Tech disrupters do battle with regulators

At the beginning of 2016, the heady progress of Silicon Valley’s most high-profile start-ups seemed unstoppable.

In January, Uber was busy providing helicopter rides to the Sundance Film Festival and expanding its food delivery service across the United States.

Meanwhile, Airbnb dispatched its policy chief to woo US mayors with the promise of millions of dollars in additional tax revenues. Elsewhere, its co-founder made the rounds at the World Economic Forum in Davos, talking up the company’s growth in China.

But in the past 12 months, these two icons of disruptive tech have clashed again and again with courts and lawmakers, and found their businesses constrained by increasing regulation.

At Sundance, it was only a few days before authorities ordered Uber to suspend its helicopter rides; fights over permits and employment lawsuits have plagued the company this year.

Airbnb has not fared any better, as it has been fined in multiple countries and slammed with restrictive laws in major markets such as New York and Berlin.

No longer small start- ups, Uber and Airbnb have become household names with valuations of $68.5 billion and $30 billion, respectively — valuations that are higher than many of their traditional counterparts.

In 2016, regulators began to take note and reign in these emerging giants.

For the start-ups, the clashes have come at a time of awkward transition as the companies struggle to shed their rulebreaking habits and take a more mature, conciliatory tone.

Uber and Airbnb have also tried working more closely with regulators to craft policy, with mixed results.

“Regulators and lawmakers and states and localities are acknowledging that they can’t ignore them any more; they are too big, too powerful,” says Michael Drobac, a Washingtonbased tech lobbyist at law firm Akin Gump.

“Now, rather than having to insist on having a seat at the table, they are being invited to the table.”

Uber, under the guidance of David Plouffe, who was Barack Obama’s campaign manager, has worked hard to present a more grown-up image. In May, the company brought in a board of heavyweight policy advisers that included Neelie Kroes, the former European competition commissioner, and Ray LaHood, a former US secretary of transportation.

Chief Executive Travis Kalanick, known for his brash style, started adopting a more subdued tone.

“We haven’t done everything perfectly,” he told a conference in October. “We have made mistakes.”

Yet, the company has still clashed with city after city, showing that its brazen approach has not entirely disappeared.

In Austin, Uber pulled out after a voter referendum that demanded fingerprint checks for its drivers, a measure Uber refused to comply with.

In San Francisco, the group pushed ahead with testing selfdriving vehicles even though it lacked a permit to do so — and continued to run the tests even after receiving a cease- anddesist letter from the state.

In addition to these city-level skirmishes, the bigger longterm threat to Uber’s business model is the question of whether its drivers are independent contractors or employees. The company considers its drivers to be independent contractors, which means they do not receive benefits such as healthcare and are not guaranteed the minimum wage.

In April, Uber agreed to a payout of up to $ 100 million for drivers in California and Massachusetts, who argued they should be classified as employees, not contractors. That settlement was thrown out and is now under appeal.

In London, a ruling in October found that Uber drivers should be considered “workers,” entitled to a minimum wage and holiday pay. Uber is appealing the ruling, but the result is expected to encourage other Uber drivers to bring similar lawsuits.

In the US, many so- called sharing economy companies that rely on independent contractors could see their business models upended if courts determine that their workers should be treated as employees.

“Ultimately this issue is likely to go to the Supreme Court,” says Shannon Liss-Riordan, the lawyer who is spearheading the drivers’ case against Uber in California, referring to workers’ rights.

“The outcome there will hang in the balance of who is the next [Supreme Court] Justice.”

In contrast to Uber’s reputation for brazenness, Airbnb has tried to cultivate a goodguy image. For the past year it has poured resources into grassroots initiatives, setting up more than 100 Airbnb clubs for hosts and guests globally, in the hope these will grow into a political force to shape local regulation in its favor.

“They always had to be more careful than Uber, because Airbnb involves more trust and intimacy,” says Max Wolff, a strategist at 55 Capital who follows late-stage start-ups.

“A year or so ago, Airbnb got more of a feeling of invincibility,” he adds.

“They believed their popularity with hosts who needed the money, and guests who liked the experience, would help provide political momentum.”

But the regulatory setbacks have come thick and fast.

In October, New York passed a law that imposes heavy fines on short-term apartment rentals. Airbnb sued the state in response, arguing the law was unconstitutional, but settled the lawsuit in December. From Berlin to Barcelona to San Francisco, Airbnb has increasingly faced sanctions and restrictions on who can let their home and how often.

In response, the company has started to adjust its model in major markets, a tacit acknowledgment that it has too much to lose from doing battle with regulators.

In two of its largest markets, London and Amsterdam, Airbnb will begin blocking its hosts from letting homes for more nights than the legal limit this year, which will curb its revenue growth in those markets. In New York and San Francisco, the company has banned new hosts from having more than one listing, in an effort to limit commercial operators.