Uber and Airbnb, It's Time to Get Real
Uber lost an employment case in London which, if upheld, could force it to stop treating drivers there as freelancers. Airbnb is making all its hosts and guests pledge not to discriminate for reasons of race, religion, or sexual orientation -- or they'll be kicked off the website.
Both developments show "sharing economy" leaders under pressure from activists, rivals, and public officials, who no longer accept their argument that the old rules on hotels and taxis shouldn't apply to them.
Discrimination and labor relations can't be fixed with a software update. They'll need Uber's combative boss Travis Kalanick and Airbnb's idealistic Brian Chesky to think carefully about the best way to protect fast-growing businesses while obeying evolving local laws and regulations.
How they handle this will go a long way to determine future profit and, by extension, how successfully they can pitch investors when they go public. Neither company needs cash from a listing now, so the day of reckoning probably won't come before 2018. But imagine writing a risk factors section of an IPO prospectus for Airbnb or Uber today: regulation must be the hardest part of establishing their value. How fast they can grow and their possible cost burdens are up in the air.
A bit of history. Since their founding less than a decade ago, Uber and Airbnb have argued that they are mere "platforms", connecting sellers to buyers. Giving Uber drivers lunch breaks or requiring Airbnb hosts to make apartments accessible to people with disabilities just isn't their problem. Paired with a big dose of Silicon Valley spin -- Uber saves lives by cutting drunk driving! Airbnb brings people of different walks of life together! -- these companies tell us they're a new breed.
The "old rules don't apply" narrative has propelled Uber and Airbnb to become the first and third-most valuable unlisted tech companies. Airbnb's implied valuation at its last funding round was $30 billion; the market capitalization of Hilton Worldwide Holdings is $22 billion. Airbnb’s 2.3 million-room inventory is bigger than the three largest hotel chains -- Hilton, Marriott International Inc. and InterContinental Hotels Group Plc -- combined. Uber's $80 billion value is bigger than most carmakers. Volkswagen AG is worth about $68 billion and General Motors Co $48 billion.
Admittedly valuing private tech companies is guesswork as they disclose little. But some of this value will evaporate if courts and governments make them behave like established companies. The anti-business populism in western democracies makes this more likely.
Uber and Airbnb earn revenue from commissions they charge users, but we know little about their costs. Uber takes 20-30 percent on each fare, and eschews profit for growth. It lost at least $1.2 billion in the first half of this year, according to Bloomberg News. Jolyon Maugham, a British barrister, calculated that Uber could owe 13 million pounds ($16 million) per month in national insurance contributions, assuming its 40,000 U.K. drivers earned an average of £600 per week. 1
Airbnb usually takes a 12-15 percent commission per booking, split between host and guest. It has lost less than $250 million since it started in 2008, generating about $1 billion of revenue in 2015.
It's a good thing policymakers are waking up. There are sound reasons to extend protections to the growing legions who have an app for a boss. Both Airbnb and Uber could do more to avoid discrimination: scrap profile photos and track when hosts or drivers reject a guest only to accept another shortly afterwards. This would be a better strategy than extravagant country-by-country lobbying wars.
Uber and Airbnb are helpful, shiny new tools, that many of us enjoy. But they need to understand the mood among lawmakers is shifting. Meeting them halfway is expensive, but uncertainty has a price too.
Such fees would only apply if employment tribunals went further than the recent decision and classified drivers as employees.
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Leila Abboud in Paris at firstname.lastname@example.org
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