This is an opinion piece written by Paavo Monkkonen and Nate Holmes of the Luskin School of Public Affairs at the University of California, Los Angeles.
For many travelers today, the best way to see a new city is to find an apartment in a hip residential neighborhood using the short-term home rental company Airbnb. The numbers bear this out: the San Francisco–based company is currently valued at $24 billion, and every month it sees steady growth in the number of hosts and visitors. But lately, Airbnb has come face to face with a serious threat: hostility from local governments. Last year, the New York attorney general declared most Airbnb listings in New York City illegal, and officials in Paris conducted raids of illegal Airbnb units. Some smaller cities are going even further, as evidenced by the Santa Monica City Council’s recent ban of all short-term rentals within the southern California city.
As Airbnb looks for ways to address this situation, one would do well to look a few miles northeast of Santa Monica toward Hollywood, where a similar drama played out in the music industry 15 years ago. Napster operated an upstart online platform that created problems for establishment media companies since it matched songs with consumers on the internet by cutting out record companies and other traditional gatekeepers. In the end, Napster’s success was cause for its downfall—the music industry unleashed an onslaught of litigation that crippled the company so profoundly that it is no longer a major player in the music business. The lesson here is that in circumventing the existing system, Napster ignored the possibility of collaboration with existing stakeholders in the industry; and had it chosen another path, things could be very different for the company today.
Airbnb finds itself in much the same position with respect to some city governments. In its rush to corner the home-sharing market, the company risks engendering a serious backlash in certain metropolitan contexts that threatens its business model. Although there is only mixed evidence as yet that Airbnb is either cutting into hotel taxes or pulling a significant number of housing units off the market, cities are understandably concerned about any possibility of lost revenue and the prospect of long-term rental units being taken off the market in neighborhoods where increasing the housing supply is not possible. Residents of many neighborhoods have their own worries about how a sudden increase in the amount of short-term rental properties affects the character of their neighborhood.
As tempting as it might be for Airbnb to charge ahead on its current path, perception matters, and a good lesson of this can be seen in a company that found success where Napster failed. A few years after the Napster showdown, Steve Jobs and Apple released iTunes, offering record companies a business model that charged for songs on a digital platform. Apple’s willingness to work with the music industry led to outstanding profits for the company in the 2000s, and such collaboration continues to infuse its approach to launching new products and services. When pop star Taylor Swift recently upbraided Apple for not compensating artists during a three-month trial period of its new streaming music service, Apple retreated almost instantly. This move says less about Swift’s star power and more about Apple’s deep concern for how it manages perceptions of fairness, and its sensitivity to all of its stakeholders’ needs.
There are many ways that Airbnb could heed these lessons when dealing with municipal governments and the residents they represent. Most cities operate on limited budgets, and Airbnb could start by paying the same taxes required of hotels. Airbnb could also work more proactively on its end to clamp down on owners who operate their rentals on a quasi-permanent basis throughout the year so that cities aren’t required to dip so heavily into their own coffers for policing oversight. More ambitiously, Airbnb can think creatively about spreading its chief benefit of additional tourism spending more broadly, perhaps by experimenting with lower fees for low-income neighborhoods and sponsored marketing programs to encourage tourism in these neighborhoods. Above all, Airbnb has to work harder to find ways to transition from its current perception as a “disruptor” to that of a partner that leverages its innovative platform to enhance cities for all residents, and not just for visitors and their hosts in the popular areas.
At a certain point, perception becomes reality. As it contemplates different relationships with cities, Airbnb would be wise to heed the example of Apple’s success working with established stakeholders. Otherwise, the upstart company may find itself known as the Napster of the short-term rental market.
Paavo Monkkonen is an assistant professor of urban planning at the Luskin School of Public Affairs at the University of California, Los Angeles (UCLA). Nate Holmes is a recent graduate of the urban planning program at the UCLA Luskin School of Public Affairs.