Analysis & Comment

Is This “World-Changing” Innovation in Jeopardy?

Is This “World-Changing” Innovation in Jeopardy?

When it comes to consumer culture, there’s a new world order…

The deck is tilting from outright ownership towards access instead.

I’m not saying that we don’t want to buy “stuff” anymore, but many consumers feel burdened by all their “stuff” – and the debt they’ve acquired to buy it.

Take the so-called “Millennial Generation” (also known as “Generation Y”), for example.

Many of these folks, born in the 1980s and 1990s, are saddled with historic amounts of student debt – and are consequently shying away from large-scale financial commitments like mortgages and car payments.

Instead, they’re partaking in the fast-growing, peer-to-peer “share economy.”


Rooted in economic common sense and driven by technology, this innovative solution is a sensible way of forging a more “efficient market.”

Think about it: We all have stuff that we don’t use – golf clubs, guitars, chainsaws, even cars and houses.

So the share economy says “If we don’t want this stuff, let’s rent it to people who do.”

It’s big business… but over-zealous, officious regulators are poking their noses in…

A $26-Billion Economy Under Threat From Bureaucrats

Rachel Botsman, author of What’s Mine is Yours: How Collaborative Consumption Is Changing the Way We Live, values the size of the share economy at a whopping $26 billion.

Forbes says growth will exceed 25% this year.

And Time named it one of the “10 Ideas that Will Change the World.”

In short, it’s a disruptive economic force – and technology is driving this market forward by giving consumers fresh choices.

For example, we’ve got on-demand access to TV, films and music. And GPS technology brings local demand and supply together seamlessly.

What could go wrong? In a word: bureaucrats.

As more people participate in the share economy, party-pooping state and local regulators are trying to figure out if sharing our stuff for fun and profit is legal, safe – and, of course, taxable.

Regulation = Revenue

For example…

~ Airbnb: The room-rental company gained attention last month when the state of New York slapped a $2,400 fine on a man who was renting out his apartment via Airbnb. His crime? Illegally running a hotel.

Airbnb’s thin terms never mentioned that when he registered his place on its site, collecting money for occasional overnight stays might fall foul of New York occupancy laws. But Airbnb still got its commission.

~ RelayRides: Also last month, the car-sharing startup shut down its entire New York operation in response to a consumer alert from New York’s superintendent of financial services, Benjamin Lawsky.

In the alert, Lawsky slams RelayRides for selling “New Yorkers a false bill of goods… the company’s insurance is illegal and inadequate.” I already detailed Relay Rides’ insurance problems and naïveté months ago. It seems New York is just catching up to what insurance companies have known for some time.

Now, before you say, “But that’s just one state,” realize that New York is on top of this issue because its regulatory house is in order. Nearly everywhere else, the picture of what’s legal – and what’s taxable – is much murkier.

The Taxman Cometh… Eventually

With the Airbnb case, some states and municipalities assess a “hotel tax” on proprietors. And Airbnb says hosts are responsible for collecting and remitting those taxes.

The trouble is, no-one really knows how much tax, if any, is being handed over. In fact, most cities haven’t even clarified if short-term hosts should pay hotel taxes on their rental income anyway. Doing so would imply that short-term rentals are actually legal.

So it’s worth it for states and municipalities to clarify occupancy laws, because an untapped revenue stream awaits them.

Case in point: Airbnb recently published a report, claiming that it contributed $240 million to Paris’ economy over a one year period. And Airbnb typically comes out 20% to 30% cheaper than hotel stays in the same cities, allowing travelers to stay longer and spend more money.

Will Red Tape Drown This Flourishing Industry?

Bottom line: Sharing companies are great at connecting people and resources. But the industry is operating in a legal gray area.

And if the bureaucrats get their claws into it, nimble startups will be forced to succumb to mountains of red tape.

That means sharing companies may be tempted to shift liability and responsibility entirely to their users – and risk complicating the process, or alienating supporters. And, after all, convenience is what drove so many towards the model in the first place.

Share economy companies will soon face a choice: Educate themselves and their customers on the laws… back their renters and give them what they need to conduct safe, legal, low-risk transactions… or face losing their businesses.

Source: Techandinnovationdaily-Elizabeth Carney