Leavitt: The sharing economy may not be what you think it is

By Irv Leavitt for Chronicle Media

Airbnb provided this photo for the use of the media as it announced its initiative to plan purpose-built homeshare houses.

There’s a name for privately held startups that grow to $1 billion: unicorns. They’re called that because they’re so rare.

But in the sharing economy — the sector led by Uber and Airbnb — some new company, private or otherwise, hits the billion mark every month. That’s not very rare, so they should probably be named for more common beasts. Hamsters, maybe.

All that hamster valuation is not coming from sales. Airbnb, for instance, is valued at $38 billion, according to Forbes, but it only charges hosts 3 percent of the bill you pay on your road trip. The value mainly comes from outside investment.

So why are hedge funds socking so much money into Airbnb and everything else that’s remotely sharish?

More income will come if fee percentages rise. Market share will rise, too. But they can’t rise fast enough to satisfy hedge funds. Nothing can.

One has to assume that the money guys see a pot of gold at the end of the rainbow. They may not know what’s in the pot, but any rainbow that big has got to have one.

The shape and size of Uber’s pot is becoming visible.

Uber is among those companies working like mad things to develop autonomous vehicles, striving to reach the point where there will be no drivers to dine on their bottom line.

Uber will then own its own cars, becoming like the taxicab companies they overtook, only without those pesky humans.

The gravy train won’t end there, reading between the lines of “No One at the Wheel: Driverless Cars and the Road of the Future,” a new book by Sam Schwartz, former New York City traffic commissioner.

Once autonomous vehicles become common, car ownership as we know it will become problematic, Schwartz, the man who coined the word “gridlock,” predicts.

“Private ownership of AVs could be bad and ugly if everyone who can’t drive now decides to own a personal vehicle, and those who have cars now decide that each individual in the household should have his or her own vehicle,” he wrote.

So, Schwartz said, government should, by various means, significantly discourage private ownership of cars in urban areas, or there won’t be enough room for them all on the streets.

That would be a boon for rideshare.

Autonomous vehicle proponents say that lots of people will want to give up their cars and move to rideshares voluntarily, anyway.

Another factor will also cut down on private ownership, one that no one talks about: used autonomous cars seem likely to be rare. Mechanical flaws could prevent the software from navigating safely. So it’s newish cars, or nothing.

And $72 billion Uber Technologies Inc. figures to be the first through the gate to take advantage of this nearly pilotless, rideshare-heavy future.

Airbnb is getting ambitious, too, perhaps looking for constructive ways to spend all that investment. Late last month, it announced an initiative called “Backyard” to design houses to be better — especially better for use by customers of Airbnb.

Airbnb will soon build prototype houses, according to the company. Representatives wouldn’t say straight out whether they’re planning to use Airbnb’s wealth to go into the actual business of building and selling Airbnb-friendly buildings.

But it seems unreasonable, at this point in the company’s 11-year history, that they’d just be providing plans, and patiently watching from the sidelines as others employ them.

Airbnb is gearing up for an initial public offering of stock in 2019, and wants to make sure it’s uber-desirable. And it wants to keep its current investors happy, as their numbers aren’t what they used to be.

Their growth figures, previously ridiculous, are now merely hilarious.

A lodging industry publication, Online Hotel, wrote earlier this year that Airbnb’s “bookings in September of 2016 were approximately 249 percent greater than room night bookings in September of 2015. By contrast, (bookings) in February of 2018 were only about 62 percent greater than … in February of 2017. By almost any industry standard, this still represents a highly impressive growth rate. However, the growth rate appears to be slowing.”

Houses built to accommodate lodgers are, by literal definition, hotels. Municipalities might view any Airbnb mini-hotels that way. If so, one of the advantages Airbnb hosts enjoy over real hoteliers might not exist in any purpose-built new construction: cost-saving exemptions when it comes to stricter fire-retarding construction and other regulations.

Or maybe not. Most cities, for instance, don’t regulate rideshares as they do cabs. They don’t inspect vehicles. They don’t license drivers, or even write their names down.

A cousin of the rideshare business is the carshare business, which has not quite reached hamster level, but probably will in the next couple of years.

Just as rideshares have grown to mimic taxi companies, and Airbnb seems to be paralleling hotels, the carsharers are quickly getting more rental car company-like.

Recently, a Chicago gentleman who controlled 40 cars was sharing them all under the Turo nameplate, and lazily parking them all for pickup on the same few residential blocks, including one where the alderman lived.

Here’s a guy who isn’t just making some money off the downtime on the family car — he’s in the serious rental car business. And he not only didn’t have to handle the paperwork or hire employees — he didn’t even have to rent a lot.

The alderman said later that there’s nothing he can do about losing all that parking until the Illinois General Assembly passes its proposed bill regulating the nascent industry. That hasn’t happened yet. If it does, it will be an unusual regulation of the sharing economy, since it calls for taxing carsharing similarly to the way traditional car rentals are taxed.

Many tears are shed and hands wrung when legislators try to tax the sharing economy, as if these businesses are financial infants who will die while still diapered if they have to pay their way like everyone else.

But they, and their sharing partners, actually have a lot of financial margin to work with, which is one of the reasons they’re attractive to investors.

For instance, the American hotel-motel business employs over 15 million people, many of whom are finally drawing halfway decent wages and benefits after fighting for them for decades. Airbnb now has over 8 percent of the American market, but only 3,100 employees — and that’s including their overseas offices.

On the other side of the sharing economy coin, there’s a bit of mythology going on. For instance, it’s true that some Uber and Lyft drivers are doing it casually, for a little extra cash. But many people who drive rideshares are doing it because they have to, and they’re doing it full-time.

All those cab drivers who quit because Uber took so many of their customers didn’t enroll in medical school or start studying for real estate licenses. Lots of them just started driving rideshares, often by leasing cars from Uber, which, they say, is not a good deal.

The Uber lease contract is much more expensive than traditional car-dealer ones are. And a car you drive all day, every day, is probably going to be in pretty rough shape by the time it’s paid off.

Aside from the ex-cabbies, rideshare drivers tend to be people who have other jobs. The same applies to Airbnb hosts and most carshare vehicle-owners, too.

A recent Airbnb survey indicated that 10 percent of its hosts are teachers. The company notes that teachers seem intellectually well-fitted to hosting, but adds that they’re also likely hosting because they’re among the most underpaid people around.

When it comes to extra money, Airbnb seems to provide a pretty good deal for its hosts, who are pictured in marketing materials as being thrilled to welcome strangers into their homes.

I don’t believe, however, that most of them, if they didn’t seriously need the money, would be in the part-time hospitality business. I also think that Uber driving gets old fast. And I’m guessing that almost everyone sharing cars isn’t a real fan of readjusting the driver’s seat afterward.

But wages have stagnated for years, and these are among the least onerous ways to acquire extra income, largely because the person getting paid gets to call at least some of the shots.

It sure beats a part-time job where you have to come in on the boss’ schedule, wearing an apron and a paper hat.

In the sharing economy, people who don’t make as much money as they should (as they used to?) in their regular jobs have gotten into another business.

But it’s not a real business.

Real businesses buy and sell goods and services or labor and convert them into income. Most of the income in the sharing economy is generated on already-existing goods, and powered by the labor of a single person.

The only other entity involved is a glorified bookkeeper.

Traditional business is like a truck that travels down a commercial highway, mile after mile, stopping every few blocks, where it creates new opportunities for other businesses. A sharing economy business is more akin to a car that turns off the commercial street and into a suburban cul-de-sac.

The car goes around and around, but it never goes anywhere important to anyone who isn’t riding in it.

If you turn that whole picture on its side, it may remind you of another metaphor: a cage on a shelf, an exercise wheel, and an endlessly-running hamster.

The hamster runs and runs, but he never creates much of anything new, for himself or others, including hamster health insurance.

There will be more and more hamsters. It’s their right to survive and multiply.

But don’t confuse them with unicorns.

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