Enter the Physical World

Uber and Airbnb mark the advent of software companies into the physical world, writes Brad Stone in his book on the two companies, The Upstarts. In the physical world, these companies ran into the treacherous waters of regulations, and political lobbying by established industries.

Everyone knows of Uber. Airbnb is short for Airbed ‘n Breakfast, a site that started by offering people a way to rent a room (with an airbed, hence the name) to a stranger for a couple of days (with breakfast). It was started with the aim of allowing people to find accommodation in cities they visited if they couldn’t find a hotel or just wanted a cheaper option, and allowed others to make some money when they had a room to spare or if they were out of town for a few days!

Uber, as I explained in an earlier blog, ran into conflicts with existing cab companies over questions on license to operate and certified billing meters. Airbnb ran into conflicts for different reasons:

1)      Was it even legal to sublet a part of a rented house/apartment?

2)     Since per-day rents would be higher than renting for longer periods, was it creating a scarcity in the houses-for-rent market since owners might prefer to rent for a few days rather than on long term leases?

3)     Were people with multiple houses using this as a house renting site, not just a one-room offering?

4)     Was it converting family neighborhoods into pseudo-hotels, with the associated “disturbance” that tourists on a holiday bring with them?

5)     Were people using Airbnb paying taxes on this source of income?

6)     Was Airbnb a de facto hotel? If yes, where was its license to operate?

Like with Uber, some of the concerns about Airbnb were valid, while others were just existing industries lobbying against a disruptive competitor instead of beating it in the marketplace. How did the two companies fight back?

Since Uber caters to a frequent, if not daily, need for people in many cities, users loved it and were against government moves to shut it down. Travis Kalanick, Uber’s CEO during that period, weaponized his customers. Call your congressman, senator, or local representative, Uber would urge people in the cities. Tell them you need Uber, that if fulfils a genuine need that the existing taxi system doesn’t even begin to meet. This spectacularly successful approach came to be called “Travis’s Law”: few (American) politicians dared to ban Uber when their voters were so obviously and openly in favour of it.

Airbnb could not expect its users to do the same though. After all, its users were not using the site on a daily basis. So Airbnb commissioned and released its study on the benefits it bought to the city, via tourism spending. The company agreed to pay taxes to the respective cities, thereby augmenting city income by non-trivial amounts. It was very hard for politicians who always need money to say No.

The common theme across the two companies, says Stone, was to project their benefits to the right set of people, and make it politically impossible for politicians to ban them.

Today, Uber is worth more than $68 billion; and Airbnb is worth more than $30 billion, more than any hotel chain on the planet! The software juggernaut has well and truly entered the physical world.