Tuesday, May 9, 2017

What Food Trucks, Uber, and Airbnb have in common...

Consumer choice or unfair competition?

We recently rented a boat in Jacksonville on Airbnb.  We never left the dock, of course, it was just a place to stay for the night.  We got the idea when we heard about someone here on the island renting out a houseboat for $99 a night, which is pretty competitive with the hotels here, particularly in season.  And we thought it would be a fun way to try out boating again and see maybe if the bug bites us one more time.  You do sleep soundly on a gently rocking boat, to be sure.

At the same time, we were reading in the local "dirty paper" that they give away about complaints by local restaurateurs about food trucks.  A guy runs a middle-eastern restaurant selling falafel sandwiches for $7.99 to local lunchtime buyers.  Some dude in a food truck parks across the street, selling them for $5.99.  Is that fair?

Meanwhile, the hotel industry is hiring lobbyists to get new rules and regulations enacted to hobble the Airbnb industry as well as places like VRBO (Vacation Rental By Owner) as these free-lance operations are cutting into their bottom line.  They also want online booking places like Priceline and Expedia declared unfair monopolies, as these low-cost booking agents charge 20% fees to the hotels.  They are hoping to find a receptive ear in their fellow hotelier, Donald Trump, who like any good Republican, promises to slash regulations unless some high-paid lobbyist and deep-pocket constituency actually pushes for tighter regulations.   We'll see how that works out - big money versus political philosophies.  I wonder who will win?  Actually, I don't - I know.

This of course, is not dissimilar to what is happening in the taxi business, as taxi companies cry "foul!" over Uber and Lyft taking away their business.

In all three cases, "disruptors" in the marketplace with lower overhead are undercutting more traditional businesses.  And you could draw a fourth analogy between Amazon and Sears, or any other "brick and mortar" type of retail.

Who is right and who is wrong here?  It is hard to say.  As "consumers" we all love lower prices, right?  Why pay $200 a night for a hotel room, when you can rent a room (or a boat) for $99?  Why pay $50 for a taxi ride in a hoary old Crown Vic when you can pay $25 and ride in a new car?  Why pay $7.99 for a sandwich when you can pay $5.99 for the same thing?   Of course there are limitations.

The hotel industry argues that Airbnb type accommodations are sketchy and unsafe.  Where are the smoke detectors?  Fire escapes?  Who vets these people renting out these places?   Better to stay at a hotel where the maintenance man won't rape you!   Similarly, the taxi industry argues that freelance drivers are not properly vetted and there have been some "issues" in the past with Uber drivers.   Restaurateurs would argue that the "roach coach" might be serving unsafe food.

But the real deal is, of course, that these low-cost providers are indeed undercutting traditional businesses.  And in some instances, they do have a point.   How can you run a restaurant if someone is going to sell the same food across the street from a truck - parking in two of your customer's spaces?   For this reason, the number of food trucks and the locations they serve are often regulated by cities - specifically to serve areas where there are few traditional restaurants.  And for the same reasons, the taxi industry has long been regulated in terms of how many cabs can drive and who can drive them.   The "wild west" model of taxis was tried in the early part of the 20th Century and found to be lacking.

Similarly, some residents are getting a little pissed-off when their neighbor turns their house, or condo, or apartment, or boat into a hotel room.   The reason we have zoning is to prevent dissimilar and disruptive uses of properties from occurring.  You don't want to live next to a busy motel - or a rendering plant for that matter.

These "new" models of business, therefor, are often "disrupting" by simply ignoring very old laws already on the books.    Some of these businesses argue that they are not actually running the business but merely acting as a booking agent.  Uber says they just connect riders with drivers, and if anyone is illegally running a taxi business, it is the driver of the car.   Airbnb can make the same argument - they are not responsible for the actual rentals and whether they comply with local zoning and other regulations.   It is a nice smokescreen, but I doubt it will succeed in the long run.   Either municipalities will have to hassle individual homeowners and drivers, or they will go after these online "booking" agents - or both.

Of course, the flip side of the coin is that in some instances, the industries under attack have been too comfortable for too long - offering substandard services at obscenely high prices.  Traditional hotel pricing, for example, is just stupid.  The "rack rate" for many hotels can be close to four-figures, or at least enough for a car payment - for one night's stay.   But of course, they play so many games with different booking rates, room rates, customer loyalty programs, and of course, discount booking sites, that few people pay the actual stated rack rate but instead pay something less.   More transparent pricing and realistic pricing would prevent people from going to Priceline or other booking sites.   The hotel industry is, in effect, a victim of its own opaque policies.

Similarly, the taxi business is clearly overpriced and provides a shitty service.  Until Uber, taxi "medallions" in some cities were selling for a million dollars apiece.   A million dollar medallion, bolted to the hood of a $2000 clapped-out 450,000 mile Ford Crown Victoria, with vinyl seat covers and a headliner held in place with staples.   It simply didn't make any sense.  The taxi driver isn't getting rich from the deal, but the taxi owner is.  There clearly was a lot of profitable "headroom" in the business, but the owners of the medallions weren't about to part with any of it.  When New York City tried to enact new laws forcing medallion owners to buy new taxis of all the same make and model, the owners went to court and won - so we all have the treat of riding in cars that went out of production in the 1990's.  Meanwhile, Uber won't let you drive if your car is over five years old - even less in some jurisdictions.   Funny how that works.

Part of me has little sympathy for the airlines, the hotels, or the car rental agencies - they can all go to hell, as far as I'm concerned, although I own stock in some of them (they are making scandalous profits, to be sure!).   But as a customer, I feel I am being overcharged, or more precisely, I am not sure what I am paying is fair compared to others and no two of us seems to pay the same amount.  And your frequent guest or airline miles are a joke, of course. 

As for taxis, well, have you ever had a pleasant experience in oneHave you ever gotten into a cab  that was new, clean, and not some nest the driver lives in and reluctantly allows you to occupy as a favor?  Have you ever ridden in a cab where the driver spoke English - and if he did, shut the hell up instead of blathering on about his political opinions?   Hard to feel sorry for that industry as well.

Restaurants, on the other hand, have a hard life.  If you make it past the first year or so, and make money at it, you might succeed.  But most restaurants fail and bankrupt their owners.  Either no one likes the food, the vibe, the location, or the pricing.   It is a hard thing to hit all four, and few are able to do it.  And if you do hit this, it can evaporate in a fortnight when food styles change and neighborhoods move on.  The guy in the food truck just drives to where there are customers, and changes his menu.  Even if he fails, he doesn't have a lot invested (and he can sell the truck to some other sucker down the road).

Some places, like Austin, have food truck districts - but these are merely vacant lots with a dozen or more trailers parked on them, not so much "food trucks" as micro-restaurants in a designated lot.  And there is a saturation level effect at work - you can support only so many "street taco" trailers before people get tired of it and move on.

I am not sure what the answer is, only that traditional industries have often used government regulations as a means of creating barriers to entry in the business world, and that Republicans who claim to be "against regulations" are going against their deep-pocket constituents.  Who is going to contribute to your re-election campaign, the Marriott Corporation or Suzie's BnB?  Think about it.

And in some instances, barriers to entry are necessary in the business world.   If everybody decides they want to be in business X, the market would be quickly flooded with too many of such businesses, many of them thinly funded and producing substandard products.   This creates instability in the marketplace and also erodes consumer trust. 

All I can say is, I suspect these industries will not go quietly into the night.   If you think Uber is going to be allowed to flourish unfettered, think again.   And if you think they have the R&D budget to actually build autonomous taxis, also think again.  The tech crash of 2020 - it may take out some of these "distruptors" in the marketplace, if the GOP has its way.