Government Stifles The On Demand Economy

from the not-helping dept

This century has produced a new lexicon that didn't exist a generation ago: Broadband. Apps. Connectivity. Streaming video. Social networks. The on-demand economy.

The new millennium has also produced a startling number of successful American companies with worldwide reach: Airbnb, Amazon, Facebook, Google, Lyft, Netflix, Pandora, Snapchat, Twitter, Uber, Yahoo, Yelp.

With so many American innovators leading and improving the global economy, it would seem natural for American policymakers to do everything possible to allow these companies to flourish. Instead, we see far too many examples of our politicians actively discouraging or burdening new services from the country's leading American companies. With good intentions, but flawed logic, politicians are jumping in to regulate these new companies, slowing the pace of innovation.

In July, Democratic New York Mayor Bill de Blasio was forced to table a plan to limit the growth of ride hailing companies like Uber and Lyft in New York after riders launched a public campaign to stop the proposal. Ride hailing services give New Yorkers and visitors access to quick, clean and affordable transportation options and help expand the city's economic growth by creating more job opportunities. So why are city regulators trying to slow their expansion and limit consumer choice?

Ride hailing companies continue to face pressure from courts and politicians who say drivers should be treated as employees rather than independent contractors. Labor unions are pushing this view, while ignoring that many ride hailing drivers are drawn to the flexibility of being independent contractors. (Meanwhile, taxicab drivers in many cities are also considered independent contractors, a fact that is rarely mentioned in these debates.)

On-demand economy services like Airbnb that link homeowners with those looking for places to stay are also under attack, as hotel unions join with the lodging industry to regulate, and in some cases ban, these services. The city of San Francisco is considering a measure that would cap Airbnb stays at 75 days, a move that Airbnb says will cost the city $58 million in tax revenue over the next 10 years. Why would city leaders seemingly ignore the potential good that immense amount of revenue could do?

Our nation was built on a foundation of freedom -- freedom to contract with each other for goods and services, freedom to innovate and create new products, freedom to start a new business and maybe even fail at it. The government should only impose itself on industry if there's a compelling public interest.

Rather than force new services to fit the framework of old rules, innovative startups offer regulators a chance to revise outdated rules to reflect a new reality. Ride hailing services naturally weed out bad drivers and poor service, especially when compared with the legacy cab drivers who aren't rated on or accountable for the quality of their service. Government can and should require driver screening and insurance, but it's the dynamic feedback nature of the wireless service that safeguards the public and benefits drivers.

Home-sharing services like Airbnb give users more options when they travel and provide extra income for homeowners. Government can and should collect hospitality taxes after some threshold of rentals, but cities benefit from the influx of tourism whether visitors stay in hotels or not. Recently, my family took a holiday in New York City, where Manhattan has few hotel options for families with children. Thanks to Airbnb, we rented an apartment for a third of the comparable hotel price.

Meanwhile, millions of Americans enjoy new services and experiences thanks to the ever evolving tech economy -- whether it's making a living from eBay or Etsy, figuring out where to eat or stay from Trip Advisor or Yelp, or enjoying new music from Pandora. Politicians need to get out of the way, let these businesses thrive and intervene only when there's a demonstrated, compelling need -- and even then, do so as narrowly as possible. The public is voting with their apps and their finger taps. Politicians would be wise to listen to the sounds of the page clicks. It's what their constituents want.

Gary Shapiro is president and CEO of the Consumer Electronics Association (CEA), the U.S. trade association representing more than 2,000 consumer electronics companies, and author of the New York Times best-selling books, Ninja Innovation: The Ten Killer Strategies of the World's Most Successful Businesses and The Comeback: How Innovation Will Restore the American Dream. His views are his own. Connect with him on Twitter: @GaryShapiro

Filed Under: innovation, on demand, on demand economy, regulations, ride hailing, sharing
Companies: airbnb, lyft, uber

Airbnb Competitor Sues San Francisco For Making New 'Legalize Airbnb' Law Too Restricted To Airbnb

from the interesting-legal-theories dept

We've reported a bunch of times on the various legal fights that Airbnb has had to go through lately. Just a few weeks ago, NY's Attorney General Eric Schneiderman (who has admitted in the past that his interest in Airbnb is really about protecting NYC's big hotels), said that he believed most Airbnb listings in NY to be illegal. Under his standards, every Airbnb I've stayed at in NYC would almost certainly be illegal, despite the fact that I have had nothing but fantastic experiences with Airbnb in NYC (much better than my experiences with hotels). San Francisco seemed to be going in a different direction, however, with the city passing a new law just last week that effectively legalized many Airbnb rentals. This law was actually fought by so-called "housing interests" in San Francisco (who seem to have some trouble understanding basic economics).

So you might assume that any legal challenge to the law would come from those "housing interests." Instead, however, it's Airbnb's biggest competitor, HomeAway, perhaps best known for its VRBO site (unofficial motto: "we were Airbnb before Airbnb, dammit"). HomeAway is arguing that the various restrictions that San Francisco put in this new law to appease those "housing interests" are actually unconstitutional in that it unfairly enables Airbnb's particular business model, while limiting HomeAway's. The key issue: many of the people who use HomeAway use it to rent out second homes, while the new law targets short-term rentals of primary residences only.

How could that possibly be illegal? Well, that's where you have to dive into the convoluted legal argument of HomeAway, which argues that this new law violates the Commerce Clause of the Constitution by "discriminating against interstate commerce" because there's "differential treatment" between SF-based residents and non-California residents.

The Ordinance violates the Commerce Clause because it discriminates against interstate commerce through differential treatment of San Francisco-based and non-San Francisco-based interests that benefits the former and burdens the latter. This unconstitutional discrimination takes two forms. First, by its express terms, the Ordinance allows only permanent San Francisco residents to rent out on a short-term basis (which the Ordinance defines as thirty days or less) residential property they own or lease in San Francisco. Non-permanent residents of San Francisco who own or lease property in San Francisco are barred on the face of the Ordinance from renting out their property on a short-term basis. Second, the Ordinance requires entities that provide “Hosting Platforms,” on which owners and lessees of property may advertise their property for short-term rentals, to conform their business operations in San Francisco to one particular model, and no other, under pain of monetary penalties. This anti-competitive measure forces those seeking to rent property to turn over control of selecting short-term tenants to entities that operate the type of Hosting Platform model sanctioned by the Ordinance and to pay whatever fees those entities might charge today or in the future. While facially neutral, the Ordinance’s Hosting Platform rules have the purpose and effect of discriminating against non-San Francisco-based interests.

This seems like a massive longshot.

Admittedly, many of the restrictions in the law do seem silly and pointless. It seems reasonable to let people rent out their homes for short-term rentals whether or not it's their primary residence. But to sue the city of the law? And, it seems worth noting that it's not clear that anyone was seriously enforcing the existing law (which is why Airbnb has been so successful), and even with this law in place, it's not clear that anyone would be enforcing it against VRBO owners. Still, it's interesting to see the kinds of legal fights these new kinds of services are facing from all angles these days. It's hard to innovate without a legal team, apparently.

Filed Under: commerce clause, interstate commerce, san francisco, sharing economy, short term rentals
Companies: airbnb, homeaway, vrbo

Yes, The Guys Using Legal Loopholes To Screw Over An AirBnB Host Likely Also Scammed Kickstarter Backers

from the this-happens dept

Recently, Russ Roberts had YCombinator's Sam Altman on his absolutely wonderful podcast Econtalk, and the discussion is fantastic and worth listening to (which is true of most Econtalk episodes). Among many interesting and thought-provoking points that Altman made about innovations and new startups like AirBnB and Uber was that with those kinds of new solutions there were always the growing pains -- the stories of crazy drivers or the AirBnB guests throwing crazy house parties. Those stories generate a lot of attention, and they tend to highlight issues where service can be improved, but they do little to slow down the momentum of those startups (in some cases, the publicity actually helps). The simple fact is that there are some people who will always abuse the system, but that alone doesn't deny the amazing opportunities created by some of these services.

But still, with the stories of scams and loopholes, there are always going to be some people who actively seek to take advantage of them. That's just something that happens. These are the same people who take advantage of loopholes in traditional ways as well. I knew a guy in college who bought a really expensive TV, but always returned it right before the 6-month money-back guarantee was up -- only to buy another TV to do the same thing over and over again. Same guy would also figure out ways to drop certain classes strategically to get better grades. He basically spent his life looking for loopholes. Such people exist, and apparently two Russian brothers who are good at that sort of thing are getting some attention for trying to effectively build some scams off of two popular online platforms these days: AirBnB and Kickstarter.

The AirBnB side of the story got attention first. Apparently, one of the brothers, used AirBnB to "rent" a condo in Palm Springs for 44 days, paying the first month in advance. However, he then stopped payments, and made use of a California renters/squatters law that says if you reside in a place for more than 30 days you're a "tenant" and if the owner wants to get rid of you they have to go through (very complicated) evictions. It seems clear that this was the plan all along.

A few days later, however, it came out that the brothers staying at the condo were Maxksym and Denys Pashanin, who also had a history of running a big Kickstarter project that raised $40,000, but hasn't delivered. They've also set up a second Kickstarter campaign, but (not surprisingly) it seems to be having trouble finding backers.

Making the situation even more bizarre is that Maksym appears to have logged into the Kickstarter account for the first game to comment on the story by joking about the situation: In the end, though, some are trying to make a big deal out of what this means for "the sharing economy" or for these kinds of new platforms that are all the rage online these days. And the answer is: absolutely nothing. It may provide some details on how these companies can do better fraud prevention in the future, but the simple fact is that there are always people who are going to look to pull scams. That was true a thousand years ago and it was true a hundred years ago and it was true ten years ago. It's still true today. In fact, the difference might be that these guys, in pulling these scams, are getting plenty of attention for it. Their latest Kickstarter campaign is a dud, and it seems likely that they'll now have this reputation stuck to them going forward.

Of course, the other possibility is to use some of these new platforms to get them back as well. Forbes reporter Kash Hill has already suggested (jokingly, we're sure) perhaps using TaskRabbit to beat these guys up...

Filed Under: crowdfunding, denys pashanin, eviction, maxksym pashanin, sharing economy, tentant laws
Companies: airbnb, kickstarter

Airbnb Under Pressure, Agrees To Hand Over Data To NY's Attorney General

from the makes-ny-less-interesting-to-visit dept

As we've discussed a few times, NY's Attorney General, Eric Schneiderman, has been trying to go on a fishing expedition through Airbnb's records, looking for what he calls "illegal hotels." Of course, he's more or less admitted that he's doing this to protect big NYC hotels from being disrupted. Last week, Airbnb actually won in court, quashing Schneiderman's subpoena, though Schniederman just turned around and issued a new subpoena to deal with the deficiencies of the first one.

Recognizing that it was going to run into issues eventually, Airbnb has worked out a "settlement" with Schneiderman, in which it will provide anonymous data, but if Schneiderman finds information that he thinks indicates an "illegal hotel" he can go back to the company to get identifying information. Airbnb says it hopes that Schneiderman is really just focused on true large-scale abusers, many of which it has already removed from the system itself:

The Attorney General's Office will have one year to review the anonymized data and receive information from us about individual hosts who may be subject to further investigation. We believe the Attorney General's Office is focused on large corporate property managers and hosts who take apartments off the market and disrupt communities. We have already removed more than 2,000 listings in New York and believe that many of the hosts the Attorney General is concerned about are no longer a part of Airbnb.

As I've mentioned in the past, I've used Airbnb to find places to stay in NYC a few times now, and it's been an absolutely wonderful experience, significantly better and more convenient than staying in Manhattan hotels. The accommodations, location and service were all significantly better. At least two of the hosts whose places I've stayed at own multiple apartments and rent them out via Airbnb, and it seems ridiculous that they might be shut down because of this. Yes, there are specific "hotel" regulations in NYC, but it seems silly to apply most of them to these kinds of small businesses, where the platform and competition do a great job of keeping them honest. The hosts always seemed to go out of their way to make sure that staying at their apartments was a great experience worth coming back again in the future. Yes, it's possible that some people are somehow abusing the system, but it seems likely that plenty of small time entrepreneurs are going to get swept up in this effort to protect big hotels from disruption.

Filed Under: anonymous data, apartment rentals, disruption, eric schneiderman, illegal hotels, ny, nyc
Companies: airbnb

NY Attorney General Admits He's Targeting AirBnB To Protect The Big NY Hotels That Are Being Disrupted

from the protectionism-against-disruption dept

Over and over again in talking about innovative disruption, we talk about how incumbents turn to regulators and politicians to kill off that disruption. Usually, they don't admit it directly -- preferring to couch their language in talk about "safety" and protecting consumers -- even though many of these disruptive systems actually appear to be better for consumers. However, sometimes politicians are willing to just flat out admit that they're trying to protect incumbents from innovative upstarts. And that's what's now happened with NY's Attorney General, Eric Schneiderman.

Last fall, we wrote about how Schneiderman was demanding information on 15,000 AirBnB users in NY, claiming that he was hunting down "long-term illegal rentals." In a NY Times article highlighting how AirBnB users (from both sides of the market) are pushing back against Schneiderman's crusade against AirBnB, Schneiderman finally admits what everyone has known all along. He's doing this to protect the big NY hotels from getting disrupted. And yes, he sandwiches the claim between claims of "just enforcing the law" and "protecting" people, but the message is pretty clear. This is about protecting the incumbent hotels:

First he said that “we have a well-regulated and extraordinarily successful hotel sector” that is “one of our finest industries and contributes a lot to the economy.” Then, a bit later, he added, “We’re just looking in New York to enforce New York law, and also, frankly, to protect our hospitality industry that goes through a lot of trouble to have great hotels, to protect tourists, to provide services, and to protect the people in our residential housing.”

It is true that NY law prevents short-term apartment rentals (basically anything less than 30 days). But to pretend this is about protecting the public is just ridiculous. I've stayed at many hotels in NY and a few AirBnB places -- including some that likely fit Schneiderman's definition of an "illegal hotel." And, without question, the AirBnB experience every single time has been vastly superior to the hotel experience. It's not even close. Assuming Schneiderman allows it to exist, I'll continue to make use of AirBnB, and it's not just because it's usually cheaper (though it often is), but the overall experience is phenomenal. I get to stay in unique and interesting places in unique and interesting neighborhoods -- usually much more convenient for my travel needs. One AirBnB host I met owns three apartments, living in one (renting out the spare bedroom), but mostly focusing on full time renting out the other two. The service was great -- and much more personalized than any hotel I've ever stayed in.

The last thing I want is for NY's Attorney General to "protect me" from that.

Filed Under: disruption, eric schneiderman, hospitality, innovation, new york, nyc, protection
Companies: airbnb

You Don't Have To Be Desperate To Believe That Trust Is A Good Thing

from the overreacting dept

Wired Magazine recently had an interesting cover story entitled How Airbnb and Lyft Finally Got Americans to Trust Each Other. It's a basic discussion of how much of the so-called "sharing economy" is built around trust, and how that's a sort of surprising thing, considering how little people tend to trust each other. Over at New York Magazine, writer Kevin Roose played the grumpy contrarian, arguing that the success of the sharing company has nothing to do with trust, but is all about desperation. And thus a big debate has kicked off. I'm going to argue that the debate is meaningless because it's not an either/or situation and neither point really matters much anyway.

First, the whole "desperation" argument is really somewhat nonsensical. You could make the same argument about any major cultural or economic shift in history if you wanted to. Did mass production and the industrial age come about because of desperation? Why, yes, you could show how that's the case as well. But it still created tremendous benefits around the globe and created tremendous progress (even for those who were desperate). I mean, you could equally argue that nearly all work is the result of desperation. If you don't have a job and aren't independently wealthy, you're pretty desperate for a job. But we don't automatically argue that all economic productivity is because of desperation.

Second, the whole "trust" issue is overstated in the Wired article. Even the article itself notes that studies show that Americans actually trust each other a lot less today than in the past (potentially for good reason). And that's because people seem to be confusing general trust with specific trust. What these services enable are ways to have a better sense of who you can trust. In fact, you could argue that what these services have done is help show who you can trust within an inherently untrustworthy population.

But my major takeaway from this argument is that both sides are missing the larger point of why this is so important. Just recently, we were discussing Jeremy Rifkin's new book, in which he argued that this is actually the beginning of an entirely new economic paradigm that eclipses capitalism. But, as I argued in the piece, I think it's just a much more true form of capitalism that allows for much more efficient uses of resources for everyone -- and that's regardless of whether or not there's more trust or desperation in the system.

Prior to industrialization, trust was more prevalent, in part because you would have many, many interactions with the same small group of people. You didn't deal much with outsiders, and tended to know the people you dealt with on a regular basis. That engendered trust, because relationships were built, and you knew that abusing trust would come back to bite you in future interactions. With industrialization and urbanization, some of that trust broke down, because you no longer only dealt with a close-knit community of folks over and over again. You had many more transactions where you likely would never deal with the counterparty ever again -- opening up a lot of opportunity for fraud and scams. Like in the classic Prisoner's Dilemma experiment -- when it's run only once, people tend to cheat. When you know it'll be run many times over, people learn to "trust" each other, because it leads to much better long term outcomes.

So, without those regular interactions with the same kinds of people, government often stepped in with regulations to try to effectively force a more trustworthy framework on the world. You had health inspectors for food, safety regulations for work, general regulations on hotels and taxis and a variety of similar laws -- all designed to make sure that these kinds of transactions, which are generally one-offs, can be trustworthy and safe. Given the overall world they existed in, those regulations made perfect sense.

However, as is often the case in a regulatory environment, they also introduced certain inefficiencies in the process, making running those business more expensive, locking in certain (perhaps less-than-efficient) business practices, and often keeping out new upstarts and innovators. As we've seen, overtime, incumbents (despite claiming to hate regulations) will often embrace such regulations because they keep out competitors.

So here's where the interesting shift has come into play. Things like Lyft and AirBnB are using a combination of transparency and information to create systems that allow for both the more efficient use of resources and making transactions more trustworthy even without making use of those regulations. This freaks some people out and it clearly does not always work perfectly. But, on the whole, it has created some really amazing new opportunities on both sides of the markets, in which greater information transparency steps in and provides a better solution to legacy regulations, with significantly less overhead. That's freeing up economic resources by increasing efficiency in a really compelling way.

And this is why the traditional players, who had embraced the regulations wholeheartedly, are so pissed off. It does seem unfair that AirBnB can effectively compete with hotels without complying with hotel regulations. But part of the reason it does so is that the system that AirBnB has created doesn't need those kinds of regulations. While it's just anecdotal, my own experience using AirBnB has consistently resulted in a much better experience than at hotels, and one where that kind of trust that is built up matches much more with the pre-industrial version. As an example, I'm actually Facebook friends with one AirBnB host whose apartment I used once, and I will likely stay at his place again in the future. He didn't join AirBnB out of desperation, but because to him it's a great way for him to run his own business, which he's always wanted to do.

Thus, I think arguing over whether or not these services have increased trust or are a result of desperation is sort of a meaningless argument. It's happening one way or the other. What's much more interesting about this is how it's actually opening up all sorts of new efficiencies and economic opportunities for everyone -- and doing so by using information to show why old regulations, no matter how much they made sense at the time, may be inefficient and obstructionist today.

Filed Under: desperation, economics, efficiency, innovation, regulations, sharing, sharing economy, trust
Companies: airbnb, uber

New York's Attorney General Shouldn't Be Able To Go On A Fishing Expedition Through AirBnB Hosts

from the that's-not-how-the-law-works dept

In an odd bit of timing, I happen to be writing this post in a nice studio apartment in Midtown Manhattan, which I was able to rent via AirBnB, which has turned out to be a great find. I'm in NYC for a conference and some meetings, and while the conference offered a "special rate" on a hotel, this better located, much nicer, full studio apartment was more than $100 cheaper per night. The owner is a really nice guy who's able to make some money renting out this apartment -- and he's legitimately worried that NY is going to shut this down. And yet, as we noted last month, NY's grandstanding attorney general (is there any other kind?), Eric Schneiderman, has demanded that AirBnB turn over information on every host in NY in an insane fishing trip. His office claims it's just looking for "bad" AirBnB users -- mainly those doing "long-term illegal rentals," but that shouldn't allow for a massive fishing trip into the activities of the 15,000 hosts in the state of NY.

The EFF and CDT have now filed an excellent brief arguing that Schneiderman has no right to this vast treasure trove of information.

"Indiscriminate subpoenas that seek the identity and other personal information of thousands of Internet users without specific justification are improper and should be quashed," EFF Senior Staff Attorney Matt Zimmerman said. "It is not enough for the state to speculate that some Airbnb users might have broken some law at some unknown point. An online service's users deserve to be protected from fishing expeditions like this one."

In the brief, the groups argue that this is a threat to plenty of people's privacy.

While Airbnb has opposed the subpoena, innocent third parties should not have to rely on a company to protect their private interests.... The Attorney General has not curtailed its request to what it is legitimately entitled to receive, and this type of unfettered dragnet collection of user records should be denied.

Hopefully, the court will quash this overbroad subpoena, and NY will make it clear that merely renting out your place doesn't subject you to random fishing expeditions for information from the state's attorney general.

Filed Under: eric schneiderman, fishing expedition, ny
Companies: airbnb, cdt, eff

NY's Attorney General Demands All Data On NYC AirBNB Rentals

from the chilling-effects dept

What is it with states attorneys general and their attacks on innovation? The latest news is that NY's AG, Eric Schneiderman, is demanding data from AirBnB on all 15,000 users in NYC who have rented out their place. This comes after a ruling back in May saying that an apartment owner renting out his place was guilty of running an illegal hotel (that was just overturned). Of course, the very day that original ruling happened, I'd been trying to rent a place in NYC on AirBnB -- and I even had a guy who had agreed to rent me the place pull back, saying that because of the legal issues he was removing his apartment from the site. I'm about to go to NYC again, and have another AirBnB place lined up -- but am now nervous that this one, too, will disappear.

The NY AG's office claims that they're only going after a small number of "bad" AirBnB users, mainly "landlords doing long-term illegal rentals," but if that's the case, why does it need information on 15,000 users. If anything, that's going to create massive chilling effects. Services like AirBnB provide tremendous amount of value on both sides of the equation -- homeowners are able to make extra cash (sometimes significant amounts) while travelers are able to rent out nice places at lower rates than hotels. It's a good deal that's pretty efficient across the board. The NY AG's office claims that this leaves out neighbors who may be impacted, but it seems like there are much better ways to deal with neighbor problems than having to go trolling through all of AirBnB's records.

Filed Under: attorney general, eric schneiderman, landlords, ny, nyc, rentals
Companies: airbnb