Speed bumps on the road to Sharing Economy Paradise
The 'sharing economy' has always been an unfunny joke of a term.
In my view it's never been anything more than either 1) a moonlighting job or 2) scabs undermining working people trying to make a living.
In the first quarter of this year, Uber lost about $520 million before interest, taxes, depreciation and amortization, according to people familiar with the matter. In the second quarter the losses significantly exceeded $750 million, including a roughly $100 million shortfall in the U.S., those people said. That means Uber's losses in the first half of 2016 totaled at least $1.27 billion.
"You won't find too many technology companies that could lose this much money, this quickly," said Aswath Damodaran, a business professor at New York University who has written skeptically of Uber's astronomical valuation on his blog. "For a private business to raise as much capital as Uber has been able to is unprecedented."
So investors are losing tonnes on Uber, but the real victims are working people.
Before Uber and Lyft drove into town in 2013, there were 1,576 cabbies registered through the Orange County Taxi Administration Program. The number has since dropped to fewer than 800 drivers, the lowest count locally in a decade.
In early April, Hossein Nabati closed A Taxi Cab, a Santa Ana company he founded some 30 years ago. Roughly 300 employees lost their jobs.
Uber drivers are threatening to unionize over their low pay, which is ironic considering that they sometimes destroyed unionized jobs.
Airbnb - valued at $30 Billion - is another example. Airbnb investors lost $250 million in 2014 and 2015, but it may turn a profit this year.
Renting out a room has been around forever, but the commodification of it is new, and that has led to complications.
Room-rental services such as Airbnb Inc. are blurring the line between residential and commercial property. That is causing problems for some homeowners looking to refinance mortgages.
Big banks including Bank of America Corp. and Wells Fargo & Co. are subjecting some refinance customers who rent rooms to additional scrutiny. Some borrowers have been told they were no longer eligible for certain kinds of loans or would have to pay higher interest rates, according to the customers...
A house usually was either a principal residence or an investment property. Mortgages on the latter are often viewed as riskier because owners had less of a personal connection to the house and rental income isn’t always reliable.
Now, the distinction isn’t so clear-cut.
Airbnb people don't have to pay a lodgers tax, which gives them an unfair edge over hoteliers.
Like Uber, Airbnb undercuts hoteliers, which in turn costs thousands of jobs. Once again, unionized workers are getting hit first.
But Mike Casey, the longtime president of the hotel workers’ union UNITE HERE Local 2, sees something very different when he looks at Airbnb and comparable websites: an existential threat.
“There’s probably several hundred jobs a year that are lost as a result of people selecting Airbnb over a unionized hotel,” he said. “But probably of even greater impact than that is the impact it’s having on affordable housing.”
Casey cited a March 2015 report from left-leaning advocacy group the Los Angeles Alliance for a New Economy (LAANE), which says the prevalence of Airbnb units in Los Angeles gives landlords and homeowners an opportunity to seek tourism dollars where they would have otherwise rented housing to city residents. As a result, the report’s authors say, Airbnb is helping constrict housing supply and drive up rental costs. LAANE also alleges the growing popularity of Airbnb could kill hotel jobs and replace them with a handful of lower-paying domestic worker gigs.
WeWork Cos., one of the most valuable venture-backed private companies, cut forecasts earlier this year and told employees it has to change its “spending culture” to continue to thrive, according to a company document and video recordings obtained by Bloomberg.
Founded in 2010 in New York, WeWork has raised more than $1.4 billion to build and run a network of co-working offices that spans 23 cities in seven countries. After securing more than $400 million at a $16 billion valuation in its most recent financing in March, WeWork produced in late April an internal financial review document that slashed a 2016 profit forecast by 78 percent, cut its revenue estimate by 14 percent and disclosed a 63 percent surge in projected negative cash flow.
Unlike Uber and Airbnb, I don't believe WeWork is destroying unionized jobs. However, I also don't believe that WeWork will survive the next recession.
But how can an infrastructure-dependent real estate venture scale like a low-overhead software startup? How can a company that signs 15-year leases — but sells monthly memberships — expect to survive a downturn? How can an entity that doesn’t own its own real estate be “worth” more than three times as much as the New York Yankees? Why does WeWork’s future look so bright when it sits smack in the middle of two bubbling markets (that is, tech and commercial real estate)? Why would a business model that drove one high-profile dot-com darling promising “the office of the future” into bankruptcy succeed this time around?