The sharing economy grows up: Professional, urban companies find success catering to sophisticated clientele
One too many loud parties from a competing Airbnb rental prompted a Toronto condo board to put a stop to James Perrault’s side business. Perrault, 46, had been using the short-term rental platform to make some money from his loft in the city’s east end during summers when he was away. A neighbour had the same idea, but accepted some guests who caused a ruckus, prompting the building’s board to crack down on Airbnb rentals altogether.
If he couldn’t use Airbnb to make money on the side, Perrault figured he’d go pro. He approached Julie Van Der Lugt, another successful Airbnb host who owned a nearby cafe, about starting a business managing other people’s units and bookings. “When I walked in she went, ‘Hey, I’ve got an idea for you.’ I said, ‘I’ve got one for you too.’ We sat down and it turned out we both had the same idea,” Perrault said. “It was very serendipitous.”
Today, their business manageAir has had enough success for Perrault to make it his full-time job. The business has a diverse range of clients, but many of them own a Toronto pied-a-terre they want to use for themselves when they’re in town and rent out on Airbnb hassle-free when they’re not.
This is what the maturing sharing economy looks like: Professionalized, urban and catering to a sophisticated clientele. It’s not quite the egalitarian world people envisioned when the concept was new.
There are certainly ordinary people making a few bucks by renting out their ordinary stuff. But the people getting richest are, as usual, the already rich.
When Airbnb Inc. and fellow sharing economy juggernaut Uber Technologies Inc. started catching on after launching in the depths of the financial crisis, Silicon Valley types saw the dawn of an age of perfect capitalist efficiency, where no asset or worker need ever sit idle. Others, however, saw a dystopia.
Pundits made dire predictions about the future of work. They envisioned a world where people laid off from full-time unionized jobs made ends meet by sleeping in the bathtub while renting their beds to strangers by night, and performing sub-minimum wage menial tasks for strangers with more money than time by day.
To be sure, there are people in desperate financial circumstances who sign up for sharing economy gigs as a last resort. But that doesn’t appear to be the typical scenario.
More than half of the people providing goods or services in the sharing economy have household incomes greater than US$50,000 — and one-quarter have household incomes that break six figures, according to a 2015 PricewaterhouseCoopers report that surveyed Americans about the sector. The report pegged the industry’s global revenues at US$15 billion and predicted that would hit US$335 billion by 2025.
All that money is coming from a narrowing field of players. The top seven sharing economy companies had a combined market capitalization of US$113.5 billion in 2015, accounting for 83 per cent of the total valuation of all billion-dollar-plus valuation companies in the sector, according to a February analysis by industry data collectors Jeremiah Owyang and Philippe Cases and published by VentureBeat.
Of course, everyone knows you have to spend money to make money. But to make money in the sharing economy, it helps if you have the means to acquire some high-quality things to share.
Take cars. San Francisco-based Turo Inc. recently launched its service in Canada, allowing people to rent out their cars the same way they rent out their homes on Airbnb. Chief executive Andre Haddad uses the service to make some money from his Porsche and Tesla that would otherwise be collecting dust.
During a recent visit to Toronto, Haddad took out his smartphone to show off the photos of his cars on his Turo listing. He said he enjoys the service’s shock value — most people still have a tough time imagining handing strangers the keys to their minivans and hatchbacks, let alone luxury cars.
Once people get over the psychological hurdle, Haddad insists the concept makes perfect sense.
“I’m personally a big car enthusiast, but I always found I was spending way too much money on my cars,” he said. “Similar to the concept of monetizing your closet that’s full of stuff you’re no longer using that much, I thought that could be very applicable to cars.”
Haddad is a veteran of the sharing economy. He launched a Craigslist-like company called iBazar SA in France in the late 1990s and went on to work for eBay Inc., which acquired iBazar following the tech crash of the early 2000s.
“It was a crazy idea at the time,” he said. “You had to believe that things will go well and that people were going to take care of one another.”
Over the span of two decades, Haddad has seen a lot of fads and companies come and go. Branding every new tech startup as “Uber but for x” was so common it became a punchline, with apps offering everything from dog walkers to babysitters at the push of the button.
Many of those companies raised millions of dollars. And many have since folded or changed course.
Food delivery service SpoonRocket has shut down, laundry pickup and delivery service Prim has folded, and tool and gear rental platform SnapGoods is now a social network for businesses. Haddad said he thinks Turo has succeeded where others have struggled for a few reasons.
Like most successful sharing economy companies, Turo adds new assets to the economy that were previously unavailable. And it puts a lot of behind-the-scenes effort into making the experience as safe and pleasant as possible, assigning users a risk score based on insurance profiles, behaviour and other factors.
At first, Haddad said he expected the average person renting a car on Turo to be someone who really needs the money. After all, if you don’t need the cash, why go through all the trouble? But the hosts actually tend to be highly educated with above-average incomes — sometimes way above average.
“A significant chunk of our users are car enthusiasts,” he said. “They’re excited to have other car enthusiasts drive their cars, to earn money while having the pleasure of sharing their car with others.”
Something else that sets Turo apart from some sharing economy companies is its willingness to be patient. The service is currently only available in Alberta, Quebec and Ontario because it hasn’t finished complying with insurance requirements in other Canadian provinces.
Like insurance companies, politicians and regulators have struggled with how to categorize the sharing economy. The sector may be maturing as an industry, but laws and regulations are still stuck in the 20th century.
Sunil Johal, policy director at the Mowat Centre, a public policy think tank in Toronto, recently co-authored a report on the sharing economy that points out the Ontario Innkeepers’ Act still details the circumstances under which a hotel owner can sell a customer’s horse.
Canada, in general, is behind the times. Some countries have taken a strong stance either in favour of sharing economy companies or the incumbents they threaten, but Johal said Canada’s various levels of government have mostly stayed on the sidelines while they think the issue through.
Some companies have opted not to wait, with Uber being particularly famous for setting up shop first and building public support from happy customers for battles with politicians and regulators later. On Wednesday, Toronto’s city council finally legalized the UberX service, which has been connecting regular drivers using their personal cars with people looking for a ride since 2014.
“Uber is the classic example of the company that’s willing to be very sharp with its elbows and ignore regulations where convenient,” Johal said. “Most of the companies in this space are trying to follow the rules and get their approvals in place before they start operating, but I know many of them have found that very frustrating.”
Airbnb still struggles with regulatory issues ranging from zoning to taxation. Debate rages as to whether it’s helping or harming residents of the world’s increasingly difficult-to-afford cities.
Boris Wertz, a Vancouver-based angel investor and founder of Version One Ventures, recalled a recent Airbnb stay in San Francisco in one bedroom of a two-bedroom apartment. He said his host had chosen to rent out the second room to short-term guests through Airbnb instead of getting a roommate because it was more lucrative.
“For US$100, US$120 a night, he had rented it out 28 days of the last 30 days,” Wertz said. “For him, it was probably more than his salary that he made or close to it.”
Whether that’s a good thing or a bad thing depends on your point of view.
On the one hand, the host was able to make enough money to afford living in a city where rents for a one-bedroom apartment top US$3,500 per month. On the other hand, renting the bedroom to short-term guests on Airbnb removes that room from the city’s housing supply for long-term residents, contributing to higher prices.
The host, of course, was happy to take the cash.