Tuesday, June 23, 2015

Federal Trade Commission Workshop (FTC), Washington, DC, June 9, 2015 The “Sharing Economy” For PAII

To: PAII Board of Directors and PAII Members

Submitted By: Jack North, PAII, Board of Directors, Mayhurst Inn, Orange, VA

My general remarks and observations are below. I cannot emphasize how important it was to “be in the room” to listen to the speakers and watch their body language. Even more important was to watch the audience reactions, listen to their reactions, discuss issues and questions one-on-one with audience members and speakers, meet the Airbnb panel member and to specifically address issues with fellow innkeepers, the AHLA Representatives, and the BBAV Director many times during the conference and over lunch.

Attending – Approximately 120, including 28 Panelists. Attendees seemed primarily from FTC and other governmental agencies, legal firms, academics, interested parties, (e.g., 5 or 6 people from the American Hotel and Lodging Association (AHLA), the Executive Director from the Bed and Breakfast Association of Virginia (BBAV), with a reasonably sized contingent of Cab Drivers/Owners and Airbnb Property Owners.

Agenda, Speaker Bio’s, Copies of Presentations, Videos of all Sessions and other information are on line and available at FTC; https://www.ftc.gov/news-events/events-calendar/2015/06/sharing-economy-issues-facing-platforms-participants-regulators

Welcome by The Honorable Maureen Ohlhausen (Commissioner, Federal Trade Commission):

In her opening remarks Commissioner Maureen Ohlhausen assured Uber, Airbnb, and other platforms like them that they shouldn’t view the FTC as an adversary, but as a potential ally. “We did not convene today’s workshop as a prelude to some planned, big enforcement push in this space,” she said. This remark, and others like it, set the tone of the Workshop and, and my opinion, clearly showed the Government acceptance of, and encouragement for, “Sharing Economy” initiatives like Uber and Airbnb.

Although it was stated that FTC has a mission to protect consumers and competition, comments from either the Commissioner, other FTC members, and many academic presenters in sessions 1, 2, and 4 seem to question both parts of that statement.

  • FTC stated that they see themselves as an “Advocate” for entrepreneurial efforts
  • That a Free Market Economy is good and “meaningful”
  • The Sharing Economy is the “natural next step” 
  • Existing businesses may be “upended” (said with almost a “so what” attitude)
  • The Sharing Economy is good for less affluent people
  • The Sharing Economy is good for the “public good”
  • "Peer to Peer” markets are taking over and this is economic progress 
  • The need for “Public Regulation” (like Laws, Ordinances, and Official Regulations) is being overtaken (negated?) by “Private Regulation” (meaning the various rating sites, like Trip Advisor and Airbnb).
  • Applying decades old regulations to new entrants into the market (like Uber and Airbnb) may inhibit innovation and block entry into the market. 
  • One speaker referred to what is happing in this market as the “Wild West” 
  • Several speakers in sessions 1, 2 and 4 emphasized that Reputation Management (Rating apps) systems do better than government regulation, and that the playing field could be leveled by “De-Regulation”. One even suggested that this could be done via Anti-trust rulings. 
Sessions 1, 2, and 4 were very “academic” with panel members essentially defining terms, addressing the interplay between the various Peer to Peer “Platforms”, “Rating Applications”, and Regulatory issues; and establishing a framework for the more meaty Session 3 (Airbnb, Uber, AHLA, NYC Taxi and Limousine Commission and the National League of Cities) in the afternoon.

1. Note the use of the term “Platform” (also called Apps or Applications during the entire day) in reference to Uber and Airbnb. These terms was also used in reference to the many Rating System in use today, like TripAdvisor, Yelp, etc. In the rarified atmosphere of academia, Airbnb, Uber and the Rating Outfits may appear to be nothing more than inanimate “Platforms”, but to the businesses they are competing with they are huge Companies with Billions of Dollars bent on dominating their markets and who often ignore laws, regulations and tax issues – or at least their members ignore them. From the academia perspective it was all about the “goodness” the associated “Sharing” and with the Platform, not about the sellers or the customers. The sheer size (25 million customers for Airbnb in one year) and profit making power of this multi-billion dollar BUSINESS was essentially swept under the table because they are a “Platform.” While the terms “Platform” or “Application” are not, by themselves incorrect, their use created an interesting dynamic.

a. Using the term “Platform or Application” essentially makes these systems faceless and “neutral”. It is difficult to be negative about an inanimate object.

b. How could a “Platform” have questionable business practices?

c. A “Platform” is a thing, not a commercial business that wants to control its market.

d. Because a “Platform” is a thing, it is devoid of sellers and customers (people) who may be pleased or injured or unhappy with what the “Platform” does to them.

2. A key point in the second session was the repeated assertion that the many “Rating Systems or “Platforms” are potentially better at policing sellers than are Government Regulations, and, that in many cases these “Platforms” can regulate the industries better than the “decades old laws and regulations”. There are two impacts of this assertion:

a. If you buy into the idea that these rating sites are, or can be neutral, then the logical next step is that they are therefore trustworthy. The facts are that these “Platforms” or “Apps” are also systems owned and operated by BIG BUSINESSES, who want to make big profits, who often charge sellers to list on their sites or charge a transaction fee. That these sites might not always present a “neutral” view of a seller seemed to be ignored. Because it is a “thing” or “system” it is trustworthy – despite the fact that someone owns the “system”.

b. There was almost a constant theme that “you don’t need all these laws, regulations and taxes” (and I happen to agree that in many cases we are over regulated and over taxed). However, statements such as “…less Consumer protection is needed…”, “…the consumer needs less protection…” and …”the emphasis on safety may be misguided,” and the proposed use of “rating systems” to replace laws and regulations designed to protect our guests from harm are scary. The assumption that rating systems can protect the public is ridiculous. When was the last time you saw a rating system ask the customer if they saw Smoke and or CO detectors, if their food was properly prepared and was safe to eat, saw an escape plan for their room or saw a ABC License.

c. The average guest at a hotel, Legal B&B, Airbnb property, Homeaway Vacation Rental or any other short term lodging facility doesn’t even think about safety, building codes, security, health and food issues or the properties insurance because they believe they don’t have to and because they know those things are covered by various laws and regulations – right? Likewise, they would never think to ask if the lodging facility pays taxes – they assume everything is legal. Who likes taxes anyway? To the unsuspecting guest – everything is covered - by the same “decades old regulations” they have relied on in the past.

d. Keep in mind as you read this that Airbnb is 4 things. A user’s system to find lodging (like Expedia); a sellers system (like your Web site or B&B.COM); a rating system (like TripAdvisor); and a “for profit” making behemoth for its owners that are bent on total domination of the market. They have the best of all worlds – and they control it all. Airbnb is not an inanimate object.

3. The issue of “fairness” (taxes and laws and regulation) was essentially ignored. Not once during the 4 sessions was the simple fact that state and local Governments rely on the tax revenue generated from lodging establishments to fund wide variety of programs for the very people who need government assistance the most.

4. Neither the academics nor FTC speakers seemed to be overly concerned that the multiple on-going mergers of OTC’s, rating company acquisitions of OTCs (e’g, Trip Advisor), or the distinct possibility of Google, Amazon or even Airbnb acquiring competitors might create the very monopolies that the FTC is supposed to prevent.

5. The idea that “the Sharing Economy is good for the less affluent” was used in two different ways:

a. From the perspective of FTC and Academic speakers they stressed that the lower costs associated with “Sharing Economy” services would enable the “less affluent” to use them – e.g., a less affluent person would be more likely to use an Uber Ride or Airbnb property than a legal Taxi Cab or Hotel/B&B. However, in cases where Uber has been in business for a while the prices for an Uber Ride versus a Taxi have essentially evened out (although Uber still has a huge advantage in linking passengers to Uber Rides through its system and the taxi companies are still constrained because their rates (meters) are fixed by local governments). Keep in mind that for most Hotels, B&Bs and Airbnb properties, neither is true – we are all mostly available on line and via mobile devices and the price differential is frequently not very significant.

b. From the Airbnb perspective they emphasized that a significant number of their listings are done by people who are simply trying to supplement their incomes by “sharing” an available room so that they can make the mortgage payment and stay in their homes and that these folks shouldn’t have to comply with “outdated laws and regulations (and taxes?)” (Note the link back to the FTC/Academic statements at the beginning of the Workshop). This despite the fact that a very significant percentage of Airbnb properties are owned by large scale landlords (look at the info coming out of New York City as was stated by the AHLA Panel member). Neither Uber nor Airbnb tried to play the perspective that what they offered was that much cheaper than the traditional markets. Quite simply, the more an Uber Driver or Airbnb property charges, the more Uber and Airbnb make.

6. Session 3, with the real players on the panel, was interesting to say the least.

a. Uber made their case that they are just a group of “sharing” people who want to earn a little income and ride share and should not necessarily have to comply with the same rules as a commercial cab company. In fact they suggested that what was needed was innovation versus old, artificial, regulatory rules. They scored points because their Application can often get a driver to a customer faster and easier than a cab company and they are not “on a city or locality directed “meter driven rate” and hence can charge want they want. They claimed that their drivers get background checks, their vehicles are “safe” and are even in the process of providing liability insurance to their drivers. Essentially they reiterated, that you don’t need all these regulations to offer a ride.

b. Matthew Daus, a former Chairman of the New York City Taxi and Limousine Commission, faced off against Uber and went on the attack. “I don’t really know what we are sharing,” Daus said. “This is about a person getting into a car, going from point A to point B, paying money for it, and a company making a profit.” Daus believes the term “sharing economy” is a misleading descriptor for Uber, which he sees as simply for-hire transportation. Unfortunately, remember that Uber”, based on the earlier discussions, is a “Platform” and it is really just a group of nice people “sharing” rides, so it came across that the taxi companies are Goliath and Uber is poor little David. Given that Uber is a multi-billion dollar company that recently indicated they are going to get into the “Package Delivery Service” (wonder what the USPS, Fedex and UPS will think about that one) I find it difficult to picture Uber as poor little David. Regardless, I think in the audience’s mind, Uber wins.

c. The Airbnb presentation established them as the protector of Grandma and Grandpa’s mortgage and simply group of entrepreneurs renting out their son’s bed room while he is away at college, and that their member properties certainly should not have to adhere to the same “old” rules and regulations and laws that the huge hotel chains have to. They emphasized that the consumer does not need all the regulatory protection currently available and that there is a major difference between those who operate “businesses” versus those who simply make a room available. The Airbnb speaker did state that they encourage members to be in compliance with local laws and regs (they do, but do not require compliance). Airbnb admitted that in one year their members had 25 million guests. They also stated that Airbnb does collect taxes for their members for some communities, and that if they collected and paid the taxes for their members in NYC it would have amounted to about $23,000,000 over 1 year and that they send their members annual 1099s (which means the IRS has the information needed to collect Federal taxes). They reiterated that their member properties are clean and safe and cheaper. The issue of Airbnb or Airbnb members paying taxes (sales, and lodging/occupancy taxes) was essentially ignored except as indicated above.

d. The AHLA Panel member did a good job of bringing up counters to many of the issues and claims, but again was handicapped because Airbnb is a “Platform” and because Airbnb had established themselves as the business innovator and protector of the poor. AHLA emphasized that their members provide a safe, secure environment and exceptional service for their guests. AHLA did say they were representing the entire lodging industry (including B&Bs), however, they approached the issues from an industry perspective that has 5 million guests a day and $134 Billion in Revenues (AHAL Numbers). AHLA specifically called for actions to level the playing field, but did not get into specifics about what they proposed how or to do it. To the audience it looked a little more of a Goliath versus a big David (Airbnb). From my perspective, AHLA would have done better addressing the issues from the B&B angle versus the Hilton angle – the comparisons would have been much more relevant. They also could have, as the Taxi Folks did, make the point that 1 room or 100 rooms, if it collects money for a room, and walks like a duck, quacks like a duck, it is a business and should be treated like one. The fact that we provide a mandated safe, healthy, sanitary, secure guest environment, and that Airbnb properties may or may not, was not emphasized enough, nor was the possibility of actually reducing regulations for ALL lodging properties as a way to level the playing field addressed.

e. The representative from the National League of Cities provided some interesting statistics, e.g., that 61% of those surveyed saw “Safety” as a major concern, that the majority want “local control” (versus the Federal Government getting involved), but that the majority also see the Airbnb approach as favorable. Note that the 61% “Safety” and the majority for Airbnb, seem contradictory ideas. However, if you assume that those surveyed believe that the Airbnb folks already comply with the regs and laws (and I think they do assume that) then there is no conflict. As mentioned previously, our customers and guests already believe that Airbnb members comply with the regs – even though we know that many don’t.

f. Since we list on Airbnb (it is simply another OTA/OTC to us) we ask our Airbnb guests if they are aware of the potential for non-compliance by other Airbnb properties. They do not have a clue and simply assumed that they did comply.

The Workshop wrapped up at about 5:30 PM without any meaningful summation or formal follow-up actions being proposed or discussed. I was left with the very strong impression that the concept of less regulation, not more, was a key take away. Of major concern was the impression they left that “Rating Platforms” can replace regulations – especially in the areas of guest safety.

Having had multiple discussions with PAII Members, and with many local governments, and especially with those PAII members who have already done “battle” over unregulated accommodations facilities, it is obvious that state, county and city governments need to be educated as to the risks of a lack of compliance with building, safety, fire and health codes. Likewise these governments often have no idea of the amount of taxes they are not collecting due to a lack of enforcement. PAII and its members are doing just this in multiple venues.

The bottom line for PAII Member B&Bs is that the “Sharing Economy” is here. Unless we are simply willing to let the unregulated properties operate without having to pay appropriate taxes and without having to comply with the rules and regulations that legal establishments must, then we need to collectively work to create a level playing field – and that means working with Airbnb and organizations like AHLA.

Conversely, we should not be simply willing to accept the “decades old regulations” that are in existence today. Airbnb is right – they need to change, to be more flexible – for ALL OF US - so that all our guests have a safe and wonderful experience. Airbnb has repeatedly indicated that they want their member properties to be safe and compliant and that they want to a partnership with local cities, but while Airbnb “talks the talk” in reality they don’t “walk the walk”. Airbnb could easily enforce compliance for their member properties – but they only “suggest” or “recommend”, and many properties, if not most, ignore the laws, codes, regulations and taxes. Legal B&B’s don’t have an option. Reducing regulations and modifying them to reflect the current “world” is a great idea, but only if they are universally enforced.

YOUR PAII will continue discussions with AHLA because we have very common interests and because we can help them sharpen their approach to addressing the tax and regulatory issues and because we, as B&Bs, are closer to the problem (Airbnb) and can relate better than can a hotel. We will also have discussions with Airbnb and other “Short Term Lodging” and “Vacation Rental” companies (like Homeaway and VRBO) to see if we can reach some agreement as to general changes in regulations that could be acceptable to all of us. We will always keep in mind that we cannot create a “one size fits all” set rules, laws and regulations because states, cities, counties and towns are all different. PAII has asked both Airbnb and AHLA to come to our January, 2016 PAII Conference in Austin Texas and to make presentations. AHLA has already accepted.

See you in Austin!

Jack North

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