Business

How Uber, Airbnb and others are having an impact on SLO County's economy

Uber driver Ryan Perron ferries passenger Megan Hannon from Cal Poly to downtown San Luis Obispo on a Friday evening in 2015.
Uber driver Ryan Perron ferries passenger Megan Hannon from Cal Poly to downtown San Luis Obispo on a Friday evening in 2015. jjohnston@thetribunenews.com

Dion Coffman’s motor home has trekked down Alaskan roads. It has traveled by ferry, journeyed cross-country and housed cyclists along the route of the Amgen Tour of California.

Coffman himself did not go on these adventures. Rather, the Arroyo Grande resident rents his 40-foot Class A National RV through websites in a type of transaction that is the foundation of the new sharing economy.

Also dubbed the gig economy, collaborative economy and peer-to-peer economy, the global sharing economy involves the exchange of goods and services between individuals, predominately facilitated through websites and apps. Peer-to-peer transactions are commonplace in urban areas and are just beginning to make inroads in San Luis Obispo County.

The concept is nothing new. Professor Steve Hamilton, chair of the economics department at Cal Poly, said it is as old as the practice of going next door to borrow a cup of sugar. However, the term sharing economy “began to appear around 10 years ago with Napster and the rise of open-source software,” he said.

The Internet, which allows fast and easy sharing of software and music, is now facilitating the exchange of a host of goods and services. Anyone can use a computer or smartphone to rent a spare room through Airbnb, take a personalized city tour through Vayable, rent sporting goods through Spinlister or grab a ride through Uber or Lyft.

Although the concept of resource sharing may have its origins in free services such as music-sharing site Napster, the sharing economy is now big business. Rover, a site that connects people with local pet sitters, is backed by corporations like Petco and venture capital firms like Madrona and Foundry Group. San Francisco-based Uber’s value is believed to be approaching $50 billion.

The sharing economy has also been a boon to employment seekers, also known as “micro-entrepreneurs.” Ride-hailing platform Uber launched in San Luis Obispo last July (competitors Sidecar and Lyft do not yet operate within the county). Today, it has more than 300 drivers within the county and is actively recruiting more.

Drivers include “students, stay-at-home moms, teachers in summer, retirees, transitioning veterans and members of military families and many others,” according to Taylor Patterson, Uber communications lead Southwest.

Locally, the sharing economy has gotten a boost from tourists who are open to nontraditional options for lodging, transportation and more, said Chuck Davison, president and CEO of tourism marketing agency Visit San Luis Obispo County. “Consumers are using (sharing sites) in their home cities, and when they travel to SLO County, they expect to use them here as well,” he said.

This is good news for Coffman, whose motor home would otherwise sit idle for months at a time. He believes that the sharing economy is a win-win-win situation with positive effects that extend to the planet. “The sharing economy as a whole makes sense to me because it’s similar to a recycling program,” he said. “We are reducing our consumption of resources by reusing, or sharing, an asset.”

Giving income a lift

Ryan Perron owns two online businesses and also flips houses with an income stream that fluctuates — something he found hard to adjust to after leaving his full-time job as a project manager for a construction company five years ago.

The San Luis Obispo resident first discovered Uber when visiting friends last summer in the Bay Area, where public transportation is part of the lifestyle. “I didn’t understand the concept (of Uber) at all,” he said. “I asked our driver some questions and thought it was a really cool concept.”

After Uber came to San Luis Obispo County, he considered it an excellent opportunity to supplement his income. He put his 2014 silver BMW into service last November.

For Perron, flexibility is key.

“I can work as little or as much as I want,” he said. “When I’m on vacation or out of town for a trade show, I don’t have anybody calling or saying, ‘Hey, why aren’t you working?’ ”

Perron typically works 20 to 30 hours per week as an Uber driver, during which he averages $25 to $40 per hour after Uber takes its 20 percent cut. On busier nights, he makes as much as $80 an hour.

Another upside for Perron: not having to deal with the hassles of résumés, applications and interviews. Uber drivers undergo a background check and vehicle inspection, which took about two weeks for Perron. His training consisted of watching a video and taking an online quiz. Drivers receive payment within a week of starting work, and every week thereafter.

Perron believes that the ease of obtaining work fueled the growth of sharing sites during the recession.

“Jobs were hard to get, so people said, ‘Let’s create our own,’ ” he said.

As with any job, sharing economy gigs have their downsides. Although Perron is free to fire up his Uber app and accept assignments whenever he pleases, the busiest, and therefore, most lucrative times are between the inconvenient hours of 10 p.m. to 2 a.m. Friday and Saturday nights.

Though facilitated through a third party, sharing arrangements are still predicated on trust. This can leave both workers and consumers open to fraud, injury or just plain flakiness. Perron believes that much of this is avoided due to the two-way rating system employed by Uber and many other sharing sites. Both Uber drivers and passengers are able to post ratings that affect a person’s ability to find willing partners in the future.

Sharing economy workers are independent contractors, so they are responsible for many things that an employer would typically cover. They use their own equipment and resources. They forgo benefits such as sick leave, paid vacation days and health insurance. Independent contractors also pay self-employment tax, which is a share of payroll taxes traditionally paid by an employer.

Perron doesn’t consider this an obstacle. “Honestly, when I left my full-time job, I realized what a big lie benefits are,” he said. “I could get the same insurance through different avenues, and with all my business deductions, the tax savings is huge.”

For Coffman, high overhead is the biggest downside of renting his RV. “There’s always something to fix — most of it is minor,” he said.

Coffman, who charges $270 per night on his rentals, and pays up to 13 percent in commission fees to various websites, said that maintenance and storage costs make it “difficult to be profitable. We are satisfied with partially off-setting the cost of ownership,” he said.

Peer-to-peer companies are increasingly offering protection and perks for their contractors. Rover, for instance, offers emergency phone support, a veterinarian standing by 24/7 to answer questions and liability insurance. Uber also offers insurance and gives drivers gas discount cards when they attain a certain number of rides per month.

The earning potential of peer-to-peer jobs varies widely, and the availability of work can fluctuate. For Jenna Larson, a pet sitter through Rover, that is an acceptable price to pay.

The San Luis Obispo resident pet sits to supplement her $14 hourly wage as a full-time kennel attendant at Happy Tails Kennel. She has found clients through a number of avenues, including Craigslist, but she prefers Rover for its professional image, marketing and support.

Larson’s most common gig is housing animals overnight at her home. Frequently, these are the pets of tourists staying at non-pet-friendly hotels. For a single dog, that pays $30 per night — a price she set herself.

But there are also parts of the job Larson doesn’t get paid for. This includes managing her profile, fielding inquiries and preparing for jobs. She is not always able to get information such as feeding schedules and special needs through the system provided by Rover.

“I tend to meet clients in person at their homes in advance, but I do not get paid for that,” she said.

Before Rover takes its 15 percent cut, she makes $100 to $200 per month on average, and more than $500 during busier months, such as the holiday season.

“Honestly, Rover is not a huge part of my income,” she said. “But I like having my own schedule and making some extra income, even if it is not much.”

Benefits and risks

Consumers are turning to sharing sites for a variety of reasons, including competitive pricing and the personal connection a peer-to-peer transaction affords.

When Atascadero resident Liz Graves was planning a trip to New York City in 2013, she was stunned by the high price of hotel rooms, most of which were well over $200 per night. Then a friend turned her on to Airbnb, a website that facilitates short-term room and home rentals.

She ended up booking a full apartment for her and her mother for $150 per night, which included a cleaning fee.

Although she said the place “wasn’t as nice” as she’d hoped for, she was happy with the price, and with having the owner of the apartment as a resource in a strange city. “It was almost like having our own personal concierge,” she said. “You can email or text them anytime. They know the more eclectic things — the restaurants and attractions you wouldn’t normally pick up on as a tourist.”

Since then, Graves has used Airbnb twice more, each time gleaning valuable tips. She avoids Craigslist and lesser-known rental sites because she believes Airbnb is “very legitimate with lots of built-in security.”

She stressed the importance of reading descriptions carefully and skipping any arrangement where information is scanty. She always communicates extensively with the owner so that both can convey their expectations. And the point she stressed the most: “Make sure there are lots of good reviews.”

Perron believes that the review system is key to the success of platforms such as Uber. “I give a five-star experience. I keep the car nice, I’m always friendly,” he said. He believes the system motivates workers to offer a high level of customer service and provides a measure of security for everyone involved.

Leland Simpson is not so sure about that. Simpson started his Grover Beach cab company, 234 Taxi, 15 years ago with a single cab. Since then, he’s grown to 10 cabs and 20 drivers who work primarily within the city of San Luis Obispo.

He became aware of Uber two years ago but didn’t feel its impact until late last year. He estimates that his call volume has dropped 30 percent because of it.

“I’ve talked to other cab owners, and we’re all down about the same,” he said.

Simpson believes Uber is a “public safety risk” because it is not subject to the stringent regulatory process required of cab companies by the cities in which they operate.

New cab companies must apply to operate within the city, said Gamaliel Anguiano, transit manager for the city of San Luis Obispo. After an extensive study on the need level for their services, the San Luis Obispo City Council makes the decision on whether the company is allowed to operate.

If approved, the cab company must have its vehicles inspected by the Police Department, and re-inspected annually. All drivers are subject to a background check and Live Scan fingerprinting. If the city learns of public safety concerns, it investigates and may revoke the company’s license. The City Council also sets the maximum fare that the cab company can charge.

Anguiano explained that, because taxicab companies operate on public streets, city regulations are in place to offer the public some level of safety. When rideshare workers “circumvent these regulations, the city has no ability to offer those same assurances,” he said.

Simpson pointed out that rideshare drivers are largely untrained and unsupervised, while his drivers undergo at least a week of training, random drug testing and regular evaluations.

He believes that the relative anonymity of drivers makes ridesharing even riskier.

“People can see us from a block away,” he said. “When one of our drivers drives poorly, we hear about it.” This is a point that can be applied to many peer-to-peer arrangements, from room rentals to meal preparation.

Some customers have returned to cab use after becoming frustrated by Uber’s inconsistent pricing, Simpson said. Sometimes Uber offers a cost savings over its conventional counterparts and sometimes not.

According to an article on the Uber website, “when the supply of cars gets tight, we will raise the price in increments over time and conversely as supply opens up, we’ll lower the price.” Customers are notified on their app when this type of “surge pricing” is in effect.

Consequently, Simpson believes that the fascination with Uber will be short-lived. “It’s a fad,” he said.

Limits to growth

On a global scale, the sharing economy has seen rapid growth. Seattle-based Rover reports a 575 percent increase in year-over-year revenue. Uber recently took on its millionth driver and now operates in 58 countries and 313 cities worldwide — a number that continues to rise.

Locally, Uber launched Uber WINE in Paso Robles this May, a division tailored to wine tourists. The decision was made because “Paso is one of the largest AVAs (American Viticultural Areas) in the country, and transportation options are extremely limited,” said Patterson, the regional Uber spokesman.

Chuck Davison believes the potential for growth of the sharing economy is limited in San Luis Obispo County, “just because there’s not the number of people here, as there are in urban areas,” he said.

Still, he believes the phenomenon will be “on the rise here at least for several years.” The consolidation of some sharing platforms, as well as large companies like Expedia supporting the peer-to-peer business model, will “allow these companies to be more successful,” he said.

There are upsides and downsides to this trend locally. There are multiple benefits for the tourism industry, said Davison, including creating more options for travelers. “The more info we get out in front of the consumer, the better the chance they will make the decision to stay in SLO County,” he said.

It also may introduce the county to a younger demographic, as peer-to-peer transactions are more common among people aged 18 to 45, he noted. This creates competition for local businesses, such as hotels, cab companies and rental shops.

“Competition ultimately makes things better,” Davison said. “Maybe it causes a taxi company to rethink how they do business, how to be more competitive, and in the long run, it’s a great thing for the consumer.”

However, the playing field is not always level. Davison noted that a homeowner who rents a room through Airbnb, but avoids taxes and licensing, can charge less for his room, creating “an unfair advantage over those who have to charge more to make the same amount of money.”

Simpson is in a similar predicament. He noted that he pays around $1,500 per driver annually for various licenses and certifications.

“It was a yearlong process just for me to get a permit, and in less than that time, these guys have come and taken a huge part of my business,” he said. “How come I have to be certified and pay exorbitant fees, when the high school kid down the block can do the same thing I do and not conform to any regulations?”

Labor issues, burgeoning lawsuits and looming regulations will likely have an impact on the future of the sharing economy worldwide.

Locally, there is nothing yet in the works to regulate rideshare workers in the city of San Luis Obispo, according to Anguiano.

However, other regulations are already in place. Cooks through sites like Feastly, who prepare or store food at their homes, are required to obtain a health permit as a food service provider. Airbnb and other room rental platforms are subject to city and county regulations governing short-term rentals. And all independent contractors are required to have a business license and pay business tax.

But, ensuring compliance is no easy matter.

Davison noted that the San Luis Obispo County grand jury recently issued a report stating that the unpaid fees and taxes owed by vacation rentals operating without a business license could total as much as $1 million. Unlicensed vacation rentals not only sidestep payment of business tax but they also easily evade payment of transient occupancy tax (TOT) because they are not traceable. Such payment is required for hotels, motels, vacation rentals, bed-and-breakfasts and some RV parks. TOT funds go back to municipalities for community improvements.

This may soon change.

In June, the San Luis Obispo County Board of Supervisors established a new Tourism Marketing District that levies a 1 percent assessment on lodging properties, including vacation rentals, to use for tourism marketing through Visit San Luis Obispo County.

As part of the arrangement, Visit San Luis Obispo County is required to create a task force “to go out and start finding out what businesses are not in compliance (with business licensing requirements) and work with individual municipalities on how to get them into compliance,” said Davison. Once licensed, those businesses would also be required to pay their fair share of the TOT and Tourism Marketing District assessment, creating “more parity for all who participate,” he said.

Russ Lovell is one local entrepreneur who believes regulations will be the largest potential obstacle to the growth of the sharing economy.

“How will the necessary safeguards and taxes be implemented without killing innovation?” he asked.

Last year, Lovell partnered with several fellow RV enthusiasts to bootstrap the launch of RVPlusYou.com, a website that connects RV owners with potential renters. Unlike many RV rental arrangements, RV owners drive their vehicle to the site of the renter’s choice and set it up for them.

Lovell, who began his foray into the sharing economy as an Airbnb host, operates the limited liability corporation from his Nipomo home. Since last July, it has grown from “a handful of listings” to over 70 current listings, including Coffman’s.

The business is not yet profitable, said Lovell, “but we are beginning to gain traction and acceptance of the concept and investors are beginning to take notice.”

Despite the many potential challenges, Lovell believes the sharing economy will continue to thrive and fill a niche not satisfied by conventional business models.

“The need for extra income is there, and the assets are already in place, widely distributed and just waiting to be utilized,” he said. “We simply employ technology to make these existing assets work for their owners and benefit their peers, the public.”

Lovell hopes legislators will recognize these benefits and give sharing platforms the room they need to grow. “If government can give startups enough time to incubate and gain acceptance before overregulating and overtaxing,” he said, “the public will embrace entrepreneurship and the opportunity and freedom to earn, save and enjoy the benefits of peer-to-peer markets.”

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