The Regulators Are Finally Coming for Airbnb and Uber

Feb 20, 2017

From the beginning, the promise of Airbnb, Uber, and the rest of the so-called sharing economy was that by using social media and digital technology, markets for goods and services such as taxis and hotel rooms could be made more efficient, and thereby provide benefits for society and (especially) for investors. But this golden vision of the future has started to look somewhat tarnished of late.

Take Airbnb: it grew at a torrid pace over the past eight years by allowing house and apartment owners to rent their dwellings to any traveller quickly and easily. Millions of people have taken advantage of these services, and Airbnb now has a market value estimated at $30 billion—roughly the same size as the Marriott International hotel chain.

Some regulators are less than enthusiastic, however. A number of cities and regions, from Berlin to San Francisco, have implemented restrictions on Airbnb rentals, arguing that they are in violation of zoning and other regulations. The company is currently trying to negotiate a ceasefire of sorts, by offering to collect and share tax revenue and make other concessions.

The problem for Airbnb is that these concessions and restrictions are likely to significantly decrease its potential revenue generation and earning power, and thereby remove—or at least reduce—some of the benefits and efficiencies that were supposed to flow from the sharing economy. And Airbnb isn’t the only peer-to-peer service provider dealing with this problem.

Uber has been fighting similar battles with regulators since it started its alternative to taxicabs in 2009. In some cities, it has been banned outright. In many cases, municipalities (and competitors) argue that whatever efficiencies or cost savings it offers are a result of it avoiding many of the costly regulations that taxis and other services are subject to.

Among other things, Uber drivers aren’t entitled to things like wage protection, health benefits or vacation, because they are considered independent contractors. But that status has been challenged in the courts in a number of jurisdictions, including California and the United Kingdom. Losing that distinction could raise Uber’s costs and make it even less efficient.

If regulators keep up this kind of relentless chipping away at the sharing economy’s benefits, much of the appeal of these new tech giants could be diminished — especially in the eyes of investors who have pushed their valuations into the stratosphere.

A version of this article appears in the March 1, 2017 issue of Fortune with the headline "Regulators Are Squeezing the Valley’s Darlings."

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