It is no fun when the regulators and other rule-makers come to call — a reality that anyone who has worked long in financial services or any type of consumer-facing business knows pretty well. Rules and regulations are, in general, a good thing and regardless of the industry, more or less a cost of doing business. Even JPMorgan CEO Jamie Dimon reinforced that sentiment last week, saying that he won’t fight the regulators anymore, since it costs him either way.
But there are a handful of newbie firms that, despite being new, have become quite big. And thanks to the largesse of the VC community, are also extremely well-capitalized. And, whose take on business is new and novel, ones that existing rules and regs haven’t fully addressed. Those firms have all read the Uber playbook – and followed the “ask for forgiveness and not permission” axiom when it comes to putting their innovation in the market.
Which led to the recent struggles of Airbnb, the $25 billion startup that is seeking to disrupt the traditional hotel industry by letting any homeowner rent their space (or a room in it) out to anyone that is capable of paying online. And while this notion has been widely hailed as the greatest idea in short-term lodging since the complimentary wake-up call, in recent months local zoning boards have started to ask some questions.
For instance, not everyone wants to live next door to a bed and breakfast — particularly those that do not appear to have any long-term residents and instead exist as investment properties that cater to short-term tenants. Then, others have complained that services like Airbnb have squeezed already competitive rental markets to the point that it’s causing genuine housing shortages.
And all of that has caused a blowback nationwide, with towns and cities passing local ordinances to restrict how often and to whom locals can rent out their homes through platforms like Airbnb.
One such set of new limitations are right in the startup’s backyard, the city of San Francisco, which is considering Proposition F. Prop. F is a new ordinance that would limit the number of nights short-term rentals could have open per year to only 75. The city says it’s a necessary step to stem a growing housing crisis fed by landlords turning to higher-profit Airbnb listings as opposed to long-term rental agreements.
Surprise, surprise. Airbnb does not agree — and made its displeasure known, resulting in an outcome that can only and best be described as mixed.
So what happened, and why does it matter?
Airbnb obviously does not want Proposition F to pass. It says that it pays its taxes and a lot of them, so go away, and be happy with the dough that you are bringing in thanks to us. And, they decided to make that opinion known, in a way eerily similar to your mother’s reaction that time you told her you were thinking about getting a tattoo — that is if your mother had rented out the sides of your hometown’s city’s bus shelters for ads not to subtly expressing her displeasure.
“Dear Parking Enforcement,” one of the ads read, “Please use the $12 million in hotel taxes to feed all expired parking meters. Love, Airbnb.”
“Dear Board of Education,” read a billboard, “Please use some of the $12 million in hotel taxes to keep art in schools.”
“Dear SF Tax Collector” read the first half of one billboard “you know that $12 million in hotel taxes? Don’t spend it all in one place.”
“But if you do spend all $12 million one place,” continue another separate billboard, “we suggest burritos.”
And then there’s the one that drew the biggest reaction.
“Dear Public Library System, We hope you use some of the $12 million in hotel taxes to keep the library open later.”
Local professor Martha Kennedy did not find the ad charming so much as she found it obnoxious, and so she took to social media to say so.
“I’m happy to hear that you paid your taxes this year. I did too! Isn’t it awesome?” she wrote.
“I’ve crunched some numbers and I have some bad news for you. Out of your $12 milion of hotel tax, only 1.4 percent goes to the SF Public Libraries. So that’s $168,000. Divided by the 868 library staff, we have $193 per person. Assuming each employee works 5 days per week minus holidays, this is $0.78 per employee per day. Since that’s significantly under San Francisco minimum wage ($12.25/hr), I doubt that your hotel tax can keep the libraries open more than a minute or two later.”
“However, had you donated that $8 million you spent fighting Proposition F directly to the public libraries you love so much, that could have made a bigger difference. “
She also wished them better luck next time, noting hindsight is 20/20. From there the social media floodgate opened, and a tidal wave of wrath poured out — even from many self-identified Airbnb fans.
This after being called “passive-aggressive,” “sulky,” “snarky,” “smarmy” and “incredibly obnoxious.”
And so after a day, realizing that the people were less charmed by the ad campaign than had been the original intent, Airbnb agreed to take those ads down.
“The intent was to show the hotel tax contribution from our hosts and guests, which is roughly $1 million per month,” Christopher Nulty, the company’s spokesman, noted in a statement. “It was the wrong tone and we apologize to anyone who was offended. These ads are being taken down immediately.”
Airbnb also posted a message on Twitter on Thursday that said: “We apologize for Wednesday’s SF ads. They displayed poor judgment and do not live up to the values and humanity of our global community.”
Two weeks away from a vote that could determine how much penetration the service will have in one if its more popular destination cities is far from the best time for scandal, particularly one that manages to alienate even dedicated fans, as the recent tempest in a tea kettle in San Francisco demonstrated.
But the bigger issue Airbnb is facing, alongside other high-dollar startups like Uber and Lyft, is competing in a world where they are no longer under the radar and drawing big scrutiny from regulators.
The good news is that regulators so far by and large have been ineffective in enforcing much on either company.
Uber has built a reputation for forward-thinking boldness at least partially on the strength of its willingness to push past local ordinances and operate right through cease and desist orders – asking for forgiveness and not permission, something easier to finagle when millions and millions of users use and love them. And while zoning ordinance changes in various cities have tried to limit the number of short-term guests Airbnb is drawing into a residential neighborhood, those ordinances are hard to enforce if all the people within an Airbnb rental are otherwise law abiding. And, people really like using Airbnb services.
Police officers are not generally allowed to enter private homes just to make sure all local laws are being followed.
But unhappy neighbors and increased local scrutiny are things that both firms would just as soon avoid, as both make it more difficult to do the thing that each firm is trying to get done at this stage: grow and scale. Which means, as satisfying as it might have been to offer the corporate equivalent of “I pay your salary so button it” to the various municipal workers of San Francisco, it probably wasn’t the best way to deliver Fred Rogers’ classic line to the local residents.
“Will you be mine, will you be mine, won’t you be my neighbor?”
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