Travis Kalanick’s ears were burning on March 25th. Whether he cares or not is another story, as his reputation for being “tone deaf” is well established. “The New Digital Disruptors” panelists—EDventure’s Esther Dyson, Breakingviews’s Jeffrey Goldfarb, IDG Ventures’s Pat Kenealy, Attitude LLC’s John Patrick, Mashable’s Heidi Moore and The New Yorker’s Ken Auletta—had a lively exchange of opinions on barrier-bashing, regulation-bending, pro-innovation companies like Uber and Airbnb.
From where pro-Uber fans sit, the sharing economy was incubated out of need in San Francisco, a city of more than 825,000 people and 47 square miles of real estate. With roughly only 6,000 taxis, it was nearly impossible to get a cab. Uber changed all that, Kenealy said, by deploying self-appointed drivers whose service, coverage and pricing gave consumers exactly what they wanted: access to a much better ride, at a great price, whenever they wanted one.
But cities outside of San Francisco face a much different reality, rife with bureaucratic red tape: “Within that ecosystem, there is an exceptionalism that comes with the belief that tech prowess and entrepreneurial spirit are uncorrupted by the ways of politics, commerce and finance. Emblematic of Uber, but also of the Valley as a whole, that exceptionalism only travels so far,” Goldfarb argued. “It is a bubble and doesn’t take into account the way the rest of the world thinks.”
And what the rest of the world is thinking isn’t in line with Uber’s business model. Dyson, who said the relevant point is not whether consumers are happy in the short term, but that companies like Uber and Airbnb are sidestepping the regulatory apparatus—safety guidelines and insurance requirements, for example—that protect customers. “It’s not as great as it looks. Long term, Uber is going to have to raise its prices as it puts in some of the regulatory infrastructure.”
Over the long term, disruption for disruption’s sake isn’t a sustainable business model, and both Uber and Airbnb could face a backlash for this approach. “If Uber’s business case is that it’s going to have to avoid regulation for the duration of its business to be as cheap, profitable and accessible—which is currently the case that it is making in the courts in cities across the country and the world—then a lot of governments just aren’t buying it,” Moore noted. By sidestepping for now to whom they really answer—the government, which will require they comply with regulation and taxation—Uber and Airbnb are following what some argue is Amazon’s playbook: become entrenched and then answer the regulation and taxation challenges.
Even if you love its model, Uber’s modus operandi should be catching the attention of its investors, if for no other reason than the costs it’s running up. “Uber encourages its drivers to violate local laws where they are banned and, on the record, has told us that if a driver picks up a customer in a city where they are not allowed to drive and they get fined—$500 to $1,000 or $2,000—the driver is told “‘send us the ticket and we’ll pay,’” Goldfarb pointed out. “Now, you can look at this as a form of civil disobedience, but this is where investment dollars are going—to pay for tickets for people operating illegally. It’s part of the reason why they are raising so much money. It’s not just to get a $41 billion valuation; it’s because they need capital to fight regulations and pay these tickets.”
“This is where investment dollars are going—to pay for tickets for people operating illegally.” — Jeff Goldfarb on Uber’s aggressive market tactics
Patrick maintains that Uber’s aggressive stance and big spending smack of the pharmaceutical industry’s massive lobbying efforts on the local, state and national levels to get what it wants. “There should be no tolerance of illegal activities. …But don’t criticize Uber for trying to influence regulation to enable them to provide a service that consumers want.”
Unlike the pharmaceuticals and other national players like Amazon and FedEx, Uber and Airbnb are caught up in local scraps with municipalities where individual leadership and corporate culture count, something Moore says Uber’s Kalanick disregards. “The question is whether Uber will be successful in lobbying. …It doesn’t have a foothold in the federal government. If you’re a Verizon or a Federal Express, you can get the government to do your bullying for you. Uber has to go city by city, and those small-town bureaucrats are not going to be swayed, even by David Plouffe.”
With Airbnb, the concern in cities like New York is that the company is exacerbating the income inequality that already exists, contributing to “two New Yorks” by driving up the cost of rentals and making them less accessible to the masses, moderator Auletta observed, alluding to New York state attorney general Eric Schneiderman’s findings of extensive violation of zoning regulations and other laws based on subpoenaed Airbnb data.
In the end, Uber and Airbnb’s real disruption is in how people view ownership and property rights, even in cities like New York where Kenealy says who benefits from their market presence could decide the success of their regulation bashing. “That basic balance of property rights versus shared obligations is being played out against a big tax bite. …Airbnb might resolve itself differently when there’s a 12% hotel occupancy tax.”by