In a recent report, the European Commission potentially gave a boost to the sharing economy in the region by announcing that countries should give the green light for businesses, like Airbnb and Uber, to prosper rather than face hefty fines and outright bans. Europe has taken a mixed approach to the “collaborative economy” but has benefited as an early participant of schemes like bike-sharing.
By issuing guidelines calling for European regulators not to ban companies in the sharing space, startups like Peerby (a Dutch peer-to-peer lending platform for household goods) can count on fewer roadblocks as they forecast future growth. In many ways, population-dense European countries are the perfect fit for sharing economy startups, which encourage people to maximize the value of underutilized assets, like homes or cars, by renting them out to others. But much like the U.S., the region has struggled to figure out how to regulate these businesses and balance the concerns of their competitors, many of whom are worried that the disruption caused by the sharing economy will put them out of business.
“In the end, the sharing economy will bring more benefits to [everyone],” says Peerby founder Daan Weddepohl, who is scheduled to speak at this week’s Wharton Global Forum in Amsterdam. “It’s a great way to unite people and move things around in a sustainable way.”
A ‘Regulatory Void’
In 2015, the gig economy generated total gross revenues of $31.7 billion, according to a European Commission report. The market could potentially be worth up to a whopping $644 billion. The European Commission report estimates that 900,000 people work in the gig economy. Wharton real estate professor Gilles Duranton notes that the sharing economy is “still a tiny part” of the overall market. “On the broad level, it’s a good thing. On a practical level, things are getting messy,” Duranton adds.
The European Commission report went on to clarify that sharing economy businesses should be treated differently from traditional businesses with employees and customers, which could impact the regulatory framework that sharing businesses fall under. The report suggests that European nations recognize three different distinctions — between employees and independent operators, between professional and occasional service providers, and between platforms that provide a core service and those that provide information and auxiliary services.
“Uber has been operating in a regulatory void and pushing as hard and fast as possible. When regulators wake up, it’s too late. It has been an effective strategy.” –Gilles Duranton
“In the U.S., as different firms like Uber, Lyft, and Airbnb have grown, they have butted up against different regulatory regimes,” notes Sarah Light, Wharton professor of legal studies and business ethics. Debate about classifying Uber or Lyft drivers as employees or independent contractors has been one issue that has come up repeatedly across the country, she adds. The European Commission report also sought to address the same issue. Classifying drivers as one or the other has implications for their degree of worker protection. Another lingering question is how insurance rules should apply to drivers and passengers in Uber and Lyft, and whether they require commercial insurance or licenses.
“Uber has been operating in a regulatory void and pushing as hard and fast as possible. When regulators wake up, it’s too late. It has been an effective strategy,” says Duranton.
As a whole, European cities and countries have been early adopters of bike-sharing schemes, but the region hasn’t seen as many large-scale sharing economy startups, adds Olivier Chatain, strategy and business policy professor at HEC business school in Paris and a senior fellow at Wharton’s Mack Institute for Innovation Management. “In general, U.S. companies have been much more aggressive in making [the sharing economy] a business and driving it in an evolutionary way to maximize the quality of these businesses,” Chatain notes. “To grow aggressively, you need venture capital, and [U.S. startups] have access to that, more than their European counterparts.”
Building off the model created by U.S.-based businesses like Uber and Airbnb, some European companies have come up with innovative pivots that fit well with denser regions where people don’t always own a car and live closer to their neighbors.
Started in the Netherlands in 2011, SnappCar is the second largest peer-to-peer car-sharing community in Europe. There are now 200,000 people using it in the Netherlands, Sweden and Denmark. So far, the company has raised $6.28 million, and half of the shareholders are users themselves.
Basically, the business model is based on borrowing your neighbor’s car, from a price range of $11 to $560. “The renter goes to the site, finds a car in the neighborhood. It can be any type of car. We have hundreds of models from small city cars, big station wagons, campers and Porsches. You do a rental request to the owner. The owner gets a request and can accept it. The owner is always in control and can always say ‘no,’” explains co-founder Pascal Ontijd, who will also be speaking at the Wharton Global Forum in Amsterdam.
“ZipCar has been in Amsterdam around 10 years and it’s paved the way for us,” adds Ontijd. With SnappCar, however, there is no annual membership fee. Also, Ontijd points out that the average rental period in Europe is lower than the U.S. “In the U.S., the average is five days, while in Europe, the average is 1.5 days,” he says.
“Ninety-five percent is really peer-to-peer lending in the neighborhood. It’s for people who want to earn money on the side. They like to meet people in the neighborhood and be part of a bigger movement to consume in a different manner,” says Ontijd. SnappCar members typically don’t rent out their cars as their main income stream, but like the idea of helping the environment by contributing less carbon dioxide gasses. Since 2011, SnappCar car owners have made $3.5 million. The company doesn’t disclose its revenues but the expected turnover for 2016 is expected to be more than $5.7 million.
“European cities are denser. In North America, you can’t easily dispense with a car,” Duranton says. “That means the market in North America for car sharing might be limited to five to 10 cities. In Europe, you might have 200 cities that you can get around in without a car.”
“In general, U.S. companies have been much more aggressive in making [the sharing economy] a business and driving it in an evolutionary way to maximize the quality of these businesses.” –Olivier Chatain
The density also helps people borrow or rent household items from neighbors. Peerby, the Dutch startup that allows people to search for things they need, like a hedge trimmer or a disco ball, has 250,000 users within communities in the Netherlands, major European cities and in the U.S., Weddepohl says, adding that there is close to $1 billion worth of products available on the platform.
Building a ‘Critical Mass Inventory’
Rachel Botsman, co-author with Roo Rogers of the book, What’s Mine is Yours, says that a “critical mass inventory” across categories at a hyperlocal level is vital to making these types of ventures work. Adds Wharton legal studies and business ethics professor Sarah Light: “Urban density creates conditions that will make the sharing economy work.… The benefit is that someone in the neighborhood can lend to you very quickly. If there’s no density, the likelihood of getting what you need will be lower.”
Peerby is a “business model that takes underutilized assets and puts them to use,” Weddepohl says. Also, he adds, “Sharing is a basic human principle.” He got the idea for Peerby when a fire in his apartment destroyed all his belongings and home in 2009. “I was basically forced to ask for help,” he said, and to his surprise, lots of people were willing to come forward. Previously, he founded a software company, which he later sold.
He adds, “The wide availability of mobile technology and connectivity makes it very easy to create these kind of sharing platforms.” It’s hard to say if such sharing ventures would have been successfully 20 years ago, Botsman notes. “[Technology] has created efficiencies for these markets to match ‘wants’ with ‘haves.’”
Mixed Acceptance in Europe
In Europe, businesses in the sharing economy have had a mixed reception, ranging from robust acceptance to outright bans. For example, London has embraced the sharing economy culture far more than Paris.
In fact, according to The Daily Telegraph, the U.K. is home to one in 10 of the global businesses in the sharing economy, more than the total of what’s sprouted up in France, Spain and Germany combined. The U.K. sector is expected to explode from $737 million to $13.3 billion by 2025.
In London, car-sharing has thrived. There are as many Uber drivers relying on GPS navigation as there are London black cabs with “professional” drivers who passed a rigorous licensing test, which required them to practically memorize all the narrow, one-way streets in the British capital.
In May 2015, London relaxed a 40-year-old law so that people can rent out their homes for three months or less, which opens up short-term rentals to tourists, according to The Evening Standard. Earlier this year, the British government also announced tax breaks for people making money in the sharing economy, making it the world’s first economy to give such tax breaks.
“Urban density creates conditions that will make the sharing economy work.” –Sarah Light
With a vibrant financial services sector, peer-to-peer lending startups like Crowdcube, Seeders and Funding Circle have done well in the U.K. JustPark, which lets people rent out space in driveways, raised $5.46 million in a record equity crowdfunding round in 2015.
Meanwhile, other countries in Europe have resisted the expansion of the sharing economy without more regulatory oversight.
Courts in Belgium, France, Germany, Italy and the Netherlands have declared it illegal to promote rides with unprofessional drivers. UberPop was created so that anyone with a driver’s license and a car could offer rides. The French criminal courts not only fined Uber but also two of its executives, according to Bloomberg. In Paris, taxi drivers have protested competition from Uber by chasing its cars with their passengers, burning tires and blocking roads.
However, Uber is still in operation as long as the drivers are registered. Duranton explains that “taxis have to pay a monthly repayment on the loan they had to take to purchase their ‘medallion,’ or taxi license. So when you pay 300,000 euros for a medallion in 2010 and you’re told in 2016 that this medallion is worth only half what you paid and may perhaps soon be worth zero, you’re still saddled for a couple thousands euros that you have repay every month and no taxi ‘rents’ that will help you reimburse this since the industry has become much more competitive.” Chatain adds that the Parisian taxi companies have had to innovate, and now they have their own app through which you can prepay and track your driver’s approach like Uber.
While Paris is one of the largest Airbnb markets, the mayor of Paris created a team of 20 agents to investigate illegal room sharing and levied hefty fines on 20 owners. To meet concerns about taxes, Airbnb has started collecting occupancy taxes in Paris. “If you own a hotel in Paris, you will be subject to regulations and taxes. With Airbnb, [the requirements] are far less. You need a level playing field,” says Duranton.
Amsterdam is another European country where Airbnb began collecting tourist taxes in February 2015 to comply with tax regulations.
In Berlin, you’re not allowed to rent an entire apartment on Airbnb without a city permit, as of May 1, in an effort to rein in rising rents. However, you can still rent out a room.
Under European rules, a landlord who rents out property year round would be categorized as a “trader” which requires licenses, liabilities and compliances as a business owner. In a Penn State study, people who rented out multiple homes account for 40% of the revenue on Airbnb, according to Bloomberg. In Europe where there’s a shortage of housing, governments are concerned that Airbnb hosts would shirk on taxes, safety and other regulations.
Weddepohl believes that the sharing economy is a “disruptive force bringing in a more efficient economic model. … Some governments are stopping it and others are encouraging it,” he says.