Although jurisprudence is not my strong suit, the Airbnb judgement must surely have been based on nuanced legal argument, particularly when you compare it with an earlier decision by the ECJ, which classified Uber (US:UBER) as a taxi service rather than an intermediary platform. It seems a fine line to my untutored eye.
Uber has come under the cosh, not only because it offers a pretty lousy pay deal for its drivers, but also because some of those drivers have been unlicensed and uninsured. In November, Transport for London (TfL) refused to renew Uber’s licence, citing a “pattern of failures” around safety issues.
Managers of the app countered that beefed-up procedures were now in place to confirm the identity of drivers. That may well be true, but perceptions are everything. Not many people would feel comfortable with the idea of being driven home by an ex-inmate of Broadmoor after a night out at the pub. Admittedly, in certain EU markets the business works exclusively with private hire vehicle companies and their licensed drivers, although another recent legal ruling – this time in Germany – may have even imperilled this arrangement.
Ardent free marketeers are at odds with TfL’s decision, seeing it as fundamentally protectionist in nature. London, as is the case with other European cities, certainly has form in this regard. You could draw a parallel between the campaign against Uber and the historical opposition to bridge building on the Thames from the river’s boatmen, who, understandably, saw it as an impediment to their trade – plus ca change.
>Reputational damage is an issue for any business, but it is probably more difficult to put right if you’re essentially acting as an intermediary between service providers and customers
Five-years ago, around the same time that London’s black cab drivers were protesting over the impact that Uber was having on the industry, the British Hospitality Association (BHA) took aim at Airbnb. In a letter to the then Secretary of State for Local Government, Eric Pickles, the BHA said that government reforms to planning laws for residential homes could decrease rental stock – thereby inflating prices – as owners utilising Airbnb could conceivably gain as much rent in one or two nights as they would in a whole week through conventional letting.
For good measure, the trade body also claimed that “unrestricted letting of residential homes on a short-term basis has led to a “full range of anti-social behaviours”, including the “establishment of temporary brothels”. A reflection, perhaps, of humanity's entrepreneurial spirit, as it could be argued that this oldest of professions represents the progenitor of the ‘gig’ economy.
At any rate, the BHA’s impartiality on the issue is open to question. But civic officials in New York, Paris and Barcelona have also been highly critical, blaming the accommodation service for increasing congestion and exacerbating existing housing shortages, while a lack of oversight has been blamed for several scams that have left customers high and dry.
Reputational damage is an issue for any business, but it is probably more difficult to put right if you’re essentially acting as an intermediary between service providers and customers, particularly if the principal driver of the transaction is simply price. You wonder if a company such as Uber, which must operate on thin margins, could ever devote enough resources to ensure a consistent service offering.
Airbnb, which has been valued at anything up to $35 billion (£26.5 billion), is looking to go public this year, but it will do so against a tightening regulatory backdrop in cities across the US and abroad. We’ve made this point time and again, but there are clear signs that the inherent lag between the spread of new digital business models and the implementation of market-specific regulatory reforms has narrowed appreciably.
In the age of intangibles, investors should remain extremely cautious, even when investing in small-cap start-ups, let alone the fabled unicorns and their equally fantastical valuations. You can leave that to the likes of SoftBank (Jap:9984) which was left nursing hefty losses following the aborted initial public offering for WeWork, a shared workspace enterprise that had been run as an effective fiefdom for co-founder Adam Neumann, but whose bizarre corporate governance rendered it completely unsuitable for public markets.
