Rhode Island’s Disruptors
Monday, September 22, 2014
With the emergence of companies like Uber and Airbnb, a new “sharing economy” has taken on an increasingly dominant role in Rhode Island.
"The new economy is a sharing economy and it is probably here to stay," said Rhode Island Hospitality Association President & CEO Dale J. Venturini.
Nowhere have the disruptive effects of the sharing economy been more visible than in the transportation and hospitality industries.
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"Companies like Uber and Airbnb are functioning as disruptors by upending longstanding monopolies held by a few hotel corporations and taxi medallion owners, while increasing efficiencies through utilizing idle goods," said Brown University Professor and Foodler co-founder, John Jannotti.
"The sharing economy is premised around owners sharing and trading labor and assets directly with one another. These informal commercial relationships pose a major threat to established, heavily regulated industries, notably the hospitality industry, and leave cities wondering how to regulate the upstarts without stifling innovation and the benefits of collaborative consumption," said Suraj Patel, President of Sun Development and Management Corporation.
Meet the Disruptors: Rhode Island's New Sharing Economy
Unlike traditional business models, Uber and Airbnb are based on a peer-to-peer model in which a third party information-sharing platform connects peers who are enabled to rent, trade, sell, or share ownership of a good.
Founded in 2008 by Nathan Blecharczyk and RISD grads Brian Chesky and Joe Gebbia, Airbnb is an online and mobile marketplace for people to list, discover, and book unique accommodations around the world. Since its inception, Airbnb grown to become the largest provider of temporary rentals, displacing enormous global hotel chains in inventory in the process. Airbnb currently operates in 34,000 cities and 190 countries around the world, and 20 million guests have stayed on Airbnb all-time.
UberX is a ridesharing company, which uses a smartphone app to connect riders and drivers, allowing regular drivers who pass a background check to act as independent contractors and use their personal vehicles to pick up fares.
"Uber is offering residents and visitors of Rhode Island affordable and reliable transportation options that were not available before Uber launched in Providence back in September 2013, expanded to Newport in June, and then to Kingston, Wakefield, and Narragansett this month," said Cathy Zhou, General Manager for Uber in Rhode Island.
Zhou spoke to the criteria that Uber looks at before beginning operating in a city, providing specifics as to why Providence and Newport were selected as cities in which Uber would operate.
"Being a technology company, we can see when users are downloading and opening the app in a particular location. We were seeing a huge number of Rhode Islanders doing so before we had launched, and knew it would be a great market for Uber," said Zhou. "Rhode Island is known to have high rates of drinking and driving, so it is a state ripe for more transportation options for residents and visitors to move around safely and reliably. In particular, we expanded to Newport back in June because, as a popular summer destination, there was no better time than the start of summer to launch as more and more Uber users were coming to the area and in need of a safe ride. Just a few weeks ago, we began offering our uberXL option in Rhode Island, which seats up to 6 riders. This is a great option for families, students, and friends moving around the state in groups."
Who benefits from the sharing economy?
"When assessing the economic impact of disruptor companies like Uber and Airbnb, there are two parts of the equation – the first is the extent to which the sharing economy can drive economic growth, and the second is the question is whether disruptor companies are profiting at the expense of industries by providing the same services without the being subjugated to the same regulation and taxation," said Georgios Zervas, a Professor at Boston University's School of Management and coauthor of The Rise of the Sharing Economy: Estimating the Impact of Airbnb on the Hotel Industry.
"While I have not seen any scientific studies on the impact Airbnb has had on creating new jobs, my sense is that following financial crisis people were able to afford to stay in their homes by utilizing Airbnb to rent out a spare room or couch," said Zervas.
Airbnb spokesperson Marie Aberger offered a similar vantage point regarding Airbnb's role in helping hosts make ends meet, while also pointing to the positive impact it has had in promoting new tourism.
"Countless Airbnb hosts have used the money they earned sharing their space to pay their bills, stay in their homes or pursue their dreams. And Airbnb guests spend more time and money in the cities they visit and explore neighborhoods that haven’t benefitted from tourism in the past," said Aberger.
Zhou spoke to the impact Uber has had on creating jobs and promoting innovation and economic growth in Rhode Island.
"We’re extremely excited to play a role in Rhode Island’s transition towards an innovation economy," said Zhou. "We’re also providing tremendous economic opportunities for drivers to start their own small businesses and become entrepreneurs, which is especially important for a state like Rhode Island known for its high unemployment rate. Globally, 50,000 driver jobs are being generated by the Uber platform every month."
Are taxes and regulation on the horizon?
"The only issue the Hospitality Association has with the sharing industry is the fairness issue. Our concern with roomsharing is that anyone who posts a room looks and acts like a hotel yet they are not licensed, they have not passed health and safety inspections and they are not paying taxes. Hotels have to pay a number of taxes, including lodging taxes, occupancy taxes -- from which sharing hosts are exempt. The tax issue is making us uncompetitive, and frankly this should be a concern for the state," said Venturini.
"As Airbnb continues to grow, it poses a threat to a major source of municipal financing – hotel occupancy tax. Hotel owners argue that exempting AirBnB users from paying this tax amounts to a subsidy for out of town guests electing not to stay in a hotel. Similarly, while hotels are subject to very specific health, safety, and accommodation quality requirements, such as monthly inspections, permit requirements, and disability access, homeowners or renters leasing out a spare bedroom face none of those regulations," said Patel.
Aberger responded to calls for increased regulation and taxation for Airbnb.
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"We ask all hosts to follow their local rules and regulations," said Aberger. "At the same time, we are working with communities around the world to create fair, progressive rules for home sharing. We recently launched a program to collect and remit taxes in Portland and San Francisco and will take the lessons we learn there and move forward."
According to Zervas, it is only a matter of time before lawmakers in Rhode Island will need to confront the issue of how Airbnb and Uber should be regulated and taxed effectively.
"I don't believe the question should be whether or not to tax or regulate, sharing companies, but rather what type of regulation is appropriate," said Zervas. "Should room-sharing companies pay additional taxes because they are creating additional traffic in the cities in which they operate? Should they be subjugated to heightened safety inspections and regulations in order to better protect consumers? These are the questions that cities like Providence will need to address, and the answers will depend on what the city is trying to achieve."
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