FTC Explores AirBnB and Role of 'Sharing Economy'

June 12, 2015

At the FTC’s Sharing Economy event this past Tuesday, representatives from AirBnB and the American Hotel & Lodging Association presented their claims on regulations, housing laws, and more for the future of the hotel industry.

David Hantman, the head of global public policy for AirBnB, argued that his firm is substantively different from hotel chains, and that they should partner in advancing the growth of the tourism industry. Hantman also claimed that AirBnB attracts travelers for longer periods of time and encourages increased spending for local businesses.

For those not familiar with AirBnB, it is an online marketplace platform connects travelers with various places to stay around the world. There are currently over one million listings worldwide on AirBnB from houses and apartments to villas and houseboats. Thus far, AirBnB has connected over 25 million guests in over 34,000 cities since its inception in August of 2008. The start-up company’s phenomenal growth has attracted significant media attention, but also serious investment interest from companies such as TPG, T. Rowe Price, Sequoia, and recently Fidelity Investments.

According to Hantman, “Now is the time government and industries can engage in best practices to boost economic advancement for businesses in their cities.” He pointed to similar steps taken by “San Jose, Amsterdam, Paris, London, and more to promote AirBnB travelers.”

Amsterdam has been a prime example of innovation, as the city continuously embraces new technologies and start-ups, as it showcased in the global cities expo in Washington, D.C. earlier this month. The city was among the first to establish agreements with AirBnB to combat illegal hotels and implement tourist taxes from hosts. AirBnB began collecting these city taxes in February 2015, and the city continues to benefit as over half of the properties available on AirBnB in the Netherlands are located in Amsterdam.

For all of its success, not everyone embraces the services AirBnB is bringing to market. At the same FTC event with David Hantman of Airbnb, Vanessa Sinders, senior vice president and department head of government affairs for the American Hotel & Lodging Association took direct aim at AirBnB's operations. On the same presentation panel as Mr. Hantman, Ms. Sinders stated, “AirBnB is making a substantial amount of money off of illegal hotels, and if you look like a hotel and act like a hotel you should be treated like one.”

In responding to Sinders’ comments on AirBnB and its classification as a hotel and complying with tax laws, Hantman pointed to AirBnB's rating system and background checks as its most important tool for self-regulation, as more than 90% of AirBnB hosts offer only their own home to guests. Hantman reiterated his company’s compliance with US tax laws by collecting taxpayer information from hosts so that a full accounting of their yearly earnings can be reported to the IRS through 1099 and 1042 forms. US cities have the potential to benefit immensely by working with AirBnB to solicit city taxes from hosts, and further prosper their respective cities.

AirBnB was given a $13 billion market valuation in October of 2014, but has since closed $1 billion in funding giving the company a $20 billion valuation, according to sources familiar with respective deals. This would put AirBnB just behind large-scale international hotel chains Hilton ($28 billion), and Marriott ($21 billion) and ahead of Wyndham ($10 billion) and Hyatt ($8 billion). For a company that has existed for less than seven years to not only be competing, but succeeding in a market against dominant hotel chains shows just how impactful the future of the shared economy could be.

Recent “sharing economy” start-ups such as AirBnB, Uber, and Lyft present new business models which claim to lessen the need for government regulation by invoking self-regulation practices. The market splash being made by AirBnB and others appears to be just the start of the rising “shared economy”, and could be paving the way for more start-ups to thrive in a new “shared” economic landscape.