The capacity of the internet to connect buyers and sellers in new marketplaces is almost as old as the world wide web itself. From Craigslist and Ebay to Amazon, Alibaba and The Silk Road, home computers and internet access meant that virtual markets sprang up across the world selling everything under the sun. In retrospect, it was only a matter of time before this came to be extended to services, from remote personal assistants to accommodation and shared rides. Moreover, the surge in popularity of smartphones (in both developed and developing markets) has meant that the combination of GPS-enabled location services and powerful handheld computers has facilitated the commodification and monetization of just about everything, from parking spaces to downtime.

 

The “Sharing Economy”

 

To some, this movement towards what is often called the “sharing economy” represents the further democratization of the economy and the classic liberal ambition of efficient markets freed from regulation, and shorn of “unfair and unreasonable obstacles”. To skeptics, it means a potential risk to consumers’ safety and security, the unfair undercutting of professional service providers who are required to adhere to regulatory and licensing requirements, and who must bear the compliance costs that accompany them. Rather than a “sharing economy” former U.S. Secretary of Labor Robert Reich has described the phenomenon as a “share-the-scraps economy… a way to circumvent labor laws that set minimal standards for wages, hours, and working conditions… a reversion to the piece work of the nineteenth century – when workers had no power and no legal rights, took all the risks, and worked all hours for almost nothing.” Despite such sentiments, however, it seems pretty clear that the latter camp is losing the battle, if not the war.

Clearly, many factors have converged to create this dramatic shift that poses a direct challenge to municipal and national regulatory authorities anywhere there is a mobile phone reception. The bind that regulators and their political bosses find themselves in is exacerbated by the seeming grassroots nature of the sharing economy’s participants: whether as consumers or producers/sellers, those who benefit from reduced prices or supplemental income are ordinary citizens (i.e. voters). By their very nature, such individuals are relatively tech-savvy, and are self-motivators. This makes them a tricky constituency to deal with.

This has made “resistance to change” and taking the side of “the entrenched interests of the old economy” politically fraught. The tech companies that sit in the middle of every transaction are able to summon up an army of amateur lobbyists and social media activists to make the case for them. Most of these individuals have a small vested interest in the success of their campaign: the continued convenience or reduced cost or income that the sharing economy provides them. Quite often, the call-to-arms via email from the tech company employs the language of grassroots movements, urging users of its service to contact the relevant public servants, while often providing the contact information enabling them to do so. In addition, the big players in the sharing economy, most notably Uber, are able to call upon the services of what *The Washington Post *called “an armada of contract lobbyists, some of the most skilled and politically connected representatives in at least 50 U.S. cities and states.”

 

Mobilization

 

The tech companies, of course, have even larger vested interests in ensuring the success of their campaign against regulation. In its last funding round Uber raised US$1 billion, a sum that values the company at just shy of $51 billion. Uber’s ongoing regulatory tussles with New York City provide a useful illustration of the growing power of Silicon Valley’s big players. After several years of back-and-forth between the company and the city’s Taxi and Limousine Commission, Uber made a new hire to take up the role of its first ever head of policy development and community engagement: the recently-resigned deputy commissioner of the New York City Taxi and Limousine Commission.

Fighting a losing battle across the United States, those representing “the entrenched interests of the old economy” appear to be resorting to desperation tactics. Mayor Bill De Blasio proposed a temporary cap on Uber car numbers in Manhattan (estimated to be around 10% of all vehicles in lower Manhattan during evening rush hour), pending the results of a study into Uber’s effects on traffic and congestion in the city. Quite why a cap would be necessary while the study was ongoing was never made clear, raising suspicions that it was a thinly-veiled attempt to limit the app’s growth without taking the company on in a head-to-head battle. If that was the calculation it was misguided and ill-conceived.

Uber’s response was possibly the most aggressive mobilization of its users seen to date: in addition to buttons representing the normal selection of Uber vehicles, the app also featured an new option, simply labeled “DE BLASIO”. By choosing the De Blasio option the user was offered a 25-minute wait time, along with another button simply inviting the user to press it and “See what happens”. What happened was an invitation to reach out to the Mayor and City Council to express dissatisfaction with the proposed study. Combined with an old-fashioned campaign of lobbying and radio advertisements, Uber’s activation of its New York user base was able to see the “cap and study” plan stopped dead in its tracks.

 

Vested Interests

 

The proponents of app-based services such as AirBnB, Lyft, Uber, TaskRabbit and their like may be guilty of exaggeration when they cast their regulatory struggles as the “old economy versus the new economy”. Nevertheless, there are clearly two very different business models engaged in fierce competition, with significant vested interests on both sides. It would seem that in jurisdictions where unionized labor is relatively weak, such as the United States, the army of app-enabled activists that tech companies can call upon appear to have the upper hand. In more heavily unionized countries, such as France, Italy or South Korea, the shared economy faces choppier waters.

Looking towards the future, however, if the trend towards the ubiquity of smartphones and the resultant “apptivism” continues, it may be difficult for public representatives in these countries to withstand the clamor for a relaxation in regulations. The outward appearance of being a “grassroots” movement and the amateur nature of many of the shared economy’s participants gives its campaigns an “authenticity” (whether manufactured or genuine) that allows it easily to paint its opponents as Luddites representing sinister “vested interests”. The tech companies that sit at the center of this “new economy” are able to position themselves as being on the side of the consumer, despite the fact that many of the regulations that they seek to circumvent were put in place to protect consumers in the first place. And behind the scenes, they are able to mobilize tried-and-tested lobbying and advertising tactics that are designed to sway public and political opinion in their favor. But will they be able to keep consumers safe and if not, what will the backlash be?

©Mondato 2015. Mondato is a boutique management consultancy specializing in strategic, commercial and operational support for the Mobile Finance and Commerce (MFC) industry. With an unparalleled team of dedicated MFC professionals and a global network of industry contacts, Mondato has the depth of experience to provide high-impact, hands-on support for clients across the MFC ecosystem, including service providers, banks, telcos, technology firms, merchants and investors. Our weekly newsletters are the go-to source of news and analysis in the MFC industry.

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