You, me and P2P…Finale
Well here we are, the final blog in this series on P2P Commerce. When I started writing these blogs I only knew a little about P2P Commerce. I had used eBay and Uber but never thought too deep about how they worked and what impact they have worldwide. Over the past few blogs, I have gained a massive amount of knowledge about the business models they employ and how they operate in different marketplaces. To bring the journey full circle, I will write about the future of P2P Commerce (Does it have one???) and I will also have a look at how traditional businesses have changed and begun to fight back in order to regain lost market share and revenues.
Problems, problems, problems…
Uber has changed the market place for ride sharing since it entered it in 2009. From a small city based start, it is now available in 57 countries. However the honeymoon is over and Uber is facing multiple challenges worldwide. The success of Uber’s has sprung up rival companies such as Lyft and Sidecar Ride and it is also facing regulatory issues from local and federal governments worldwide. The biggest four challenges’ Uber faces in the next year are -
1, California v Uber. Drivers as independent contractors.
Uber defines its drivers as independent contractors but California Labor Commission has recently ruled against Ubers claims. Uber is appealing this ruling but if it goes against them it will rock their business model to the core. Uber calls itself a technology company as it just connects drivers and passengers. This is perfect for Uber as it doesn’t have to concern itself with employer-employee law and can concentrate on gaining entry to new markets. If the ruling goes against Uber they will have to pay minimum wage, social security taxes, unemployment insurance and workers compensation. The ruling has had a mixed response from drivers. Some like being independent contractors so they can work when they want, others welcome it. Whatever the outcome, it is the beginning of multiple court battles for Uber across the US.
2. Taxes. How do you tax Uber?
Uber by its stance as a technology company puts all the tax liability onto its drivers. Governments are fighting back against this stance. Depending on how this goes it could be bad for the customer. If Uber is found liable for tax than it could lead to an increase in fares or worse Uber being forced to withdraw from that particular market.
3. Truth of being an Uber driver.
· Uber sets the rates.
· Uber sets the performance targets. Uber requires its drivers to have a high rating, high ride acceptance rate (80–85%), low cancellation rate (5%) or they will be suspended from the system.
· Customers act as managers. Customers rate a driver after every ride on a scale of 1 to 5. In order to remain active a driver needs a rating around 4.6 out of 5. Passengers don’t know about this and may consider 4 out of 5 a good rating when in fact it is a fail.
· Uber suggests the schedule. When demand (customers) outstrips supply (drivers) the Uber “surge” pricing model kicks in. Drivers are alerted to surge zones and encouraged to start driving when they have stopped for the day or night.
4. International Expansion. Trouble everywhere.
Here is a map of where Uber has faced challenges globally –
It certainly is interesting times for Uber. From drivers’ issues, to local governments’ regulations, to trying to enter new markets., The year ahead sure will be a busy one.
Return of the Yellow
In the taxi business the fightback against Uber and Lyft has begun in earnest in San Diego. Anthony Palmeri the president of Yellow Cab in the city has made changes to his business operating model in order to regain lost customers from the ride sharing economy. In a B2B move he has installed yellow buttons in local hotels, hospitals and restaurants. Press it and a cab is sent to pick up a passenger. Going further he has developed the RideYellow app for the general public to replicate the button that business have access to. Extra features include requesting a taxi now or later and you can pay via the app or in cash. You can also track your driver just like Uber!!
This isn’t the most innovative part of the story. The biggest change has been the reduction in taxi rates. Prices have dropped from $2.80 base fare, $3 a mile and $24 an hour waiting time to $2 base fare, $2 per mile and $20 per hour idle time. Best of all there are no “surge” rates.
The hardest part of this change it winning the customer back when they have become accustomed to cheaper and faster from Uber and Lyft. In order to get customers trust back Palmeri is getting his drivers to open doors for passengers, stop talking on their phones during rides, speaking in foreign languages and offering complementary water and mints. He hopes these changes will start to bring customers back to traditional taxis.
Some drivers who had defected to Uber and Lyft following their passengers have now begun to make their way back to YellowCab as they can’t make a living on the low wages offered by the riding economy.
This is an example of an entrepreneur going back to his innovative roots and coming up with new ideas to win customers back. He has taken his lead from the ride sharing companies and adapted his business. The biggest step has been in the restructuring of prices. I think this type of idea is needed for taxi operators to win customers back. The majority of Uber users (me included) do so because it is cheaper than traditional taxies. If the taxi companies want to compete they have to slash prices to make themselves competitive with Uber.
Nowhere to go
Airbnb is facing an expansion problem. Locals are getting tired of being overrun by tourists. The idea behind Airbnb is to give someone the chance to visit another country and experience it as a local. The reality is the idea has worked a little too well. The number of Airbnb listings in Paris has gone up from 20,000 to 40,000 in the past few years. While it brings the tourist dollar to central Paris, the sheer volume of tourists is driving Parisians out of the city centre. They are getting fed up of tourists being everywhere.
Further expansion by Airbnb is running into problems with city governments as they are struggling to deal with the explosion of tourist accommodations. Airbnb in Lisbon has 72% of hosts showing one listing, but the 28% of hosts with more than one listing account for 66% of the company’s business in Lisbon.
A similar story is happening in Reykjavik where there are roughly 50,000 apartments; 2,551 of them, or 5%, are Airbnb units. Joshua Tree, California, a small town of 7,000 people has over 200 Airbnb rentals. Locals face difficulties in finding places to rent as they are being forced out of rental properties for the more profitable vacation visitors.
The erosion of goodwill in some cities is one of the biggest problems Airbnb faces as it tries to expand past 100 million user. Landlords are getting greedy and kicking out longer term renters in order to make way for short term higher grossing tourists. Airbnb is now liable in San Francisco if hosts do not register their listings with the city. These new law changes and the rise in the number of racist hosts are leading to a stagnation in its growth.
Where to now for Airbnb? The future may lie in business travel customers. Whisper it quietly, Airbnb doesn’t talk about it out loud but they have changed their website and quietly added listings for hotel and motel rooms.
Airbnb is the next in a list of P2P companies trying to break into the Chinese market. As Uber found before them China isn’t that easy to break into. The biggest issues they face are –
· Chinese imitators take aim.
When Airbnb launched in 2008, multiple imitators launched in China. As our reading on the Great Firewall of China showed, there are plenty of domestic copycat sites which offer similar information and services to the big worldwide ones. In China Xiaozhu.com and Tujia have had a big head start and nearly saturated the market but on the flip side they also have removed the obstacles to the market.
· Fish out of water. History has shown that most ventures into China run into problems due to not understanding the local market and the way it works. Adapting to the Chinese way of doing things will make or break Airbnb in China.
· Regulatory Risk. The short term rental area is still a grey area in China. Regulatory authorities have yet to provide answers regarding taxes, safety, and population management. As a foreign investor Airbnb may face challenges adapting to the Chinese regulations.
The fightback is on
The hotel industry has woken up and is beginning to fight back against Airbnb. While Airbnb hasn’t impacted hotels bottom line too much, it is the lack of regulation that worries big hotels. They want Airbnb to play by the same rules they have to. They are worried the growth of illegal hotels will undermine customer confidence in the industry as a whole. That and these hotels not paying taxes.
They are fighting back in three very different ways –
1. Funding Research. A recent study found nearly 30% ($378 million) of Airbnb’s revenue in 12 large US metropolitan areas came from “full-time operators,” with rentals available 360 days a year. These operators averaged over $140,000 in revenue. The hotel industry calls these illegal hotels. I do too!!
2. Courting Millennials. Going after Airbnb’s core customer the Millennial. The hotels are being technology forward with bigger TVs and better programming, an updated check-in process with social media displays, and “digital” keys available through a smartphone app.
3. Pushing for Regulation. The hotel industry want the professional Airbnb operators regulated, the ones with more than one listing and open 360 days a year. The mom and pop style Airbnb operators don’t worry them too much.
It is too early to say if these reforms will work for the hotel industry but the one thing it does, is give the customer more choice which can only be a good thing. I think the fight between Airbnb and illegal hotels can only be beneficial to the customer. Airbnb has made traditional hotels up their game and the ordinary customer is the winner here. To move forward the “illegal operators” need to be removed from Airbnb as they are doing more harm than good. As I described above cities are getting fed up with being overrun by tourists. They are facing opposition from the locals and the government. However things go with the government if they get a bad name with locals and lose their trust it will be next to impossible to regain it. Airbnb needs to go back to its roots and promote the spare room in an ordinary person’s house, not one room out of hundreds of listing by a faceless landlord. If they want to offer those type of rooms for profit they need to market them at the business market not the tourist one.
The future is not ours to see…
As I have discussed above the P2P players, Uber and Airbnb face an interesting year ahead. They face multiple issues on different fronts all over the world. Traditional players are waking up and introducing innovative changes in order to regain lost revenues. All this is good for everyone. The competition is good for the traditional players as it stops them from resting on their laurels and gets them to up the game. The changes being forced on the P2P companies is needed too. They have sprung up from nowhere and are operating in some grey arears which need to be resolved. The customer is the one winner from all this. P2P companies have changed the market and woken up the traditional players. Competition is good as it leads to better and cheaper services. Who knows what will happen in the next few years, but I will be an interested observer and user of the P2P and traditional companies whichever one gives me the customer the best overall deal.
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