The Sharing Economy

One of the more interesting developments in the tech startup scene has been the proliferation of companies capitalizing on what some call the sharing economy. These companies facilitate commerce between two private entities to make a financial transaction. The most popular companies facilitating these interactions are Airbnb, which connects travelers with people who have spare couches, bedrooms, or even entire apartments, and Lyft and Sidecar (and to a certain extent, Uber), which all provide transportation in one form or another.  Uber connects users with for-hire professional drivers (towncars and taxis), while Lyft and Sidecar connect users to regular people using their own cars to give rides around town.

Many towns have been weighing the legality of these new services. Now, companies in California engaged in ride-sharing activities can breathe easy, as they’ve just cleared a major hurdle. The California Public Utilities Commission gave its seal of approval to these new companies, saying they could continue to operate if they have the proper insurance, background checks and other licensing. This is a major boost to a fast growing sector of the economy. Airbnb, for example, saw 3 million people use its service last year alone, with some estimates they could do $1.35 billion in revenue in 2014. Uber has had similar success—though they’re a private company, a recent round of investment values the company somewhere round $3.4 billion. Lyft and Sidecar are relative newcomers to the field, but are sure to see sizable revenue as they grow into the future.

Airbnb and Uber both have had their share of regulatory scrutiny, with the entrenched industries they hope to disrupt (hotels and cab companies) unhappy with the new competition. An Airbnb host was recently fined $2,400 by the city of New York for running an illegal hotel. We recently wrote about the problems that Airbnb has had with regulators across the country and around the world, noting the positive economic impact Airbnb has. Uber is no different, running up against the entrenched taxi industry in several cities, including Washington, DC, Chicago and Boston. Uber understands the type of regulatory pressure it’s under, enlisting scores of public relations and lobbying contacts in an attempt to do nothing more than operate in a free market. Imagine what could be accomplished, and the investments it could make, if Uber didn’t have to fight entrenched bureaucracies just to provide a service that consumers demand.

Cities and states that attempt to snuff out these new startups are taking a shortsighted view by not embracing this new model of commerce. These companies are opening up new streams of revenue, thus providing new tax bases, and creating new innovative and cheaper products and services for consumers. In New York City, Airbnb has generated well over $1 billion in economic activity so far this year. These new products and services are creating new economies that are helping to power society. Governments should take a cue from California and let these new economies flourish. Consumers, and in turn governments, will be better off for it.

Zack Christenson writes on digital tech issues for the American Consumer Institute Center for Citizen Research