Uber and Airbnb are not the future of capitalism

If you read articles about the sharing economy — and there have been hundreds of them over the past decade — you’ll often see a line that refers to “sharing economy companies such as Airbnb, Uber, and Lyft.” The implication is that these are just three examples of a larger trend that’s transforming the American economy.

“Peer-to-peer is going to become the default way people exchange things, whether it is space, stuff, skills, or services,” wrote Rachel Botsman and Roo Rogers in their influential 2010 book What’s Mine Is Yours. As people started to share everything from the tools in their garages to the clothes in their closets, they predicted, consumerism would become passé.

But this vision of the future hasn’t aged well. Uber and Airbnb have obviously enjoyed tremendous growth. Beyond that, it depends on how you define the term. Some people count companies like Prosper, LendingClub, WeWork, Etsy, and Zipcar as part of the sharing economy. Others don’t. What’s clear is that outside of the car business, the sharing economy isn’t rendering ownership obsolete. Consumerism isn’t in decline, and capitalism isn’t being transformed.

Even the three best-known “sharing economy” companies have found there are limits to peer-to-peer sharing. Asking early adopters to share is a great way to bootstrap a new online business. But beyond a certain point, continued growth often requires professionalization.

Serving a big, mainstream market requires people to invest in new capacity, not simply rent out whatever spare capacity they happen to have on hand. Sharing isn’t going to go away — there will always be people who want to make a little extra money on the side with a car or a spare room. But the past few years has made it clear that Lyft and Airbnb have not invented a new economic model that’s going to transform capitalism.

The death of ownership is greatly exaggerated

Photo by Mike Windle/Getty Images for Airbnb

Few people have thought more about the sharing economy than Jeff Jordan. As a partner at the venture capital firm Andreessen Horowitz, Jordan helps to guide investments in sharing economy companies. He organized the firm’s 2011 investment in Airbnb and still sits on the company’s board.

Jordan credits Botsman and Rogers with shaping his thinking on the potential of the sharing economy. And he is naturally still bullish on the market for renting out homes and cars (the firm’s named partner Ben Horowitz sits on the board of Lyft). He argues that the combination of ride-hailing services and autonomy will eventually make car ownership obsolete, at least in urban areas. He’s also intrigued by newer startups that try to help businesses share resources like trucks and warehouses.

But he acknowledges that the sharing economy hasn’t reached as deeply into consumers’ lives as early enthusiasts predicted. People are still experimenting with renting everything from clothes to handbags, he says, but it’s hard to think of any companies that have become big hits by applying the Airbnb or Lyft models to other industries.

And it’s not hard to see why. “Homes and cars are the most valuable assets people own,” Botsman told me in a recent interview. She conceded that “no one has cracked the sharing of general stuff.”

The economics of renting out less expensive items isn’t as promising. Back in 2010, for example, Botsman pointed out that most people only use their power tools for a few hours per year. She suggested that in the future, people might rent tools on demand instead of buying one and storing it in the garage.

But a service that rented out a $50 drill might have to charge $10 to $20 to cover the costs of delivery, pickup, cleaning, restocking and so forth. If you plan to use a tool more than three or four times in your life — and you’re not living in a tiny Manhattan apartment — it’s going to be cheaper and easier to just buy one and store it in your garage.

Beyond cars and homes, Botsman pointed to peer-to-peer lending as an area where the sharing economy concept has gained traction. And like Jordan, she’s keeping an eye on platforms that help businesses share with one another.

Peer-to-peer sharing doesn’t scale

Photo by Justin Sullivan/Getty Images

Sharing economy enthusiasts see peer-to-peer sharing as a fundamentally new way to organize economic activity. But it might be better understood as a strategy for getting a certain kind of business off the ground.

Take Airbnb, for example. When the company started out, it was trying to build a two-sided market. The platform is only useful to travelers if there are a bunch of rooms available. But hosts won’t be interested unless there are a lot of customers.

The peer-to-peer model provides a solution to this chicken-and-egg problem. It would have been a big risk for professional landlords to take a property off the conventional market and rent it on an untested new website. But lots of people have spare rooms they aren’t using. Opening up the platform to amateurs allowed Airbnb to quickly expand its inventory.

Once the platform gained traction, however, it stopping being so risky for commercial operators to list properties on the platform. One recent analysis found that almost a third of Airbnb revenues in the top 25 markets were generated by commercial listings — defined as whole units rented out more than 180 days per year.

This has created a legal headache for Airbnb, because many larger cities strictly regulate short-term commercial rentals. In New York City, for example, where Airbnb has faced particularly close government scrutiny, the company has taken down thousands of listings from hosts offering multiple units at the same time. Critics say Airbnb still isn’t doing enough to crack down on what amount to illegal hotels.

No matter which side of this debate you believe, it’s clear that a big chunk of Airbnb’s potential growth opportunities — at least where the law allows it — comes from commercial operators who acquire properties for the explicit purpose of listing them on Airbnb. “Sharing” can only grow so much because there are only so many people who live in desirable neighborhoods and have spare rooms to rent out.

You can see the same pattern with Lyft. It started out as a carpooling app, and for a long time it maintained the fiction that its drivers were not engaging in commercial activity. (When I drove for Lyft back in 2014, the terms of service still referred to some passengers’ payments as “donations.”) But over time, it has become more common for people to treat driving for Lyft as a job. Many drivers have purchased or leased cars specifically for ride-hailing purposes. Indeed, both Lyft and Uber now offer car leasing programs for people who don’t have a car of their own to “share.”

This isn’t to say that the “sharing economy” element of these platforms has gone away, or that it ever will. There will always be a certain number of people who want to make some extra money by renting out a spare room or driving an occasional Saturday night shift. But a lot of the future growth on these platforms is likely to be driven by professionals, because at this point most of the people with idle cars or rooms to rent out are already doing it.

Online markets inevitably professionalize

Photo by Steve Jennings/Getty Images for eBay

In this respect, Lyft and Airbnb are like a number of other online platforms. In the 1990s, for example, eBay had the same kind of egalitarian feeling that Lyft and Airbnb did in the early 2010s. A lot of middle-class people with day jobs tried their hand at selling random junk from their basements online. And plenty of people still do that today. But a lot of the listings today are from eBay “power sellers” — people who have turned selling stuff on eBay into a full-time job.

Another example: peer-to-peer lending. Services like Prosper and LendingClub have used the same egalitarian rhetoric as Lyft and Airbnb. Their original pitch, a decade ago, was that they’d allow users to lend directly to other users, cutting out the middlemen and saving everyone some money.

The reality, however, is that today most of the loans on these platforms are made by banks, hedge funds, and other wealthy institutions. The peer-to-peer model made for a good marketing pitch and a good way to raise money when the sites were new and unproven. But once they’d scaled up, these platforms found it was cheaper and easier to do business with industry incumbents with enough cash to lend to hundreds of borrowers at a time.

Botsman herself acknowledges that sharing economy services have a tendency toward professionalization.

“I think it's the natural progression of a marketplace,” she told me. “It doesn't matter if you're starting with amateurs and then it becomes professionalized.” Though she warns that too much professionalization can make a platform less compelling — there’s a reason many people prefer an Airbnb room to a hotel room.

Still, this left me wondering how revolutionary the sharing economy really is. Theorists like Botsman argued that companies such as Uber, Lyft, and Airbnb were fundamentally different than companies that came before them. But maybe they feel different mainly because they’re still in the early stages of an evolutionary process that will make sharing less important over time.

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