Plenty of companies have raised billions of dollars by selling themselves as tech unicorns rather than firms in traditional businesses -- for example, taxi services or office rentals. Regulators have been a harder sell for such stories than investors. But now, a unicorn, Airbnb, has managed to establish in Europe that it’s a tech company, not a real estate agent.
The European Court of Justice has already had occasion to rule on the tech champion/disguised traditional business dilemma. In 2017, it decided that Uber Technologies is, despite its name, a taxi company. For Uber, this meant the end of its attempts to use drivers without taxi or limo licenses in Europe. It is regulated under European Union member states’ transportation rules, not e-commerce laws.
The ruling in the Airbnb case, which originated in France, went the opposite way: Airbnb was recognized as a legitimate electronic intermediary rather than the direct provider of a service. There are clear differences between the Uber and Airbnb business models that justify the seeming inconsistency.
A French hotel association wanted Airbnb regulated under a 1970 national law that requires real estate agents to obtain licenses, take out liability insurance and provide financial guarantees in case a client needs to be reimbursed -- or face fines and potential imprisonment. The law says it applies to everyone engaged in renting out properties, “even in an ancillary capacity.” But Airbnb argued that it’s subject to an EU law that should take precedence -- a 2015 directive that would classify what it does as an “information society service,” or, in plain language, a tech platform that merely tells hosts and travelers about each other, for a fee.
That argument didn’t work for Uber. The court decided that, without its help, the nonprofessional drivers “wouldn’t be led to provide transport services” and the riders wouldn’t use these services. That, in the ECJ’s opinion, makes Uber’s intermediation part of a broader transport service.
By contrast, the court argued on Thursday, Airbnb hosts and guests have plenty of other opportunities to find each other: “both have a number of other, sometimes long-standing, channels at their disposal, such as estate agents, classified advertisements, whether in paper or electronic format, or even property lettings websites.” That means the company’s services are not an indispensable part of the transaction.
From a lay point of view, the distinction doesn’t make much sense. Uber, after all, doesn’t provide an indispensable way for drivers to pick up passengers, either. Many of them receive orders through several platforms or in old-fashioned ways, by phone and through arrangements with hotels.
But here’s where the ECJ’s logic is harder to reject. Uber determines the price of the ride; Airbnb doesn’t set the rent. Uber sends an order to a specific driver; Airbnb merely provides a prospective guest with a list of properties. Uber, according to Thursday’s ruling, exercises “decisive influence” over the transaction. That’s not the case with Airbnb.
That’s quite a powerful argument. Airbnb’s hands-off role -- renters deal directly with hosts throughout the process -- makes it less than a real estate agent. It actually has a good reason to define itself as an information provider rather than a deal facilitator.
One can imagine what the Uber app would look like if the company operated like Airbnb. A rider would enter her location and destination and get a list of drivers with their fare bids and distances from the starting point. Then the rider would make her choice based on the combination of price and arrival speed. That would make Uber an information provider rather than a taxi service.
Instead, third-party aggregators, such as Bellhop Technologies and a few others, do that, creating lists of available ride shares -- but they are small firms because the actual service providers won’t allow users to actually book rides through the third-party comparison interfaces.
In a way, the difference pinpointed by the ECJ is also the reason Airbnb’s business model appears to be more sustainable than Uber’s or, say, that of The We Co., the fallen coworking space unicorn. Unlike Uber, it’s not weighed down by a large number of de facto employees who are increasingly hard to pass off as independent contractors, and unlike We, it doesn’t lease or rent out properties. All it does it provide intermediary tech -- and, according to its management, it’s actually profitable on an operating basis. That should make a difference for the company’s initial public offering, planned for next year.
Airbnb faces plenty of regulatory obstacles unrelated to its status as a relatively pure intermediary. City residents and governments worry about the proliferation of short-term rentals, which transforms neighborhoods in often disruptive ways, leads to overtourism and to large amounts of unpaid taxes. But these issues can be settled between the company, the cities and the hosts; they aren’t fundamental flaws in Airbnb’s business model.
Regulating innovative businesses isn’t easy. Kudos to the ECJ for approaching it with subtlety and what appears to be a genuine desire to figure out what these strange newcomers represent.
Leonid Bershidsky is Bloomberg Opinion’s Europe columnist. -- Ed.