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How the sharing economy makes money for venture capitalists while pretending progressive ideals

by | Feb 17, 2014 | Customer Centric, Marketing, Social Media

By Andrew Leonard
Here’s a new term you’ve probably heard recently: “The sharing economy.”
In the “sharing economy,” cheap access to resources that would otherwise go unused (a spare bedroom, a car, a weed whacker) is just one click away. And for many consumers of services like AirBnB and Lyft and TaskRabbit, the “sharing economy” is pretty nifty.
Smartphones and the Internet have enabled new and more efficient ways to coordinate the allocation of those otherwise wasted resources. Ideally, the spread of such services will help us save money, reduce our consumption of energy, and generally reduce hassle. Maybe they’ll even make us a few quick bucks on the side.
But the “sharing economy” is also a venture capital-backed effort to co-opt progressive, feel good rhetoric — “Share your stuff and save the environment! From each according to their ability to each according to their need!” — in the service of good old greed. We consumers might save some pennies here and there, but the creators and investors in the new apps are aiming to make millions. Sure, these new technologies are boons to convenience, but the services built on top of these technologies become especially lucrative when their creators figure out ways to avoid taxes or safety regulations or insurance costs that their old-economy, non-”sharing” competitors are stuck with.
So the next time you hear the word “sharing,” pull this listicle out of your pocket and see if it applies: Here are eight prime reasons why the sharing economy is just a cover for Silicon Valley greed.
1. When sharing becomes gouging
Uber made plenty of headlines during a huge winter storm in New York in December, when riders found themselves paying three times the normal price to hail a car in the middle of the snow and frozen rain. Uber founder Travis Kalanick defended the “surge pricing” as a way to provide an incentive to drivers to stay out on the streets; but to many riders, the experience didn’t feel a whole lot like sharing. And as I learned all too well when I tried to use AirBnB to find a room in Austin, Texas, during the SXSW festival last year, Austin’s AirBnB hosts weren’t a bunch of Good Samaritans looking to lend out their couches — they were cold hard capitalists dedicated to charge as much as the market could possibly bear.
2. Venture capitalists do not give a damn about sharing. They are looking for big returns on their investment
Go over to the website for, an advocacy group that describes itself as “a member-driven organization that supports the sharing economy movement.” First, scroll down to the bottom of the page and review the list of Peers’ “partners”: It’s a who’s who of “sharing economy all-stars.” Now go one step further, and look at where these companies are raising their money from: It’s a who’s who of Silicon Valley venture capital firms.
AirBnB has raised money from Benchmark Capital, Greylock, Sequoia Capital and Founders Fund (featuring Peter Thiel and Sean Parker). Lyft is backed by Andreesen-Horowitz, Mayfield Fund and Founders Fund. Homejoy (a cleaning service coordination app) has raised cash from Google Ventures, Redpoint Ventures and First Round Capital. Sidecar is backed by Lightspeed Venture Partners and Google Ventures. Yerdle — which purports to help you clear out your closet — is a Kleiner-Perkins play.
What other “movements” do you know that are massively funded by venture capitalists?
3. Peers — the aforementioned sharing-economy advocate that pretends not to be a lobbyist — has a vested interest in the industry’s growth originally described itself as a “grassroots” organization. Now it’s “member-driven.” Peers director Natalie Foster also made a bid deal, in the past, of stressing how Peers is not technically a “lobbying” organization. And yet, ever since its founding, Peers has been vigorously organizing citizen support for sharing-economy companies who’ve been fighting regulatory battles against local governments. Peers has been particularly active in support of AirBnB’s struggles against municipal laws restricting short-term rentals. One of Peers’ cofounders is Douglas Atkin, an AirBnB executive.
4. When “sharing” means not paying your fair share of taxes
One reason that Silicon Valley sees profit potential from the sharing economy is that sharing-economy startups are often able to avoid crucial costs that burden their competitors. Like, for example, taxes.
In San Francisco, the city raised $191 million in 2013 from a “transient occupancy tax.” Technically, AirBnB hosts are required to pay that tax, but most just skip it. As a result, not only is the city’s tax base undermined, but AirBnB ends up with a distinct competitive advantage against the established hotel industry.
5. The sharing economy equals low wages!
What do TaskRabbit, Fancy Hands and Amazon’s Mechanical Turk have in common? They provide ways for people to get paid as little as possible for temp labor broken down into the smallest possible jobs (getting your cable service cancelled, making a dentist appointment, cleaning out the junk in your basement. Hooray for Silicon Valley: These startups have managed to create a truly efficient labor market. Workers get no benefits and aren’t covered by minimum-wage laws. The sharing economy: Where everyone is an independent contractor competing against everyone else for crumbs.
6. Insurance
Who is responsible when something goes wrong? This is a huge issue for ride-sharing services. On New Year’s Eve, an Uber driver who was in between fares hit and killed a 6-year-old child. As Marcus Wohlsen explained in Wired, Uber is trying to make the case that since it was not “’providing services on the Uber system’ at the time of the accident,” and, as such, the company is not liable for the accident. Again, avoiding having to carry the cost of insurance for its drivers gives Uber and other car-sharing services an obvious competitive advantage against established taxi companies.
7. Regulation
Many municipalities have laws on the books forbidding homeowners from renting out their rooms for less than 30 or 60 days. The reason? To prevent landlords from operating unregulated hotels. Real hotels are required to adhere to a raft of safety regulations designed to protect the public welfare. Apartments rented out through AirBnB avoid those regulations, even if they are, for all intents and purposes, used for the same purposes.
In New York, for example, some apartment landlords have employed AirBnB as a booking operation for short-term hotel rentals. New numbers released this week revealed that most of the rooms rented on AirBnB in New York were in homes or apartments that were never occupied by their owner. Not a whole lot of “sharing” going on here — just a bunch of subletting.
8. The true meaning of “disruption”
Taxes, regulations, insurance — what entrepreneur wouldn’t jump at the chance to escape their heavy load? The most important lesson here is this: The next time you hear about a sharing-economy startup that is going to “disrupt” an industry sector, turn on your translator. What they’re really saying is that sharing-economy businesses will extract profits from their given sector, because their competitors can’t match their prices. By “sharing,” they have successfully made an end run around the existing costs of doing business.
 Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.