Nasir Pasha, Esq.

What’s Up With Airbnb?

And what is happening with the sharing economy?  Is this a fundamentally new economic idea or an agile way of dealing with hard times? Let us use the clues from Question One to answer Question Two.  Very Sherlockian.  Airbnb’s recent moves suggest a very mainstream approach to success.

The Evidence

  1. In New York, the Supreme Court for the County of Albany quashed a State Attorney General’s subpoena that would have required airbnb to turn over the records of New York hosts. These records were to include the hosts’ physical and email addresses, dates of guest stays and the amount of revenue earned from rentals, among other information.  The office of the attorney general has announced that it will issue a new subpoena limited to address the court’s concerns.
  2. Airbnb followed its victory by seizing more territory, with a public relations petition drive featuring testimony from struggling homeowners whose ability to stay in their homes depends on airbnb guests.  They also launched a new app, specially designed for the spontaneous, who just decided to do a weekend in wine country.
  3. Meanwhile, airbnb also announced its intention to pay the hotel tax on behalf of hosts (the predicate for the New York action) in San Francisco and Portland, Oregon.
  4. Airbnb, reportedly valued at $10 billion, is expected to go public later this year.

Is “The Sharing Economy” Just a Dressed Up Version of “The Scramble”?

Most small businesses know the latter well, honor it in principle, and would like to get as far away as fast humanly possible. To be fair to both scramblers and their customers, however, there are many sides to this question.

The problem courts face is to decide how this new thing is familiar.  How is it different?  How shall we balance the interests of airbnb hosts and guests? Legal thinking, in general proceeds tediously through analogy, and much ink has been spilled on these questions.

  • Is airbng like a hotel?  New York has a hotel tax that can be steep.  That gets tacked onto the tab of every New York hotel guest.  Airbnb guests and hosts have not generally been paying this tax.  Many are unaware that it exists.  New York hotels also have to comply with certain safety precautions, like fire codes.  This specific legal dispute is about the hotel tax.
  • Is airbnb like an apartment?  If these rooms, or couches or apartments are not like hotel rooms, are they like apartments?  New York City, like San Francisco forbids the renting of apartments for very short periods of time, partly, at least, to discourage flophouses.
  • Is this something entirely new and different?  Many theorists have argued that the sharing economy is something fundamentally different and disruptive.  Arun Sundararajan, professor at New York University’s Stern School of Business, is chief among these.  He argues that this is a new supply paradigm that disaggregates existing physical assets and repurposes them as services. The goal is to lower the entry bar for participation in the economy and reduce regulation and taxes.  Sharing, from this perspective,  is a new way to do business built on trust and powered by Web and mobile applications.
  • Is it a David and Goliath story, near and dear to the hearts of many entrepreneurs, in which the little guy struggles against a massive and entrenched hotel industry?
  • Is it just a cheap stay?  This is where the guest comes in.  Do you and your girlfriend want to stay at Mom’s over Thanksgiving?  Do you want to stay in a hotel for $375 a night, or would you rather stay in an airbnb for $100 a night?  Are you actually comfortable sleeping in a stranger’s apartment?
  • Is this just a way for struggling homeowners to stay afloat?  This is where airbnb’s petition drive kicks in.  Homeowners and others squeezed by an unfriendly economy, like those who drive occasionally for Lyft, may be patching together several gigs to make ends meet.  Why not leverage an underused asset, like the guest room?

What is the Sharing Economy About?

This litigation has focused on the hotel tax, and airbnb, although it continues a public relations campaign on the last two points, has essentially signaled the end game by agreeing to collect and pay a similar tax in other jurisdictions.  Cynics suggest that the result has been in the offing since the company began to think about going public.  So, as far a this dispute is concerned, the answer seems to be that airbnb is like a hotel.

The argument that other enterprises in the sharing economy operate on a new and different model and should be regulated differently is tempting, but courts have not bought it so far.  Truthfully, consumers tend to like a bit of regulation, including background checks for taxi drivers and food safety inspections in restaurants.  There are good reasons to be skeptical of self-regulation.

The David and Goliath narrative has legs.  That may be why we see litigation about ride-sharing and accommodations and not in other areas of the sharing economy, such as services that pool bicycles, lawn tools and nanny services.

Perhaps more important than anything else, though, this is an area of the economy that appears to be thriving.  The economics of sharing seem to work for both sides of the equation.  According to the Mesh Labs Global Sharing Economy Index, nearly 5,000 sharing enterprises will generate billions of dollars in revenue this year.

That kind of success invites imitation.  Leveraging underused assets and taking advantage of technological innovation is just good business.  Who cares if it is more like one thing or another, as long as the money keeps rolling in?

Revenue draws regulation and taxation, too, and that is why the analogy matters.  Airbnb chose its narrative when it agreed to pay the hotel tax in jurisdictions outside of New York and is now poised to succeed in a very traditional way.

Other sharing industries should take note.  The argument that the sharing economy should be relatively tax and regulation-free because it is based on trust and technology does not seem to hold water outside of academia.  An affirmative stand on an acceptable method of taxation and regulation might work better and might position some of these nascent businesses for larger success.

  • Changes Afoot in Texas Noncompete Law?

    November 27, 2014

    The Texas Court of Appeals 2013 decision in Nacogdoches Heart Clinic, P.A. v. Pokala raises some puzzling questions about the direction of noncompete law in Texas. It makes sense from a public policy perspective, but …

  • How One Business Was Awarded Money From An Untrue Yelp Review [e226]

    September 30, 2015

    Nasir and Matt talk about a judge in New York awarding a business owner $1,000 as a result of a bad Yelp review left by a disgruntled customer.  They also discuss a recent lawsuit appeal …

  • What Should I Pay My Employees?

    October 21, 2014

    If your small business is about to begin to hire its first employees, you may be puzzled about how much to pay them. If you offer too little, you won’t be able to hire who …

  • What to do When a Customer Accuses an Employee of Theft

    July 02, 2015

    This is one of those managerial headaches that may make life on a desert island look attractive. You don’t want to lose the customer or expose your business to accusations of wrongdoing, but you also …

  • What to Look for When Buying a Franchise

    March 05, 2015

    Thinking of buying a franchise?  That’s very exciting. For many, franchising is the first foray into owning your own business. As with any business purchase, however, you will want to make sure that you can …

  • The Consequences of Scraping Data From A Competitor [e221]

    September 07, 2015

    The guys discuss the lawsuit filed by PhantomAlert against Waze concerning accusations of data scraping a database. Transcript: NASIR: All right. Welcome to our podcast where we cover business in the news and add our legal twist. …

  • State Mandated Retirement Savings Plans

    July 30, 2015

    Twenty-four states and New York City either are or have very recently considered establishing state run retirement savings plans.  Several of these are modeled on SB 1234, the California Secure Choice Retirement Savings Trust Act. …

  • How Much is My Business Worth?

    September 25, 2014

    You have spent a lot of time building your business, but about three to five years ago you began to think about selling, so you have been taking all the necessary steps to position it …

  • Erotic Data on Employee Smartphones: What Can an Employer Do?

    March 03, 2016

    The topic of teachers getting into trouble over sex-related matters has become almost a sub-genre of American journalism for several decades now. In the late 1990's, Washington schoolteacher Mary Kay Letourneau became a tabloid feature …

  • Must-Reads if You Are Thinking About Buying a Business

    September 18, 2014

    If you are thinking about buying a business, you must have lots of questions. Of course, you should get some help with this process -- from your banker, your attorney, your accountant, and possibly a …

Read More