Companies Built on Sharing Balk When It Comes to Regulators

http://www.nytimes.com/2014/04/22/business/companies-built-on-sharing-balk-when-it-comes-to-regulators.html

by petethomas • 12 years ago

46 42 12 years ago

chollida1• 12 years ago

“There are laws for people and there are laws for business, but you are a new category, a third category, people as businesses,” Brian Chesky, Airbnb’s chief executive, told an audience last fall. “As hosts, you are microentrepreneurs, and there are no laws written for microentrepreneurs.”

I'm not sure if this is genius or plain foolishness.

One one hand I agree with him about laws needing to change with the time. On the other hand I just can see how he can think he can wave his hands and say that they don't fall under the existing laws and therefore aren't accountable to them.

CookWithMe2• 12 years ago

When I read it, I immediately had to think of the classic joke: There are only 10 types of people: Those who understand binary and those who don't.

Obviously, a micro-entrepreneur, like any other entrepreneur, runs a business, and the laws for businesses apply.

As an airbnb customer, I'd be more happy if they'd properly work on improving the legal situation than playing this silly PR game.

Zak4• 12 years ago

Obviously, a micro-entrepreneur, like any other entrepreneur, runs a business, and the laws for businesses apply.

I see two difficulties here.

1. Much of the time, it's difficult to draw a clear line between an individual doing normal, unregulated things for which they happen to receive a bit of money and a person acting as a business. If some government official tried to punish me for running an unlicensed taxi service when I give a friend a ride in my car and ask for gas money, the case would be laughed out of court. Is it different if it's someone I just met, say at the airport instead of a friend? Is it different if it's a stranger and the arrangement was made online? Is it different if a third-party intentionally facilitated the transaction?

2. These kinds of regulations seem unlikely to change unless people are actually doing things that arguably violate them. The strategy of getting a large number of individuals to use and/or provide services that don't play nicely with existing regulations is likely the only way a startup has any hope of getting the regulations changed to allow its new business model.

As an airbnb customer, I'd be more happy if they'd properly work on improving the legal situation than playing this silly PR game.

What does this mean? PR is generally how one changes the laws, especially in a representative democracy. I suppose hiring lobbyists and bribing politicians might also work; do you think that's better? By what method would you suggest airbnb work on improving the legal situation?

Silhouette2• 12 years ago

It's hard to sympathise with Airbnb if the facts as presented in the article are accurate.

It is against the law in New York City to rent out an apartment for less than a month, a 2010 measure meant to curb unregulated hotels. [NY Attorney General] Mr. Schneiderman says 60 percent of Airbnb rentals in New York are illegal.

If that is the case, then it seems entirely reasonable for the legal authorities to seek the identity of those offering those rentals and prosecute them. These people aren't "regular New Yorkers", as Airbnb claim, if they're regularly and systematically breaking the law.

It might not be a good law in some people's opinion, but the correct solution for those people is to make a case for better laws, not to break the existing ones and just hope they'll get away with it.

Then, a few years ago, Silicon Valley had a collective insight: Better to ask forgiveness than permission.

Maybe not so much, as it turns out that laughable arguments about being a new category of "microentrepreneur" operator that is neither person nor business and is therefore somehow outside the law are treated with the contempt they deserve by the legal authorities.

In a blog post, Airbnb said the regulators’ plan was to accuse Airbnb hosts in court “of being bad neighbors and bad citizens.” It added: “They’ll call us slumlords and tax cheats. They might even say we all faked the moon landing.”

Indeed, it's hard to imagine why people who say things like that don't get taken entirely seriously.

I'm all for disruption, and I sympathise with the little guy start-up trying to compete against big guy established players, but that's the game. You don't get to win by just ignoring the rules. This summed up the whole situation for me:

Micah Lasher, Mr. Schneiderman’s chief of staff, fired back that “being innovative is not a defense to breaking the law.”

GVIrish• 12 years ago

Yes it's hard to feel sympathy for Airbnb when they openly flout the law then ridicule regulators whose job it is to uphold the law. These guys are ignoring the law because it is profitable to them, not because of a fundamental belief that the laws are unjust and they're doing the "right thing" by breaking them. Why are they any different than any other business that ignores the law for profit?

Seems a bit like Youtube's playbook back in the day where they turned a blind eye to rampant copyright infringement so they could secure a big exit. Or even Uber right now that has been skirting taxi laws. The 'grow fast, law be damned attitude' might be good for getting rich quick, but can also permanently damage some nascent business models.

orky563• 12 years ago

If the majority of your users are engaged in illegal activities, then you are encouraging such activity. There's a huge difference between YouTube and illegal torrent sites. YouTube takes the necessary actions to ensure that copyright material is not put up in the first place and definitely taken down when there is a complaint. Illegal torrent sites have a hands-off policy, which naturally encourages illegal activity. So the question is have all these sharing economy companies done everything in their control to prevent illegal activities? Right now they are caught red-handed for not holding up their end and refusing to divulge the negative information.

rayiner2• 12 years ago

Many start-ups define “working with” regulators as simply accusing them of holding back innovation. But Mr. Laws said regulators were trying to balance many competing interests. “This assumption that they’re always bad in my experience has been almost 100 percent wrong,” he said.

My lesson, as a former engineer in a regulated industry who later did a stint at a federal agency: you'd be shocked by how many people, not lobbyists but real people, have priorities other than maximizing the rate of new technology deployment. Most people see "disruption" as a bad thing. This is a fact that serves the interests of incumbent industries, but it's a fact that exists on its own apart from those interests.

It's undeniable that incumbent industries have figured out how to use those regulations to protect themselves. And it's great to see start-ups that are willing to fight these fights and enter regulated industries. But I think "rules don't apply to us" bravado like Mr. Chesky's comments are counter-productive. It's rare that a regulation is wholly a sop to some politically-favored industry. There are legitimate interests in play, and dismissing those interests out of hand and needlessly antagonizing those that have different priorities is a sure way to turn the process into a very expensive legal battle.

In this case, I think it's a miscalculation to think it's merely a fight against the hotel industry. It's not. It's a fight against condo and co-op owners. In New York City, the land of $15 million 3-bedroom units, that's a class of people you don't want to needlessly antagonize.

vdaniuk• 12 years ago

I disagree. Your statement that regulators give a due weight to important priorities of a democratic society in theory is definitely true. However, regulatory capture is very real and I would hypothesize that majority of regulators are serving special interests, not community interests.

And, yes, political special interests are rarely a main reason for regulatory capture. However, business interests are much more influential.

I am at loss why would you use inflammatory language like "bravado", "tropes", "hilarious" and simultaneously criticize Cheskys comments for being counter-productive.

hapless3• 12 years ago

It's not impossible for it to be both. Special-interest hotel owners AND average citizens both have excellent reasons to see illegal hotels stamped out.

As a member of the community at stake, I applaud Albany for pursuing AirBNB's customer lists. I want to see heightened enforcement, not compromise. So far, I'm very pleased with my elected officials on this one.

wahsd2• 12 years ago

You misunderstand; the hotel industry is not heavily taxed, the visitors, the guests, the business that pay for the stays are heavily taxed....not the hotel industry.

It's typical American exploitative extortion tactics, especially of foreign tourists. Nowhere is it clearly indicated how much the taxes and fees are when you see prices, nowhere is it even indicated what the percentage rate is. We live in a country and society of fraud, deception, and scam and the hotel industry and it's beneficiaries are no exception. We live in a society that does not regulate with the interests of citizens or the protection of the vulnerable and minority from the tyranny of the majority and powerful like our Constitution demands. We regulate as favors and advantages to certain industries or in the most extreme violations of all things good and just and then only with much labor and strife.

rayiner2• 12 years ago

You misunderstand; the hotel industry is not heavily taxed, the visitors, the guests, the business that pay for the stays are heavily taxed....not the hotel industry.

The burden of a sales tax is shared between the business and the customer in a proportion that depends on the elasticity of supply and demand, independently of who is (legally) charged the tax. In general, it's not good for a business when a sales tax makes their product more expensive, because that decreases demand.

jarrett2• 12 years ago

It's a fight against condo and co-op owners.

They're not the only people who might reasonably want regulations on short-term rentals. Many long-term renters have a legitimate interest in the quality of their buildings and their neighborhoods, even though they don't own a piece of either.

As a long-term renter, you may quite fairly be concerned about the negative consequences of short-term rentals. Those consequences could conceivably include noise, property damage, and crime. Not necessarily, but conceivably.

Is there a difference in impact between a) one apartment dweller renting on AirBnB, and b) a 100-unit motel that charges by the hour? Of course there is. Perhaps the laws will evolve to reflect that. But for now, it's reasonable for long-term residents to be concerned about the latter situation developing if AirBnB is subject to no regulation at all.

cube13• 12 years ago

Is there a difference in impact between a) one apartment dweller renting on AirBnB, and b) a 100-unit motel that charges by the hour? Of course there is. Perhaps the laws will evolve to reflect that. But for now, it's reasonable for long-term residents to be concerned about the latter situation developing if AirBnB is subject to no regulation at all.

The problem is scale. 1 apartment getting rented on AirBnB probably isn't a problem for anyone at all. But if it's 1%? That's a significant reduction in available housing. Given that NYC already has a gigantic housing and real estate problem, anything that can conceivably compound the issue will get attention.

numbsafari• 12 years ago

I have a hard time with the word "sharing" when it comes to AirBnB.

If you want to share your space, then why are you charging me?

There's a huge difference between couch surfing and AirBnB.

The fact that Silicon Valley is trying to convince us that subletting your apartment constitutes "sharing" says a lot about their values.

wahsd2• 12 years ago

I'm shocked. What? You imply that Silicone Valley is full of skeevy, narcissistic megalomaniacs.

It is still the USA after all, the land of scam, fraud, and deception, and manipulation. But I have to say, a lot of these companies, AirBnB included, are a LOT more transparent and honest than most of the industries and sectors that tech companies are trying to disrupt, uproot, and supplant. Maybe they are simply being drawn into the American status quo of having to be manipulative and deceptive and lying in order to get anything done.

orky563• 12 years ago

The sharing economy is based on selling the period you are not directly utilizing the products/services you have paid for. The main issue is that these startups have not paid for full use of these products/services under any circumstances. In the case of AirBNB, majority of these places are rentals with existing rental agreements that set up contracts that deal with landlord/tenant.

hapless3• 12 years ago

They're accused “of being bad neighbors and bad citizens.” “They’ll call us slumlords and tax cheats."

If the shoe fits, wear it.

zby• 12 years ago

I don't like how they use 'sharing' when it is about paying for something.

billmalarky2• 12 years ago

From what I've gathered, NYC doesn't like illegal hotels for a number of reasons. An important one being that NYC's relatively high hotel tax forces travelers to help foot the bill for the outrageous maintenance costs the city has. Since airbnb "hotels" don't pay this tax, they really are stealing from the city, not to mention undercutting legitimate hotels.

I would prefer they just legitimize the business instead of playing all the shadow games. Honestly, I bet all the big airbnb "hosts" that run mini-hotel chains would rather the business be legitimized as well. It would certainly remove a lot of risk from their business (which in NYC is pretty high).

atom-morgan• 12 years ago

Your comment seems to be a popular one on this issue since most people immediately compare Airbnb to hotels. Once they realize Airbnb doesn't have to do something hotels do, like pay hotel taxes, they come to the conclusion that Airbnb should play by the same rules and regulation as everyone else in the hotel industry.

However, I would argue that the better approach is to question the mere existence of the hotel tax.

The question today seems to be, "Why doesn't Airbnb have to pay a tax all hotels in NYC have to pay?" The better question is, "Should hotel taxes exist in the first place?"

DanBC• 12 years ago

People care more about suitable insurance; zoning; prevention of nuisance; fire doors and extinguishers; and other safety features.

cantankerous• 12 years ago

The better question is, "Should hotel taxes exist in the first place?"

That question has already been put to the local electorate, and they seem to be happy enough with the status quo. Taxing hotels is a way for a locale to generate revenue from tourism. In this case, New York has something visitors want, and it wants to charge them for it. I don't see anything wrong with this. If you don't want to pay New York's Hotel taxes, don't go there.

metaphorm2• 12 years ago

Hotel taxes exist for legitimate reasons. This hasn't been a contentious issue for conventional hotels, ever. The industry has an unusually large impact on public infrastructure. Hotel guests use all the commons and public facilities of the city just the same as residents do, but they don't pay the taxes that residents do to fund those commons and facilities. The Hotel tax exists to help with this problem.

techsupporter• 12 years ago

This is the same problem that I have with UberX, Lyft, and Sidecar. As a customer, I love the services. As a citizen of where I live, I'm upset at them breaking the law--or, more specifically, condoning and aiding breaking the law[0]--and not only expecting not to have any consequences for that but going so far as to be furious when there are consequences.

The actions of UberX and Lyft in Seattle over the "ridesharing" debate have been demonstrative. I'll say upfront that the Seattle City Council's idea to cap Transportation Network Company (TNC) drivers to 150 per TNC seems shortsighted, but I can understand why[1]. When Lyft and UberX didn't get exactly what they wanted, they filed and paid for signature gathering to put the ordinance to a referendum; their right to do so under law. However, that referendum suspends the ordinance that makes their business model legal. Instead of ceasing, both companies doubled-down. Why do they get to break the law in the name of "disruption" when most of the rest of us don't?

0 - For-hire drivers have to meet certain requirements that Lyft and UberX drivers don't meet. Further, both companies actively solicit for people to violate the terms of their auto insurance. Being canceled "for cause" by an auto insurer is an almost guaranteed way to see a person's rates double with the next company.

1 - I can think of two reasons. First, it's because taxis are capped and, while that system is badly broken, it can't just be yanked out from under the existing taxi system. That leads to the second reason, which is the Council not wanting to have hundreds or thousands of cars trying to cruise the same areas while looking for passengers.

Zak4• 12 years ago

breaking the law[0]--and not only expecting not to have any consequences for that but going so far as to be furious when there are consequences.

I don't think UberX and airbnb are operating under any illusions that there won't be consequences. I think that they're hoping members of the public will grow to like their services faster than regulators can stamp them out, and that public fury over attempts to stamp out the services will prompt changes in the law.

I see this as objectionable if the companies mislead their users who provide services about the legal risks they may incur, but not otherwise. People who feel strongly about a moral duty to obey the law may disagree on this point.

rexf• 12 years ago

Correct, the article says the same:

Kevin Laws of AngelList, a site that unites start-ups and investors, explained that “the approach almost all start-ups take is to see if they can be successful fast enough so they can have enough money to work with the regulators.”

fraserharris• 12 years ago

Re 0: Lyft and UberX now offer insurance.[1]

Re 1 - Market supply and demand fixes the problem of hundreds or thousands of cars trying to cruise the same areas.

[1] http://pando.com/2014/03/31/half-of-ubers-insurance-arrangem...

DenisM• 12 years ago

Having used both Uber and Taxi in Seattle and Vegas, I honestly can't see how licensed cabbies are any better. That regulation you speak of doesn't help them to find the location (one couldn't find Seattle Opera, neither by name nor by address, nor by GPS), nor hear you clearly (took me to the wrong hotel, still charged for the whole trip), nor take the short road (Vegas cabbies always take you the long road from airport to the hotels, despite a poster inside saying they must take the short road). With Uber I can leave a nasty review, which is a quick and easy way to weed out bad drivers.

In theory, regulation should make cabbies better, but that just doesn't happen. I dread using cabs - more than half the time I feel like I have to take part in the driving if I want to get anywhere.

pessimizer• 12 years ago

In theory, regulation should make cabbies better

It depends what you mean by 'better.' The regulation of nuclear plants isn't intended to make them more efficient.

Joeboy• 12 years ago

I'm not in the US and don't know a lot about those companies, but it would seem to me that they're more "built on unregulated commerce" than "built on sharing".

So it's not altogether surprising that they have awkward relations with regulators.

metaphorm2• 12 years ago

the issue is that, actually, the commerce IS regulated but these companies have decided to try and operate without abiding by those regulations.

they argue that small tweaks to the business model (e.g. running a web service for taxis, rather than owning taxi vehicles) make them exempt from regulation. its a big stretch. not many cities are willing to give them a pass on this and there has recently been an incredible amount of friction with local regulatory authorities.

the relations with regulators is more than just awkward. its a farce.

ben1040• 12 years ago

Lyft launched in St Louis this past Friday. It took 90 minutes from the launch party for the first driver to get pulled over and cited. Yesterday afternoon a judge issued an injunction telling them to shut down the service.

http://www.stltoday.com/news/local/govt-and-politics/nick-pi...

fsk• 12 years ago

That's because Uber and Airbnb are doing regulatory arbitrage more than anything else. If they were taxed and regulated to the same extent as their existing competition, their business model wouldn't be viable.

orky563• 12 years ago

We have a new model forming in regulation and special interests. With traditional companies, we have paid lobbyists representing industries and sectors when speaking with lawmakers directly.

With startups, the model is a bit backward. VCs are the ones providing the funds to artificially fund a broken business model that creates market share before profitability. This acquired market share is the argument these startups are using to fight regulators. "Look we have public support."

Whether or not regulations are outdated or backward, they are still the law. Operating outside the law to garner support is not a legal or ethical way to change laws. It's just as bad or even worse than money getting closer to the lawmakers. Entrenched interests are a reality and something that should be fought on a level playing field.

oracuk• 12 years ago

The subject of start-ups and regulators has come up a few times recently and there tends to be a view espoused that regulators are intent on legislating away innovation.

My experience of working alongside or for regulators is that they overwhelmingly do not want to write new law unless they absolutely have to. Law is hard to write, hard to schedule and politically difficult to agree.

Generally regulators prefer industry associations or similar creating 'best practices' that the regulators can then rely on for evidence of recklessness or negligence compared to peers in the industry.

This can lead to established players in a market controlling the regulatory framework for innovation but this is solved through either new players engaging with the industry associations or a truly valuable innovative approach forcing legislators hands.

By not engaging with regulators and industry associations to address best practices the only route left is to be valuable and disruptive enough to require new law which is resisted by all those involved until the last moment possible.

It is always worth remembering that no matter how good your relationship with the regulator is their goals are not yours, they would like you as an industry to be successful but they exist to protect society as a whole and when placed in a position between your success and the perception of harm to society they will enforce regulations strongly.

Companies Built on Sharing Balk When It Comes to Regulators

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