The Economy Hub
10:47 PM EDT, September 27, 2013
Add these personality quirks to the qualities that mark you as a social dinosaur:
You're not comfortable renting out a room in your house or turning over the keys to your car for hours or days at a time to total strangers. When you travel you prefer to stay at a hotel with a predictable level of guest service rather than racking out on someone's couch.
When you rent a car, you prefer that you're dealing with a company that has a corporate reputation to protect, rather than a person who may or may not have had the brakes checked sometime in the last decade.
Plainly you're out of step with the "sharing economy." But you may have to get with it. This month, the California Public Utilities Commission took a big step toward normalizing the business of arranging shared rides in private cars by accepting the transactions as legal and imposing regulations to enhance public safety.
The PUC's recognition of a new regulatory designation — the "transportation network company" — doesn't apply to other sharing categories such as the rental of private cars or private apartments and homes. But it's a clear signal that the freelance rental of private assets is moving into the economic mainstream.
"This is definitely a big deal," says Sunil Paul, the founder and chief executive of Sidecar, a ride-sharing firm that will be subject to the PUC rules. "It sets up a framework for how regulation and innovation can work together."
What Paul likes most about the PUC regulations is that they don't try to shoehorn ride-sharing services into a format of traditional transportation businesses like taxis, but focus instead on making sure that the new companies meet reasonable safety standards.
Ride-sharing services such as Sidecar and Lyft enable passengers seeking a ride to plug in their needs to a mobile phone app. They're matched with drivers who are planning or willing to go their way. Driver and passenger meet and work out a price. At the end of the trip the rider pays the ride-share service, which takes out its fee and passes the balance on to the driver.
The upside is that riders don't have to hail a taxi, which may be scarce; drivers make a few bucks to cover the cost of car ownership and then some. The same calculation applies to car- and apartment-sharing: The renters gain access to a wider choice of rentable cars or accommodations, and the owners gain income. Services have sprung up to share boats, musical instruments and appliances, although housing and cars are the big markets.
These services have blossomed for several reasons.
One is that technology, especially mobile phones, has made it easier to access them through an app in the palm of your hand.
Years of experience with Amazon.com have accustomed us to transacting business online, and EBay has given people confidence that a business deal "doesn't have to have a brand name on the other side," says Arun Sundararajan, an expert in digital technologies at New York University.
The "catalyst" for growth, Sundararajan says, has been the lousy economy, which has provided an incentive for people to exploit their most valuable assets, their homes and cars, for extra income. That poses the question of whether the expansion of sharing networks will slow as the economy recovers and owners no longer feel the need to give up their privacy for cash.
In the past, it wasn't unusual for families facing hardship to take in boarders to help make ends meet, but the practice fell out of favor during more prosperous times. Will that happen again? "We won't know until economic conditions change," says Paul, though he claims that many Sidecar drivers appreciate not only the money but also the experience of meeting new people.
And of course these services can fill needs unmet by traditional providers of short-term goods like cars and rooms by expanding the available inventory, sometimes at lower prices.
The downside of these peer-to-peer arrangements is that there's no guarantee that either the driver or the passenger will be sane, that the car will be street-worthy, that the accommodations will be livable. The sharing firms typically say that their services are "self-policed." By this they mean that users are encouraged to give public ratings to their counterparties at the conclusion of each ride or stay, which weeds out bad actors.
This system hasn't always worked perfectly. In a famous 2011 case, a client's home was trashed by a renter using Airbnb, an accommodation-sharing service. Airbnb was less than wholly responsive to the victim's plight until reams of bad publicity prompted it to institute a raft of security and insurance policies.
The PUC initiative requires ride-sharing firms to institute various public safety measures. They'll have to carry liability insurance of $1 million per accident (your individual policy typically won't pay if you're in an accident while driving for hire). Drivers will have to pass criminal background checks and have relatively clean driving records. Their cars will have to pass a 19-point inspection.
The sharing firms had maintained that market forces would ensure that their drivers and cars were safe, but they weren't meeting all the standards the PUC thought necessary. Lyft says it was the first firm to carry a $1-million insurance policy, but it operated for months before it did so. Sidecar's Paul says it's only now implementing full vehicle inspections. His firm says it interviews would-be drivers to make sure they have a suitable background and personality, but these interviews are often by phone; it's not clear how Sidecar judges that an applicant is "awesome," which it identifies as a hallmark of the Sidecar driver.
One flaw in the PUC's ruling is that it leaves enforcement of these standards up to the companies, which are all start-ups.
Other questions about sharing services aren't addressed by the PUC at all. The relationship between renter and rentee falls into a murky divide between formal and informal. Paul says people should be comfortable engaging in these transactions because social media have created "a revolution in trust." Is that so? The San Francisco Cab Drivers Assn., which opposed the PUC initiative, calls it a "false sense of trust." It may be right — we won't know until we all have more experience with sharing.
Then there's the impact of these new services on traditional businesses and established neighborhoods. Taxi drivers will see a lot of their business disappear, but taxis have a function that ride-sharing can't fill, and driving them out of business won't benefit anybody. And as my colleague Walter Hamilton reported recently from Silver Lake, residential neighborhoods aren't always delighted at suddenly being turned into hotel districts, with the noise and congestion that entails.
There's little doubt that the sharing economy is here to stay; the question is how far it can expand. That depends on whether the general public can get used to the serendipity that comes from renting space or transport from a freelancer.
"When you check into a hotel, you know what to do," Sundararajan says. "It's part of the cultural dialogue. There's no uncertainty with that consumption experience." When you book accommodations through Airbnb, however, "there are lots of uncertainties. How are you supposed to interact with the owners? What about the guests in the living room? Can you open the kitchen cabinet? We need to learn how rapidly these sharing experiences are becoming normal," Sundararajan says.
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