Incumbents Shouldn’t Bet on Rulemaking to Win the Sharing Economy Wars

Mayor de Blasio and Uber may have reached a truce, but the battle between the sharing economy complex and the groups threatened by it will continue. City councils, presidential candidates, corporations and labor unions will continue to paint the so-called “gig economy” as a threat to society that can only be addressed through caps, taxes and rules.  Sharing economy platforms, of course, will vigorously resist ongoing attempts to constrain their growth.

Many feuds will not end like Uber vs. de Blasio. We think continued and modest movement towards greater regulatory parity between sharing economy companies and traditional providers is inevitable. But fans of sharing economy services shouldn't be too worried. That’s because these platforms are not being fueled primarily by exploitation of regulatory ambiguities. They are growing rapidly because they are delivering better value and customer experiences than traditional suppliers.

If a given car or taxi company’s business is being threatened by uberization, it needs to find a way to beat the sharing economy services straight-up. Uber generally offers a seamless customer experience, but it has its flaws.  Drivers who can identify Uber's weaknesses in their territory and find ways to make riders happy will do much better than those who spend their time waving placards at anti-Uber protests. 

Consider the lodging sector as another raging battlefield.  Recently, a mid-tier hotel company announced an initiative to make its check-in experience more mobile-friendly as a way to face the competitive threat posed by Airbnb and other similar platforms.   Although it’s a good start, the problem with this kind of fix is that the company remains saddled with thousands of cookie cutter rooms, an entrenched rewards program that favors older business people over younger travelers and several practices that prey on guests. Imposing some added taxes on Airbnb's users isn’t going to push its loyal following back to traditional hotels. The entire Airbnb experience, including its diverse selection, ease of use, review system and value orientation is miles ahead of many hotel incumbents.

For this company to thrive in a world with increasing lodging options, it will have to alter its core product in significant ways, not just tweak the cave. Even a value chain will have to start caring about room design and ditch carpeting from the Reagan era. It will also need to end the silliness of $12 bottles of water in the room’s refrigerator, charging for wifi and the exorbitant rates for using a room’s landline.

Those holding out hope that with enough political pressure, sharing economy platforms will be constrained are likely going to be disappointed. Today’s economic reality is that the 1099 workforce is surging. In an era of relentlessly efficient corporations that can do more with fewer well salaried employees, the ranks of independent suppliers of hard assets, time or capital will continue to grow. We think that sensible politicians, mindful of changing work demographics, will not act too vigorously to suppress efforts by everyday folks to squeeze income out of their possessions and time.

The playbook for combating uberization in sectors other than transportation and lodging is the same. As the sharing economy finds its way to most every sector of the economy, incumbents will face a choice: cry foul to the referees or focus on upping your game. They should choose the latter.

 

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