What is the Sharing Economy?

Instead of hailing a cab, you open an app on your smartphone. A car arrives within minutes and you’re off to your destination for the night.

Instead of a hotel, you arrive on a farm in rural, western Virginia, booked via a website. There’s a cabin with hardwood floors, a four-pronged bathtub and a queen-size bed where you sleep for the night.

Eight years after these services started in 2008, Airbnb and Uber are two of the largest marketplace platforms in the “sharing economy,” a form of peer-to-peer commerce that has enabled exchanges of goods and services directly between individuals, not corporations. PricewaterhouseCoopers estimates the sharing economy will generate $335 billion in revenue by 2025. Venture capitalists value Airbnb at more than $25 billion, making it the largest company in the lodging industry. And Uber is worth $62.5 billion, according to the New York Times, making it the world’s most valuable private start-up.

In Lexington and Rockbridge County, Airbnb is proving to be a formidable alternative accommodation, especially on busy weekends at the area’s three universities. And now, state and local governments are starting to consider regulations that might change the lodging landscape.

“The sharing economy will generate $335 billion in revenue by 2025.”

Uber is in cities and towns only 40 miles away, but it has yet to arrive in Lexington. Still, one Rockbridge County resident treks to Charlottesville on weekends to drive his own car and supplement his income.

On a smaller scale, local artists find sharing sites that allow them to reach customers around the world. And one local university invites residents to share bicycles.

What makes the Rockbridge County area’s sharing economy different? Interviews with local officials, property owners, artists, and economists shed light on the current state of the sharing economy and what it might mean for established businesses.

 

This map shows all of the Airbnb listings in Rockbridge County for the week of August 8-12

This map shows all of the Airbnb listings in Rockbridge County for the week of August 8-12.  The Rockbridge area includes over 100 listings.

This map shows the Uber availability in Western Virginia. The ridesharing app does not service the Rockbridge area.

This map shows the Uber availability in Western Virginia, but the ridesharing app does not service the Rockbridge area.

Airbnb’s Ascension

Mary and John Doyle moved to their Lexington residence at 432 Morningside Drive in 2001. The couple only needed to use the bottom floor, so, they rented out the top floor.

The Doyles first rented long-term to law students at Washington and Lee University. But five years ago, they entered the Lexington and Rockbridge County short-term rental market, a market that includes 21 inns and bed and breakfasts and 48 short-term rental properties, according to the Lexington Tourism and Development website.

The Doyles started renting their house short-term, which the city of Lexington considers fewer than 90 days, only a few times each year; big weekends for the town’s two colleges, Washington and Lee and Virginia Military Institute, are the most popular.

After renting long-term to students when they first bought their house, the Doyles said they find couples and families in the short-term rental market to be more enjoyable to work with, plus renting only on weekends puts less strain on the house’s infrastructure, like plumbing.

“Vacation money, I called it,” said Mary.

For the past two years, the Doyles have listed their property on Airbnb, a free-to-list marketplace for short-term lodging, with offerings as minimal as a space on a floor or as spacious as a 250-acre farm, such as the Heartstone Retreat and Lodge in Rockbridge County.

With a combined population of more than 30,000, the Rockbridge area contains more than 100 listings on Airbnb. The website, founded in 2008, contains more than 34,000 total listings in 190 countries.

The privately owned company, based in San Francisco, is valued at more than $25.5 billion as of June 2015, according to multiple financial publications. Airbnb’s revenue comes from booking and payment processing fees charged to guests and hosts, respectively.

The company’s valuation is higher than the current market caps of hotel giants Marriott and Hilton. But unlike those companies, Airbnb does not own any hotels, nor offer a multitude of brands. Airbnb’s nearest competitor in peer-to-peer accommodations is HomeAway, which acquired competitor VRBO.com in 2006. HomeAway, a publicly traded company, has a market capitalization of $3.4 billion.

While the Doyles list their one-bedroom top floor apartment on HomeAway and VRBO, Airbnb has accounted for 75 percent of their bookings in the past two years. They have also doubled the number of times their apartment is rented each year, from five or six to about 10 times per year.

Regulations on the rise

Mary and John Doyle list their one-bedroom apartment on Airbnb for $141 per night. The website has increased their bookings by 75 percent.

Mary and John Doyle list their one-bedroom apartment on Airbnb for $141 per night. The website has accounted for 75 percent of their bookings in the past two years.

As the Doyles and others have seen Airbnb drive business, state and local governments have taken notice.

The Virginia House of Delegates passed legislation in February regulating Airbnb on a 75-22 vote, but the State Senate tabled action until 2017.

The proposed legislation would supersede local governments’ laws and ordinances that are already or soon-to-be on the books.

According to Eric Terry, president of the Virginia Restaurant, Lodging and Travel Association, Airbnb is not playing by the same rules and regulations as the hotel industry, because not all Airbnbs are paying the same taxes as hotels.

“It’s not a level playing field,” he said.

He said there needs to be a stronger local influence in these regulations.

In Lexington, the city planning commission is revisiting its zoning ordinance for the first time in 20 years. The goal of this revision is to provide more clarity, said commissioner Matthew Tuchler, and that one of the community’s top concerns is Airbnb.

“A lot of people who have B&B’s and properties in town are concerned,” Tuchler said. “Airbnb is presumably a different model…it’s a big, significant issue that is right on the horizon.”

The zoning ordinance, which City Council must approve for it to be enforced, is how the city designates land for either commercial, residential or mixed use.

While Tuchler said that citizens might be concerned about strangers entering their neighborhoods, he is more concerned about infrastructure in Lexington’s existing residential areas.

“I don’t care about people that I don’t know coming in to town,” he said. “I do care if it has a significant impact on the residential structure we have in this town already.”

Under the current zoning ordinance, most of the city’s commercial business is restricted to areas along the city’s four main streets: Nelson and Washington, which run east-west, and Main and Jefferson, which run north and south, respectively, through Lexington’s historic district. A separate area along East Nelson Street is reserved for shopping center use, and includes Kroger, CVS Pharmacy, Advance Auto Parts and a variety of fast-food restaurants.

“We have residential areas and we have business areas that are equipped to manage certain expectations,” Tuchler said.

Lexington planning and development director Arne Glaeser said that commercial vs. residential use of Airbnb is a concern of the planning commission.

“There are concerns if you’re in a single family zone district and your neighbor rents out his or her house on short-term rentals; when does that become a commercial use?” Glaeser said.

The planning commission voted at its April 28th meeting to keep short-term rentals as a “by-right” usage, said Glaeser, meaning that individual homeowners keep the rights to use their properties as they see fit.

Tuchler, who lives on Myers Street in Lexington, said that traffic flow on tight streets in the town’s residential neighborhoods is also of concern to residents.

“It’s really tough to park on my street,” he said. “If you had Airbnb in this residential area and this Airbnb did very well and regularly had two or three tenants and they brought two, three cars on the street…that could create problems in terms of traffic flow.”

Antonia Albano, owner of the Heartstone Lodge and Retreat and the South River Highlands Country Retreat at the confluence of the Maury and South rivers, said residents’ concerns about Airbnb are unwarranted.

Along with the 250 acres in the county, which contains two farms and multiple log cabins, Albano owns 11 houses in Lexington, which she rents long-term to students, professors and other residents.

“We have found people coming through Airbnb to be incredibly respectful,” said Albano. “And so, I think [concerns] are unwarranted.”

In addition to following zoning regulations, property owners who list on Airbnb, or any of the other rental websites, must obtain a business license from the Lexington Commissioner of Revenue’s office.

Commissioner of Revenue Karen Roundy said she checks the Airbnb website each month to make sure residents listing there have obtained a business license.

“Anyone engaging in business has to have a business license,” Roundy said. “Normally people do not know that Airbnb must be licensed through the locality.”

Rockbridge County officials have not responded to three requests for comment on business licensing policies.

The Doyles paid $30 for their business license to lease their house on Morningside Drive, which means they are collecting up to $8,333 per year in gross receipts according to Lexington’s business license rates.

Their property is listed on Airbnb for $141 per night, and they must pay the 13.3 percent in lodging and sales taxes each year, which is a factor included in the price. The Doyles have their own insurance, plus $1 million in secondary coverage provided through Airbnb, and the city building inspector inspected their property when they originally applied for their business license.

Roundy said she has discovered 12 property owners since April 2015 who are listed on Airbnb but do not have a business license. Three of the owners stopped operations after they were contacted by the commissioner.

Roundy said that she has not had anyone continue operating without a business license after they were contacted by the commissioner’s office. She said that if anyone were to continue, her office would contact Airbnb to de-list the property. Airbnb’s website states that property owners, or hosts, must be in compliance with local rules and regulations, including payment of hospitality and lodging taxes.

Airbnb does not collect the tax itself; instead, hosts are responsible for self-reporting taxes. In Lexington, hosts must pay a 5.3 percent retail sales tax and eight percent transient occupancy tax, plus a tangible property tax on all property, including beds and furniture, in the space designated on Airbnb and other rental websites.

“If you’re going to be getting income and you’re going to be reporting it, the least you can do is pay the state, city and local taxes,” said Albano.

But in Lynchburg, a city of almost 80,000 to the east of Lexington, Airbnb is going relatively unregulated.

Lynchburg City Manager Kimball Payne said businesses earning less than $10,000 are not required to have a business license.

“You’d have to have a pretty active Airbnb to be earning more than $10,000,” Payne said.

Lynchburg City Council adopted a new zoning ordinance in February after a four-year process and the city’s first overhaul of the ordinance since 1978.

Payne said the new ordinance added flexibility to zoning and was easier to read.

“We’re much more open to mixed uses now, and to allowing residential and commercial and office developments to be mixed in together in certain areas,” he said.

With Airbnb, Payne said the city operates on a complaint-based system.

“I don’t go actively looking for Airbnbs or knowing exactly how many are out there in the city,” said Payne. (A search results in about 60 listings.)

Buena Vista’s director of economic development, Brian Brown, said the city has had to enforce its zoning ordinance which limits occupancy to four unrelated people per house. But, he said, the city does not require a business license to operate an Airbnb and only two Buena Vista properties are listed.

And in Charlottesville, only 30 percent of the listed Airbnbs are registered with the city, said Terry, with the Virginia Restaurants, Lodging and Travel Association.

Officials in both Lexington and Lynchburg said they oppose proposed state legislation to regulate Airbnb.

Payne said representatives from sharing economy companies like Airbnb and Uber are lobbying the state to avoid regulations like zoning and licensing that is controlled by municipalities.

“What they’ve gotten are some folks at the state level, the General Assembly, who have introduced new legislation that affects all the localities in Virginia with a pretty broad brush,” he said.

Roundy said the legislation could also affect tax appropriations, especially since Lexington is such a small area, and separate entity, of greater Rockbridge County.

Since the city and the county are in the same zip code, 24450, she said that if state legislation gives Airbnb’s tax collection control to the state, then then it could arguably send tax revenue to the wrong locality.

“I don’t want the county’s money,” she said. “It’s not right.”

But State Del. Chris Peace, R-Hanover, told the Richmond Times-Dispatch in February that tax collection run by the state will save localities money by reducing their workload. Meanwhile, Airbnb remains illegal in some Virginia localities, including the state capital, Richmond.

According to Airbnb, there are 4,100 hosts in the state of Virginia with average earnings of about $4,400 per year.

Roundy said that tourists staying at Airbnb’s will promote further business in Lexington, a sentiment that was echoed by city officials in Lynchburg.

“I think [Airbnb] is a good idea,” said Roundy. “I just hope we can regulate it in a way that’s happy with everyone.”

Etsy: Arts and Crafts On Demand

Brooklyn-based Etsy, founded in 2005, allows people to buy and sell arts, crafts and vintage goods without the expense of a middleman.

More than 1.5 million sellers actively used the site in 2015, attracting more than 24 million buyers.

Audrey Boobar of Lexington has been selling her artwork and crafts on Etsy since 2012.  She specializes in Christmas ornaments, which she tailors to the local Lexington colleges.

Boobar enjoys using Etsy more than traditional methods for artists, such as selling in a store or a gallery.  One advantage is Etsy’s pricing structure.

“A store normally wants to take 50 percent of whatever the price is, but Etsy is only like five percent, so you retain more,” Boobar said.

Boobar says that she uses social media to help promote her shop, something that Etsy encourages its sellers to do.

Unlike Uber and Airbnb, two giants in the sharing economy that are still privately owned, Etsy is a public company whose stock trades on NASDAQ.

The company went public in April 2015 and the price of its shares nearly doubled in its first day of trading, closing at $30.   But the stock has fallen steeply since then and now trades for about $8.50 a share.

In 2015, Etsy reported annual revenue of $273 million and a $54 million loss, but the company’s business could be moving toward the black.

On May 3, the company reported a 40 percent jump in revenue and its first quarterly profit since going public. And Etsy’s stock price jumped five percent.

 

Blue Bikes: When the sharing economy gets tested

The sharing economy arrived at Washington and Lee University in 2012 thanks to 1981 alumnus Jamie Small.

Small, who works in the energy industry in Midland, Texas, endowed the Blue Bike program with about a $15,000 grant, which provides 40 blue bikes that students and faculty can take from bike racks around campus, and then leave at their destinations for other students to use.

An additional 20 bikes are available for students and faculty to rent for free for up to a semester.

“I saw kids driving from Davidson Park to the parking deck,” Small said, “and I thought that was stupid.  Why not use a bike?”

Rolf Piranian, an associate physical education professor, retired men’s soccer coach, and alum of W&L, volunteers with the blue bike program, which is run by the university’s campus recreation organization, the Outing Club.

Washington and Lee University provides 60 "Blue Bikes," free bikes that are shared in the Lexington community.

Washington and Lee provides 60 “Blue Bikes,” free bikes that are shared within the university community.

“I’m a big bike believer, and when I was a sophomore at W&L I lived off campus and biked,” Piranian said, “I believe that bikes have an important role in society today.”

But, he said there are valid concerns about the abuse of the free program.

“I see the bikes all over town, and we get calls about picking them up in strange places, but they end up back here,” Piranian said.

Out of the initial 60 bikes, 55 still remain, and the endowed program might purchase replacement bikes before the start of the next school year, Piranian said.

The original 60 bikes came in parts, Piranian said, and it took the blue bike team, comprised mainly of volunteers and student workers, a couple of months to assemble them.

Piranian believes the W&L honor system has enabled the program to succeed; he doesn’t believe a free bike program would work at many other schools. The 40 shared blue bikes are not locked on racks.

Going forward, he said he hopes the program will expand and that blue bikers will take good care of the bikes.

“With the free bikes, we just hope people will use them in the community and treat them with respect,” Piranian said.

Our Sharing Economy Experience

Millennials, people born between 1981 and 2000, are expected to be familiar with all of the up-and-coming trends, especially those linked to the almighty smartphone. The sharing economy—and its many incarnations—fits this description. But when the three of us began our reporting on this project, the only sharing economy service we were familiar with was Uber. It’s the go-to ride service option for our generation, requiring us only to press a button on a screen rather than speaking to another human being. But throughout our reporting, we’ve become familiar with the broad scope of the sharing economy—not only the services contained within it, but also with common themes that define it.

The triple threat

Perhaps the most prominent link between the sharing economy and our generation is the way in which “renters” and “sharers” communicate. It’s not just text. It’s not just e-mail. It’s not just in-app messaging. It’s all three.

The way that we contacted our potential providers was through their services’ messaging apps. Their messaging features were the most convenient method of contact. But invariably, when you sign up for these services, you must submit an e-mail address, and a phone number.

In order to get enough Airbnb hosts for our story, we had to “play the odds” by contacting about 20 listed properties in hopes of getting a few of them to agree to show us their place on camera. And when they began responding, chaos ensued. Our smartphones were inundated with responses.

And it wasn’t just for Airbnb, it was for other sharing apps as well. Each response meant three “bings” and vibrations—one for a text, one for an e-mail, and one for an in-app message. Three notifications for one message. It became overwhelming and distracting at times, and was a constant reminder of the sharing economy’s strong ties to smart phones and millennials.

The sharing economy ignored

Ever heard of Meal Sharing, Turo or Spinlister? Neither had we, until we began our research for this project. And it doesn’t appear that they will be going mainstream any time soon.

We found listings for these three apps online. These sharing economy services sounded cool to us; we could have a meal at a stranger’s home for a low price, Turo would let you rent someone’s car for a day and Spinlister lets you borrow somebody’s bike. But our experiences with all three services underscores that sharing services require attention on both sides of the transaction. Sometimes people who create a service lose interest.

Perhaps Gavin Fox, business professor at Washington and Lee University, best describes why not all sharing economy efforts are successful.

“The reality of it is most of those apps probably are not really being checked.”

Patrick McCarron rents a Spinlister bike and takes it for a ride on the Roanoke River Greenway.

Patrick McCarron rents a Spinlister bike and takes it for a ride on the Roanoke River Greenway.

He might just be right. Let’s look at some numbers:

  • There were a total of four Meal Sharing listings in Rockbridge County’s cities and surrounding cities. None of them responded to our meal requests.
  • We requested a bike from nine “Spinlisters” in Harrisonburg and Roanoke. We received two replies—one from Aaron who graciously let us rent his bike, and one from “Jeff G.”:

“That sounds cool but I don’t have any bikes for rent. I set up Spinlister several years ago and honestly forgot about it because no one around here uses the service.”

  • We contacted three of the more affordable Turo listings in the same area, hoping to borrow a car. We got one response:

“I would normally be down, but this weekend happens to be my wedding weekend. I’m leaving this Thursday to go to DC. I won’t be back with my car until later this month. Sorry! I hope you find someone.”

We did, however, receive nearly a 100 percent response rate from Airbnb hosts.

A personal touch

Our hypothesis: the sharing economy is more than just a transaction; it’s personal. Trust is a major component on both sides. How do I really know that my Airbnb guest won’t trash the place? What if my Spinlister bike sharer gives me a bike with a broken chain?

Antonia spoke to us and showed us around her 250 acres of land for about three hours. Mary took interest in what we’d be doing after graduation and also told us all about her own son. Aaron appeared to have taken time off work to meet us at 1 p.m. on a Tuesday afternoon to lend us his bike. He even allowed us to reschedule, since it rained the first day we were supposed to rent the bike and Spinlister has a very strict cancellation policy on its website.

None of them had to do these things, but they all appeared to have cared about us and our project.

The sharing economy is expanding rapidly, with different services popping up constantly. It has been fascinating to study the phenomenon in rural, western Virginia, which we’ve learned is just a spec on the world sharing economy map. While we are used to seeing Uber in the cities that we come from, we are surprised at the apparent success of Airbnb. At same time, the local community uses services like free, shared blue bikes, which in our opinion, could not succeed outside Lexington.

We won’t be surprised, though, if when we return one day, we might just take an Uber to reach our Lexington destination.