About Uber, AirBNB and similar business models

Well, this article is written mainly because of a new piece of legislation that the Greek government is trying to pass, following the example of different governments around the world, that limits or regulates in a way, the operation of services such as Uber and the local instance namely Beat (formerly known as Taxibeat). As far  as I have read so far, one of the aspects being discussed is having the drivers they “use”, sign a three-year contract, which does not sound bad at all to begin with, but I guess there are more developments to come.

Anyhow, there has been quite the uprise on social media, petitions signed to let Beat… be! Status updates and hashtags, the works! A number of social media campaigns that of course are spontaneous in nature most of the times. Most… And although I share the concern of these voices, as a consumer that now enjoys cheaper rides, I can’t help but think that there has to be another side to all of this.

If you are expecting some in-depth analysis of socio-economic factors or macro and microeconomic models, you can close the browser. What I am trying to do here, is reason about all of these similar business models (Uber, AirBNB, etc) and how they relate to existing businesses in the sectors they do their business. By the way, I have to set Beat apart from the other examples I discuss as they are doing business with established professionals, not introducing non-certified amateurs in the economy.

In general, Uber, just like AirBNB is based on the notion that “you have a house, you can become a host”, “you have a car, you can become a driver”, “you have two legs, you can walk a dog”, “you have a kitchen, you can cook for the wider public”, etc. It’s all about offering a similar service to existing ones, without the hassle the hotels or taxi drivers go through, but with similar benefits (in economic terms at least). And of course, in some cases, without the hassle of being trained or certified in any way. Money that are largely not taxed (or at least they were in the beginning), but that are slowly being caught up by governments here and there, cause let’s face it, they would be stupid to let these businesses make millions that go untaxed.

My problem with these business models is that some of them are overly simplistic in nature. Almost stupid at times. And they are not simplistic cause the people that thought of them are stupid. These people are actually really really clever. So why think of something that does not make sense in some cases? Let me present you with an example. There was a nice startup not so long ago, that had people with time in their hands, cooking and selling their food to interested individuals. The argument was that since Mrs X was cooking for her family, a left-over plate could be sold to a student that wouldn’t cook, at low cost. A win-win situation right? No.

How about food safety? How about regulations for the preparation of the food, hygiene, etc? Nothing. No plan whatsoever to address these issues. Just reviews and star ratings for the cooks, just as if they were Youtube videos or something. And although this was a simple thought to make, they only made it after having raised some millions in funding, deploying the solution only to find out that they should not be selling food around that was not prepared under the right conditions/safety regulations, etc. Wow!

In a similar manner, AirBNB is bringing considerable amounts of money to people that are subletting their apartments to other people which is illegal to begin with. And without paying taxes if I haven’t missed out on any new development. In Plaka, Athens, good-looking women and men are approaching elder owners of houses around the area, to seduce them into renting out their houses for a fraction of the money they will be making through AirBNB, untaxed and easy. I happen to know a certain lady that rents 4-5 houses in her name (actually with no contract at all), having all of them on AirBNB, fully rented for at least half the year, for at least 60 euros per home per day. Do the math… 5 homes times 180 days a year, times 60 euros, that’s 54.000 euros! Made off someone else’s property, untaxed with a fixed cost of 30.000 to 35.000 per year leaving room for almost 1.500 net profit per month with 50% renting rate… Nice huh? Also, renting rooms with no liability whatsoever for accidents that may happen, or no regard for safety measures like fire extinguishers, etc., that are must-haves for any decent hotel.

But of course, all of the above are perfectly justified cause (a) it saves money for the consumer, (b) it creates jobs for people and (c) it’s really “in” now, with all the start-up hype etc. Disrupting traditional business models, etc, etc. And at the same time, what happens to the people that choose to create a small hostel and do it legally, or to put it better, in the context that a country defines (tax wise, regulatory frameworks, etc)? What happens to the diner that cooks food and sells it in the double price of a housewife, cause the diner also pays a rent, social security, employees, etc? Well, to hell with them! Let them close shop and become part of the bigger platforms! 😉

Don’t get me wrong, I am all for novel business models, disrupting the status quo and opening up closed markets, cause these changes can really improve the services offered and redefine traditional offerings in a way that will create value for the consumer, the producer, the economy, everyone! But in many cases, this does not seem to be the case. Usually, ideas like that, create temporary Blue Oceans for their owners, they collect lots and lots of money for a fraction of the people involved and they leave an impact on the more “legal” businesses in their sector, one of which they can hardly recover.

On the other hand, someone can claim that when someone pays less for a room, they spend more on the local economy. Or that wealth is redistributed from the big hotels to the small home owners. Arguments can be made on both ends, but the real economic impact has to be analysed and defined on a more stable basis of arguments and this is something that all sides should work towards.

But even without the advanced analysis, I think that before anything else, before we voice an opinion or hurry to take sides, we should take a moment and really think this one question…

What would you say if someone came along, offering the same or a similar service as you do, in a fraction of the price, cause he/she is not paying taxes or other fixed costs?

Don’t get me wrong, this is not a case against Uber, Beat, AirBNB or any other similar offering. This is just a case for thinking bigger, looking at the dynamic nature of markets and the connections that exist within. And by doing so, making sure that when someone innovates (or claims to do so), someone else is not put out of business, cause he’s choosing to work within the boundaries that the government has set forth for everyone else.

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