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The Big Problem That Billion-Dollar Sharing Startups Still Need to Solve

An alleged kidnapping puts a negative spotlight on Uber and other startups powering the sharing economy.
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Overhyped valuations. Products and services that often aren't quite what they seem to be. A lack of transparency around pricing. Add kidnapping to the mix, and that's just the tip of the iceberg for sharing companies like Uber and Airbnb.

Yet the valuations of sharing companies keep getting bid up and up, with what seems like little regard for the customers using their products and services, and the local governments charged with regulating businesses in their jurisdictions.

The latest snafu: On Tuesday, news broke that an Uber driver in Los Angeles allegedly abducted an extremely inebriated female passenger and brought her to a hotel where he committed sexual assault.

While those details need to be clearly ascertainted, this latest tale of woe should serve as a word of warning to entrepreneurs who are thinking of staring a sharing business--plenty of safety kinks and legal issues still need to be worked out of these services.

In the meantime, so many companies have gotten in on the sharing act, it's hard to keep track of them, with spin-offs and spin-offs of the spin-offs, it seems like you can share everything except unused brain space.

This viral spiral for sharing businesses is taking place against strong pushback from cities such as  San Francisco and New York. Both metropolitan areas have said, for example, that short term rentals procured through Airbnb and VRBO are essentially against the law, as they cheat cities out of millions of dollars of tax revenues, but also because they aren't regulated the way hotels are, and could be fire traps or have other safety considerations about which hapless customers are not likely to be aware.

In 2013, New York State Attorney General Eric Schneiderman subpoenaed the records of a quarter of a million people who rented out space through Airbnb. In an Op-ed for the New York Times in April, Scheiderman did not mince words about such apartment sharing services:

In 2010, the state of New York passed a law confirming that short-stay rentals were generally illegal in apartment buildings, and for good reason: The longstanding distinction between hotels and apartment buildings protects the rights of building residents who didn’t choose to live 10 feet away from a parade of strangers. The law also protects tourists -; who are usually unfamiliar with the rooms and buildings where they are sleeping -; by imposing stiffer fire safety and building codes on hotels.

Airbnb “hosts” rent out apartments every day in violation of this law. Some of these are large, commercial enterprises with dozens of apartments -- truly illegal hotels.

As for Uber, and its direct competitor Lyft, they are already the subject of multiple lawsuits, claiming they operate as illegal taxi services, among other things. A recent legal challenge in Texas claims that the ride services are not equipped to deal with handicapped customers, and as a consequence they discriminate against such customers.

These considerations don’t' seem to be taming runaway valuations many sharing companies have received in recent months from the venture capital community. Uber announced Friday it had raised $1.2 billion, led by Fidelity Investments. The latest round of financing values Uber at around $17 billion. In May, Airbnb was reportedly close to closing half a billion dollars in financing from TPG Growth, which would value the company at $10 billion.

At least there's this bright side: The alleged Uber kidnapper did not take his victim to an Airbnb.

Last updated: Jun 4, 2014

JEREMY QUITTNER | Staff Writer | Staff Writer, Inc. and Inc.com

Jeremy Quittner is a staff writer for Inc. magazine and Inc.com. He previously covered technology for American Banker and entrepreneurship for BusinessWeek.




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