Sharing economy: It's really an old-style rental economy

Uber and Airbnb are really examples of old-fashioned rentals or sub-letting. But those terms don't appeal to the tech-savvy Millennials who are the main market for these new companies or the millennial geeks who run them.

Rhetoric is based on '60s counter-culture, including avoiding rules that apply to everyone else

Aki Vassilatos, a taxi owner and driver for 10 years, protests in Montreal on Feb. 19 against the "sharing-economy" service UberX. (Rebecca Ugolini/CBC)

At the headquarters of Airbnb in downtown San Francisco, employee meeting rooms have been designed as exact replicas of actual apartments that are available for rent from Airbnb hosts in cities around the world.

"The point is to always remind us what business we're in," Douglas Atkin, the company’s global head of community, observed on a recent tour. We were standing in a kitchen modelled after a Paris apartment.

"We are about creating a magical trip for guests in the homes of our hosts, and so we are basically making decisions about products or marketing in the rooms where our hosts are delivering that sort of magical experience."

Airbnb has been on a magical trip since its inception in 2008.  It now boasts more than a million listings in 190 countries, and is valued at more than $13 billion.

But its rhetoric, like that of many of the companies based in San Francisco and Silicon Valley, is rooted in the counter-culture that sprung from this northern California soil 50 years ago. It’s not enough to just want to make money. You have to be making the world a better place, or connecting the planet, or building communities, or some other equally noble objective.

And that’s especially true for companies like Airbnb and Uber, the two giants in the new multi-billion dollar "sharing economy".

Creating a new world

"Our mission isn't only about making money," Atkin explains, "it's about creating a world where anyone can belong anywhere."

Of course, there’s nothing really "sharing" about renting out your apartment or turning your car into a taxi. This would be more accurately described as a rental economy or a sub-letting economy, but that would not be as appealing to the tech-savvy Millennials who are the main market for these new companies or the millennial geeks who founded them.

The business model is quite brilliant.

Unlike taxi companies or hotels, companies in the sharing economy don’t actually own the cars or apartments they rent out, so they don’t have to spend money on licences and safety inspections. And their drivers and hosts are more like freelancers than employees, so the sharing-economy companies don’t have to worry about laws designed to protect their workers.

That’s one of the big reasons why those companies can offer their services so much more cheaply that their traditional competitors.

It’s also one of the reasons why there’s been so much push-back against Airbnb and Uber in cities all over the world from tenant groups, housing activists and taxi drivers. Montreal’s taxi drivers were the latest to display their displeasure, blocking downtown traffic on Thursday to protest what they consider unfair competition from unlicensed, unregulated Uber drivers.

According to Tom Slee, a technology writer based in Waterloo, Ont., avoiding regulation is at the heart of the sharing economy.

Avoiding regulation

"I think it is very consistent with what Silicon Valley companies have done for a long time," he said in a recent interview.

"You can go back to when Amazon started up in 1999. It was, ‘No, no, we don't need to pay sales tax because we're not really located anywhere so it doesn't apply to us.’ There's always a reason why taxes and regulations don't apply to their particular case and Airbnb is just another example of that."

Atkin doesn’t agree that companies like Airbnb are opposed to regulation. "All we're asking for," he insists, "is fair and reasonable regulation that reflects this new economic practice. And unfortunately some entrenched interests in some cities are trying to maintain the status quo and that’s what we would consider unfair."

But for the venture capitalists of Silicon Valley, who have poured billions of dollars into sharing-economy companies over the past few years, the importance of Uber and Airbnb has little to do with the fact that consumers can now get a cheap ride or save money on accommodation.

For them, those companies represent the thin edge of a very significant wedge.
Chamath Palihapitiya

"It's not the sharing economy," Chamath Palihapitiya insists, "that's a bunch of San Francisco bullshit. What we're doing is rebuilding fundamental human rights."

Palihapitiya is a Canadian venture capitalist in his mid-30’s who has lived in Silicon Valley since 2000. His net worth is estimated to be over $1 billion and he’s considered one of the valley’s most innovative thinkers.

For him, transportation and housing are fundamental human rights, and for too long consumers have been prevented from fully exercising those rights by government regulations designed to protect the status quo.  But the success of Airbnb and Uber has changed the equation.

"There used to be sort of a very arbitrary notion that Silicon Valley should never challenge anything that involves regulation," Palihapitiya explained in an interview in the office of one of his San Francisco based startups.

"And as a result, none of us would spend any time in places like health care or education or financial services or transportation or housing.  But Uber and Airbnb challenged these historical assumptions and they are winning in a massive way. And so now everyone's waking up and saying, 'Well, if it works in transportation and it works in housing, why can't it work in health care and education and financial services?'

Profound change 

"And so we're going to see this profound change over the next 20 to 30 years because we're going to go and remake all of these historical industries that have preyed on either consumer apathy or ignorance or fear. That's what's happening. Is it because some people share their car? Yeah. But it's an extremely superficial way of describing something much more profound and fundamental that's happening right now."

What will health care, education and financial services look like, according to the kings of Silicon Valley?  There’s no doubt they will be cheaper and more convenient for consumers than they are now.

In education, you can get a glimpse of what’s to come in the rise of unregulated, unlicensed MOOCs (Massive Open Online Courses), an initiative that has attracted billions of Silicon Valley dollars in recent years. The intent is to make post-secondary education cheaper and more accessible, but also to break universities' monopoly over granting degrees and accreditation.

It’s a future that is appealing on many levels, but Slee worries about putting too much power in the hands of Silicon Valley.

"They always like to say, ‘We’re a new class of business, so the old regulations don't apply,'"  he cautions. "But really, it's not that new and the regulations do apply and they're there for a reason."

Slee also warns that we need to be careful about thinking Silicon Valley’s vision of the future is the only one. These people have demonstrated they have the money, the expertise and the political clout to disrupt whatever industries they care to disrupt. But nothing, he points out, is inevitable.

"I think that when they talk about a technological future it’s as if there's only one technological future, so whenever a local government pushes back against Uber or Airbnb, it’s, ‘You know, you folks need to get ready for the future because this is the future and it's coming.’

"And I think there's a narrowness of vision there and we have to hold on to the idea that there are many technological futures and not just the one that they tell us that they are bringing."

Listen to Ira Basen's documentary In the Valley of the Kings on The Sunday Edition at 9 a.m. (9:30 NT​)


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