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Friday, May 29, 2020

End of the sharing economy? Airbnb and Uber are in trouble while battling hygiene issues

Until a few weeks ago, the so-called sharing economy seemed the future. Young people, the story tells, do not like to own things, preferring instead to rent everything from cars and bicycles to houses and holiday furniture.

In a pandemic, the problem with renting is that other people usually touched them first. Shared scooters and bicycles, which once seemed fun and convenient ways to get around, now look like disease carriers.

Shared economy businesses also depend on the ability to travel, or at least leave home, which has been made impossible for millions of people by social distance measures around the world.

Artists of the caliber of Airbnb and Uber have seen their business plummet during the epidemic. In several cities, real estate markets have been flooded with properties previously advertised on Airbnb, as tourism and business travel are dwindling. San Francisco-based car sharing app Getaround is reportedly looking for a cash-strapped buyer.

Last week Dara Khosrowshahi, Uber’s chief executive, said that taxi rides in Seattle, the original epicenter of the U.S. epidemic, decreased by as much as 70% and that she expected to see similar falls in major cities, including including New York and Los Angeles.

On the same call, he reassured investors that the company had sufficient reserves to continue, even though the runs dropped 80% globally – the company’s worst case scenario. “We are well positioned to overcome this crisis and emerge even stronger,” he said. But even if he’s right, other sharing economy companies are unlikely to be as solid.

Scooter companies Lime and Bird have almost completely stopped, having been forced to remove their vehicles from cities around the world in the midst of the pandemic. It is feared that the crisis may prove to be a particular point of no return for shared scooter companies, companies that have heavy and labor-intensive hardware that have always struggled to make profits.

Industry advocates insist that it is more robust than, for example, shared Uber rides, because it reduces human-to-human interaction. Yet the habit of distrust could be difficult to break.

James Gross, co-founder of Micromobility Industries, which provides support and networking for scooter and bicycle companies, says the shared model is clearly in trouble.

“You can see in the markets that there probably won’t be an incredible amount of money coming in the next six months.

“It is entirely conceivable that you will see companies go bankrupt if they do not change,” he warns. In order to survive, companies are trying to orient themselves to delivery, rent their idle vehicles to restaurants and shops to be used for takeaways or offer long-term leases to people without access to other forms of transportation during a block.

But the fear of high-touch surfaces can be felt even after the coronavirus pandemic is over.

Reilly Brennan, from the transport-focused venture capital firm, says that a challenge for companies is likely to convince users that their products are clean and safe.

“Much of the work and much of the investment over the past five years has gone into shared services – Uber, bicycles, other things,” he says.

“They won’t go back and use them the same way if they’re afraid of being dirty or catching a new virus.”

The crisis also paid more attention to the plight of workers in the gigantic economy and forced companies to make decisions that could have long-term effects on their business models.

Uber drivers protested the lack of sick leave and health insurance, leading the company to give up and offer anyone who had been diagnosed with Covid-19 or placed in an officially mandated quarantine two weeks’ pay, something that would have been unthinkable a few months ago.

Airbnb was forced to choose between helping guests or hosts. He decided to extend the reason for extenuating circumstances for cancellation to allow guests to cancel full refunds during the pandemic, to the dismay and anger of the guests.

While Uber and its US rival Lyft are likely to weather the initial coronavirus storm, the long-term economic impact could be formidable.

These companies do not exist in a vacuum and, for Uber, the independent restaurants on which it depends for its takeaway business seem particularly vulnerable.

“We believe the company’s profitability goals are clearly out of reach given the current pandemic,” says Wedbush Securities analyst Dan Ives.

Coronavirus may not mean an end to the sharing economy. But the idea that ownership is a thing of the past is a blow.

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